Nuvama initiates on Swiggy amid Rs 10,000 crore QIP announcement; check rating, target

Swiggy has emerged as one of India's leading hyperlocal delivery platforms, demonstrating a robust presence in both Food Delivery and Quick Commerce (Q-com), says the initiating coverage report by Nuvama Institutional Equities. Following a period marked by strategic errors, the company appears positioned for recovery, with Food Delivery now outpacing Zomato in growth and contributing to market share stability as well as a margin uptick.

Nuvama highlights that Swiggy’s Food Delivery business is now the primary driver of value, attributing this to Swiggy's superior operational scale and profitability. "In our SotP framework, we assign the bulk of value to the Food Delivery business given its superior scale and profitability profile."

Despite its early lead, Swiggy experienced setbacks between 2019 and 2024, losing its leadership position in Food Delivery and conceding ground in Q-com to Blinkit and Zepto. The latest data, however, indicates a turnaround. Swiggy's Food Delivery segment has now surpassed Zomato’s performance for four straight quarters while showing improved profitability. Adjusted EBITDA margin for Food Delivery improved from -0.2% in FY24 to 2% of Gross Order Value (GOV) in FY25.

Nuvama’s report also points out that Swiggy’s Quick Commerce arm, Instamart, is still trailing Blinkit in valuation and profitability. "Instamart has a lower implied valuation than Blinkit, reflecting execution gap and differences in scale and profitability."

Operational changes, such as hiring leaders with retail backgrounds, have supported stronger execution in Q-com. Instamart, which operates 1,102 dark stores, saw GOV growth exceed 100% post-IPO due to investments in store capacity and customer acquisition. Nevertheless, adjusted EBITDA loss widened to INR8-9bn, attributed to heavy investments and lower average order value (AOV) compared to competitors.

Nuvama Institutional Equities has initiated coverage on Swiggy with a ‘BUY’ recommendation, with an SotP-based TP of INR510."

Looking ahead, Nuvama expects Swiggy to continue narrowing its margin gap with Zomato. The brokerage says, "With scale benefits kicking in, we expect Swiggy to continue narrowing the margin gap with Zomato (3.9% of GOV in FY25). We reckon Food Delivery’s adjusted EBITDA shall deliver a ~54% CAGR over FY25–28E."

Swiggy’s financial position is further strengthened by approximately INR70bn in cash, including proceeds from the Rapido stake sale, and plans to raise up to INR100bn via a qualified institutional placement. In line with its sum-of-the-parts (SotP) valuation, Nuvama states, "We value Swiggy using SotP with a TP of INR510: i) Food Delivery at 40x Sep-27E EBITDA with a TP of INR300/share—~33% implied discount to Zomato; and ii) Q-com at 0.8x NOV Sep-27E with a TP of INR144/share—50% implied discount to Blinki."