Swiggy Gets ‘Neutral’ Rating From Motilal Oswal, Sets INR 475 As Target Price

Motilal Oswal, a brokerage firm, has began coverage on Swiggy with a ‘neutral’ rating, days after the company’s massive $1.3 billion public offering, claiming that the foodtech giant’s unified app approach will give it an advantage over its counterparts in the highly competitive food delivery and rapid commerce industries.

The firm has set a price objective of INR 475 for Swiggy, representing an almost 15% increase from the stock’s close on Tuesday.

Analysts at Motilal Oswal noted that Swiggy has lost its market leadership position to Zomato and Zepto, despite being a category pioneer in both food delivery and rapid commerce.

However, the brokerage believes Swiggy has the potential to be one of the top three companies in the quickly rising quick commerce market, which has changed how Indian customers purchase for a wide range of essential and non-essential commodities.

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Swiggy’s consolidated app offering, as opposed to Zomato’s multi-app approach, has increased cross-service usage and customer stickiness, according to Motilal Oswal.

While the concept of a super app has not taken off in India like it has in China, Swiggy is one of the few companies that have defied the trend, according to the brokerage.

“Swiggy stands out as India’s only unified app that seamlessly supports urban users’ food-related needs, from ordering in and dining out to cooking at home—all through a single platform,” claimed the company.

The firm noted that Swiggy’s food delivery business has achieved steady unit economics, and it anticipates margins to steadily grow from 6.4% to 9% by fiscal year 2027-28 (FY28).

Motilal Oswal analysts noted that previous to its initial public offering (IPO), Zomato’s meal delivery business had a contribution margin of -11.2% in FY20, which improved to 6.9% by FY24, owing to higher commission (platform fees) and lower variable expenses.

They expect Swiggy to follow a similar growth trajectory and increase profitability in the medium to long term.

Furthermore, Swiggy’s rapid commerce arm Instamart has a contribution margin of 3.2%, which is significantly lower than Blinkit’s 4%. The brokerage attributed the discrepancy to Swiggy Instarmart’s lower average order volumes (AOV) and take rates.

However, Instamart outperforms Blinkit in terms of mid- and last-mile variable expenses. “Swiggy’s unified platform should allow it to mine its customers better and extract higher AOVs for its Instamart business.”

“Further, it needs to monetise this platform better for ad-sales and other value-added services for FMCG brands,” the brokerage noted.

Motilal Oswal anticipates Swiggy’s meal delivery business to expand in gross order value (GOV) by 22.6%, 27.9%, and 19.4% year on year in FY25, FY26, and FY27, respectively. The brokerage also forecasts that the segment’s adjusted EBITDA margin will turn positive at roughly 1% by the end of FY25.

Meanwhile, the rapid commerce segment’s GOV is predicted to expand by 64.5%, 67.1%, and 56% in FY25, FY26, and FY27, respectively.

This comes just days after JM Financial launched coverage of Swiggy with a ‘buy’ rating and a price target of INR 470, claiming it is one of the fastest-growing consumer plays with “multiple levers to move towards sustainable margins”.

Swiggy made its stock market debut on November 13, with shares trading at an 8% premium on the NSE. The stock debuted at INR 420, compared to the IPO issue price of INR 390 per share.

Prosus, its largest stakeholder, sold shares worth more than $500 million in the IPO, netting more than three times the proceeds from the half stake sale.