CLSA says Zomato is growing faster than Swiggy, sees 25% upside

In terms of revenue, Swiggy's Y-o-Y growth of 24 per cent also fell short of Zomato's adjusted revenue growth of 55.9 per cent Y-o-Y

CLSA on Zomato: CLSA, an international brokerage firm, projects that Zomato, a food delivery giant, will outpace Swiggy in growth across several metrics. As a result, CLSA analysts have set a target price of Rs 248, reflecting a potential increase of 24.7 per cent.

“Our target price is based on a 50/50 blend between discounted cash flow (DCF) and relative price to earnings (PE) valuations, reflecting Zomato’s long-term growth and short-term momentum. For the PE portion, we value Zomato's food delivery business using a 41x target multiple applied to March 2026CL earnings per share (EPS). This represents a 30 per cent discount to our 58x quick-service restaurant (QSR) coverage universe, which is based on Jubilant’s last 10-year average multiple,” CLSA said in a note

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According to Prosus' annual report for FY24, Swiggy's combined gross order value (GOV) for food delivery and quick-commerce increased 26 per cent year-on-year (YoY), trailing Zomato's growth of 31 per cent over the same period. 

In terms of revenue, Swiggy's Y-o-Y growth of 24 per cent also fell short of Zomato's adjusted revenue growth of 35 per cent Y-o-Y. 

Regarding food delivery specifically, analysts noted that Swiggy's core food delivery GOV achieved double-digit growth in FY24, whereas Zomato's food delivery GOV grew 19 per cent Y-o-Y.

“If we assume a 10 per cent/20 per cent GOV growth for Swiggy’s food delivery GOV, it would be 74 per cent/80 per cent of Zomato’s food delivery GOV for Jan-Dec 2023,” CLSA analysts said in a note.

Analysts further said that Swiggy employed 387,000 active delivery partners as of Decemebr 2023, whereas Zomato had 419,000 during the same period. Additionally, Swiggy Instamart operated 487 active dark stores, while Blinkit managed 526.

Consequently, CLSA values Blinkit at a 30 per cent discount compared to its 67x multiple used for DMart. This adjustment reflects analysts' belief that Blinkit's profitability and business model stability are not on par with DMart's, justifying the discount.

“For our target price’s other half, we base our DCF on 25 years of explicit forecasts to better model the growth opportunity for consumption in India, as we believe low penetration levels, rising incomes and a young population offer a long runway for sales growth. We discount our cashflow assumptions at a WACC of 14.4 per cent and use a 4 per cent terminal growth rate beyond our explicit forecasts,” CLSA said in a note.

That said, CLSA analysts highlighted several investment risks, including subdued urban consumer sentiment potentially limiting growth, intense competition in the market, and stringent regulatory measures. Another major risk identified, analysts said, is the potential impact on take rates due to widespread consumer adoption of the Oopen Network for Digital Commerce (ONDC) network.

At 10:55 AM, shares of Zomato were trading 1.68 per cent higher at Rs 202.20 per share. By compariosn, BSE Sesex was trading 0.34 per cent higher at 77,601.30.