Swiggy or Zomato: Which stock will deliver better returns to investors?

Although Swiggy is trailing Zomato in profitability and scale, analysts believe its market position and diverse revenue streams offer potential for long-term growth.

In Short

• Swiggy shares debut at Rs 420, exceeding market expectations
• Analysts weigh Swiggy’s growth prospects against competitor Zomato's efficiency
• Macquarie sets Swiggy target at Rs 325, potential up to Rs 700

Swiggy’s stock market debut has set off a fresh wave of interest in the food delivery sector. Shares opened at Rs 420 on the National Stock Exchange (NSE), marking a 7.6% premium over its issue price of Rs 390, and signaling a solid start despite cautious market sentiment.

At around 12:36 pm, shares of Swiggy were trading at around Rs 440 on the National Stock Exchange (NSE). For investors eyeing a long-term play, the choice between Swiggy and its competitor Zomato is now up for debate.

While the listing has generated some buzz, retail investors displayed restraint.

Gaurav Garg of Lemonn Markets Desk captured the cautious sentiment, saying, “Swiggy debuted at Rs 420, marking a listing gain of 7.6%, which outpaced its grey market premium (GMP) estimate of just 0.26%."

He noted that retail investors subscribed only 1.14 times, indicating “low confidence” as market conditions remain challenging, with many high-quality stocks still trading well below their peaks.

ZOMATO VS SWIGGY

For those seeking growth, Garg suggested a potential opportunity in Swiggy. “For those with a higher risk appetite, Swiggy could be an opportunity to capitalise on the valuation gap between Zomato and Swiggy, with potential gains hinging on Swiggy’s ability to enhance operational efficiency over time,” he added.

Analysts at Macquarie offered a balanced view on Swiggy, acknowledging both its growth prospects and challenges.

"Despite a strong potential growth runway and an improving margin profile, we believe Swiggy still has a long and winding road to profitability,” the brokerage stated in a research note, adding that, while Zomato remains the more efficient operator, “we prefer Swiggy over Zomato” based on what is currently priced in the shares.

Macquarie initiated coverage with an “underperform” rating for Swiggy, assigning a target price of Rs 325 per share but outlining a “blue-sky” potential to reach Rs 700 if Instamart's unit economics improve.

JM Financial, on the other hand, advised investors to lean toward Zomato for short- to medium-term growth. “Given its superior execution in the past and market leadership across key segments,” JM analysts wrote, “we recommend investing in both these counters with a higher weighting for Zomato.”

JM Financial assigned a target price of Rs 470 for Swiggy, using a multiples-based SOTP valuation that factors in expected segment performance.

For those considering Swiggy’s future growth, Prashanth Tapse of Mehta Equities Ltd sees promise despite the stock’s volatility. "Positive listing and price holding above its issue price of Rs 390 should be seen as strong demand for the company,” he observed, suggesting that the “fear of missing out” may drive investors to embrace Swiggy’s growth potential.

Tapse advised allocated investors to "hold for the long term," while non-allotted investors could watch for dips before entering near the issue price.

From a market perspective, Swiggy remains India's second-largest food delivery and quick-commerce platform, serving 47 million annual transacting customers and boasting a B2B distribution vertical alongside its Swiggy One membership program.

Although Swiggy is trailing Zomato in profitability and scale, analysts believe its market position and diverse revenue streams offer potential for long-term growth.

In the end, both Swiggy and Zomato appear to offer avenues for growth. While Macquarie and JM Financial differ in their assessments, the shared takeaway is that Swiggy’s trajectory will depend heavily on operational efficiency and profitability.

As Tarun Singh, MD of Highbrow Securities, put it, “Swiggy’s sectoral opportunity, its market share, and readiness are undeniable,” but advised long-term investors to “await an opportune time” for any accumulation, especially as the stock's performance unfolds over the next few quarters.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)