 "Swiggy vs Zomato: Which is better investment bet? Morgan Stanley weighs in")
With Swiggy recently getting approval from markets regulator Securities and Exchange Board of India (Sebi) for its initial public offer (IPO), investors are curious to know if they should park their money in Swiggy's unlisted shares, or go for Zomato' listed shares, which have climbed 138.3 per cent since its listing on July 22, 2021.
Global brokerage firm Morgan Stanley has made some comparisons between the key business segments of Zomato, and its direct competitor Swiggy.
As per its analysis, Swiggy lags behind Zomato in some key segments, including food delivery and quick commerce, where it has grown slowly in the past.
Food delivery business
Even though Swiggy's unit economics are improving, it lags behind Zomato on contribution margins and adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) due to lower scale, Morgan Stanley stated in its report.
"Swiggy's adjusted Ebitda margins as percentage of gross order value (GOV) in 1QF25 was at 0.8 per cent against Zomato's 3.4 per cent," Morgan Stanley noted.
Even though Swiggy's GOV for FY24 (at Rs 24,700 crore) is lower than Zomato's (at Rs 32,200 crore), its take rates (gross revenue/GOV) are slightly ahead, the note added.
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Take rate is the commission the company charges customers and restaurants for facilitating an order.
Meanwhile, the average order values (AOVs) for both the new-age companies are largely similar, the brokerage firm noted.
Further, Swiggy's monthly transacting users (MTUs) are 31 per cent lower than Zomato, due to higher frequency. As of FY24, Swiggy's MTU stood at 12.7 million, compared to Zomato's MTU at 18.4 million.
However, Swiggy's GOV per MTU is still ahead of Zomato, but the gap has narrowed, the report added.
Quick commerce biz quickens
In the quick commerce segment, Swiggy's AOV is significantly lower than Zomato's Blinkit and this is reflected in the unlisted company's lower GOV per MTU metric.
"Swiggy was present in 32 cities for Quick Commerce services as of Q1F25. Based on reported GOV metrics, Zomato's relative market share is 64 per cent in 1QF25 against 61 per cent in FY24," the report read.
Further, Swiggy Instamart's blended take rates, gross revenues divided by GOV, was 15 per cent in Q1FY25, 400 bps lower than Zomato's Blinkit. Meanwhile, Swiggy's contribution margins stood at negative 3.2 per cent, compared to Blinkit's 4.2 per cent contribution margins in Q1FY25.
The brokerage firm believes the difference in AOV and take rates for both the companies is going to be the key drivers between their margin difference.
"Adjusted Ebitda loss in Q1F25 for Swiggy was at -11.7 per cent against Blinkit -0.1 per cent (almost break even). Swiggy's active dark store count as of 1QF25 was 557 vs 639 for Blinkit," the report said.
Where's Dine Out?
Even in the dine-out segment, Zomato is ahead of Swiggy. Zomato had a GOV of 0.8 per cent, compared to a negative GOV of 2 per cent for Swiggy.
Morgan Stanley believes investors will see both positives and negatives for Zomato, going forward. On the negative side, if Swiggy were to use its potential new capital to focus on gaining market share, it could mean increased competition for Zomato.
However, if Swiggy were to focus on growing profitability in a more mature business segment of food delivery (steady improvement in margins) with incremental capital deployed in fast-growing Quick Commerce market, then that would be in line with the market expectations for Zomato.