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Swiggy IPO vs Zomato: Which Investment Opportunity is More Promising Right Now?

Swiggy’s IPO: A Game-Changer in the Food Delivery Arena

In a move that has captured the attention of investors and market analysts alike, Swiggy has launched its much-anticipated public offer, aiming to raise a staggering Rs 11,300 crore. This strategic initiative sets the stage for a fierce showdown with its primary rival, Zomato, as both companies vie for dominance in the rapidly expanding food delivery and quick commerce market in India. As they compete for investor interest, the question arises: which company presents a more compelling investment opportunity?

The Competitive Landscape

The online food delivery industry in India is on the cusp of significant growth, projected to expand at a compound annual growth rate (CAGR) of 20% from 2023 to 2028. User growth is expected to increase by 8-10%, indicating a robust market potential. Within this landscape, quick commerce is emerging as a key player, particularly in the grocery segment, which is anticipated to capture a 60% market share. Currently, quick commerce accounts for a mere 0.3% of India’s retail market, but it is poised for explosive growth, with estimates suggesting a potential rise to 2-3% driven by an annual growth rate of 60-80%.

Zomato currently leads the Indian online food delivery sector with a commanding market share of approximately 58%. It also holds a significant stake of 40-45% in the quick commerce space. Despite facing skepticism over high valuations and persistent losses, Zomato has successfully navigated a financial turnaround, posting four consecutive profitable quarters and achieving positive EBITDA in its quick commerce arm, Blinkit. This resurgence has led to a remarkable 120% rise in its stock this year, reflecting strong investor confidence.

Swiggy’s IPO: Aiming for Recovery

In contrast, Swiggy’s IPO represents a critical juncture for the company, which has been grappling with losses, reporting a staggering Rs 2,350 crore loss in FY24. However, analysts believe that the funds raised from the IPO will enable Swiggy to close the valuation and profitability gap with Zomato. By reducing promotional and advertising expenditures, Swiggy aims to achieve EBITDA positivity in the near term.

Atish Matlawala, a senior fundamental analyst at SSJ Finance & Securities, notes, "If we look back, post-IPO, Zomato quickly shifted its focus on improving profitability, which has paid off well. We expect Swiggy to do the same." The post-IPO funds will bolster Swiggy’s balance sheet, allowing for expansion and the establishment of a Dark Store network for its quick commerce segment. Prashanth Tapse of Mehta Equities emphasizes that this could provide Swiggy with an additional lever for accelerated growth in its competition with Zomato.

Market Dynamics and Future Prospects

Despite Zomato’s current lead, the addressable market for both companies remains the same, with similar growth triggers. Zomato has effectively tested the market, creating a platform that Swiggy can leverage to enhance its performance. While Zomato may have the upper hand in operational metrics due to its experience, Swiggy’s influx of IPO capital could enable it to adapt quickly and improve its performance metrics to align with market trends.

As both companies continue to evolve, analysts suggest that investors should consider diversifying their portfolios to include both Swiggy and Zomato. The duopoly market presents a high-growth outlook, and both companies are likely to achieve healthy profitability in the future. Tapse notes, "Swiggy can be a notch better as the IPO offer is on a meaningful discount to Zomato, which can be a thought before investing in this IPO."

Investment Considerations

When it comes to choosing between Swiggy and Zomato, analysts recommend a balanced approach. Matlawala asserts that Zomato serves as a benchmark for evaluating food aggregator businesses, and investors will closely scrutinize the performance metrics of both companies. Tapse suggests a strategic allocation of funds, stating, "If you ask me to choose one investment between Swiggy IPO and Zomato currently, I would allocate 70% of my funds towards Swiggy, as the fresh IPO money can bring in better operating metrics, and the remaining 30% into Zomato, which has already proven its strength and is growing better and faster than the sector."

Conclusion

As Swiggy embarks on its IPO journey, the competitive dynamics with Zomato are set to intensify. With the food delivery and quick commerce market poised for significant growth, both companies are well-positioned to capitalize on emerging opportunities. Investors are encouraged to keep a close eye on the evolving landscape, as the choices made today could shape the future of food delivery in India. Whether one opts for the established player in Zomato or the promising newcomer in Swiggy, the potential for growth in this sector remains undeniable.

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