Morgan Stanley initiates Swiggy stock with overweight rating

Morgan Stanley initiated coverage on Swiggy (SWIGGY:IN) with an Overweight rating and a price target of INR405.00, citing strong growth potential in food delivery and quick commerce; forecasts include a 15.8% CAGR for food delivery (FY25-28) and a 63% CAGR for quick commerce gross order value over the same period. While projecting Swiggy to achieve a 4.8% adjusted EBITDA margin in food delivery by FY28, analysts noted margin structure differences compared to Eternal (Zomato), estimating Swiggy's food delivery business at 52% and quick commerce at 25% of Eternal's valuation, with Swiggy lagging Eternal by two years in adjusted EBITDA and 15% in food delivery market share.

Analysis

Morgan Stanley has initiated coverage on Swiggy Ltd (SWIGGY:IN) with an Overweight rating and a price target of INR405.00, reflecting optimism regarding its growth prospects in both food delivery and quick commerce. Analysts forecast Swiggy's food delivery business to achieve a compound annual growth rate (CAGR) of 15.8% from fiscal year 2025 to 2028, and project its quick commerce gross order value to expand by a significant 63% CAGR over the same period, driven by aggressive infrastructure investments. Despite these growth projections, Swiggy is anticipated to reach an adjusted EBITDA margin of 4.8% in its food delivery segment by fiscal year 2028, which is lower than the over 6% margin reported by its key competitor, Eternal (Zomato). In quick commerce, Swiggy's margin is expected to be 2.6% by fiscal year 2031. Morgan Stanley's valuation places Swiggy's food delivery business at approximately 52% of the value assigned to Eternal's Zomato, and its quick commerce operations at about 25% of Eternal's valuation. The report estimates Swiggy is two years behind Eternal in terms of adjusted EBITDA and possesses a 15% smaller market share in food delivery. The INR405.00 price target for Swiggy implies an enterprise value to adjusted revenue multiple of 3.1 times for fiscal year 2027, a 51% discount compared to Eternal.

Key Decisions for Investors

• Investors could view Morgan Stanley's Overweight rating and Swiggy's strong projected growth in food delivery and quick commerce as a potential investment opportunity, especially considering the noted 51% valuation discount to its primary competitor, Eternal (Zomato).
• It is crucial to monitor Swiggy's progress in closing the gap with Eternal, particularly concerning its adjusted EBITDA margins, market share in food delivery, and the timeline to profitability.
• Investors should closely track the execution of Swiggy's aggressive expansion in the quick commerce sector and its ability to achieve the forecasted margin improvements in both segments, specifically the 4.8% adjusted EBITDA margin in food delivery by FY28 and the 2.6% margin in quick commerce by FY2031.