JM Financial reiterates 'buy' on Swiggy, Eternal shares; what is says

Domestic brokerage firms JM Financial has remain positive on Swiggy and Eternal as it believes that quick commerce (QC) platforms are focusing on high-value SKU purchases to enhance their average order values (AOVs). A recent study revealed that platforms offer 2-3x discounts on SKUs priced above Rs 200 compared to those priced below this threshold. This trend is a strategic move to encourage consumers to opt for higher-value items, thereby increasing the overall revenue per order.

Jiomart has emerged as the most aggressive platform in terms of discounting, leading others such as BB Now, Instamart, and Blinkit. Despite being the most aggressive, Jiomart lags behind in product assortment compared to Blinkit, which leads in most cities. This indicates a varied strategy where Jiomart focuses on price competitiveness, while Blinkit emphasizes a wider selection.

An important trend noted is the strategic shift towards monetising customers through various service fees. Except for Jiomart, platforms now charge fees such as delivery and convenience, which differ across platforms. This strategy not only improves take-rates but also enhances margins, helping platforms to offset discounting costs. 

The study indicates that QC platforms are striving to rationalise discounting and boost unit economics. This approach has resulted in Adjusted EBITDA losses peaking for Blinkit and Instamart in Q4FY25, implying a potential rerating of these businesses. The focus on financial sustainability is crucial as these platforms aim to achieve profitability.

JM Financial reiterates its 'Buy' rating on Eternal and Swiggy, based on these positive financial trends and market behaviours. The brokerage believes these developments are pivotal for future growth, as they indicate a strong potential for improved financial performance and market positioning. JM has a target price of Rs 280 on Eternal Ltd, while it pegs Swiggy Ltd value at Rs 450 per share.

Within the top three QC platforms, Instamart and Blinkit are noted for their aggressive discounting strategies, whereas Zepto offers minimal discounts. This variation highlights differing market strategies among key players, with some focusing on volume and others on value.

New capacity addition trends, particularly concerning dark stores and warehousing, are expected to moderate for both Blinkit and Instamart. This moderation is anticipated to further improve their financial positions by reducing capital expenditure and focusing on optimizing existing resources.

The study suggests that the focus on higher-value SKUs not only boosts per-order revenue but offers operating leverage benefits. This is crucial as it aligns with brands' preferences for high-value sales, which typically result in better margins and customer loyalty.

JM Financial's analysis indicates that the strategic adjustments made by QC platforms are likely to enhance their operational efficiency and financial health, supporting the 'Buy' recommendation for Eternal and Swiggy. The expectation is that these platforms will continue to evolve, with a focus on improving their unit economics, leading to potential business reratings in the near future.

The expectation is that these platforms will continue to evolve, with a focus on improving their unit economics, leading to potential business reratings in the near future. This evolution is expected to create a more competitive market landscape, benefiting both consumers and investors.