Neutral on Swiggy, target price Rs 475: Motilal Oswal Financial Services

Motilal Oswal Financial Services has a neutral call on Swiggy with a target price of Rs 475. The current market price of Swiggy is Rs 413.1.

Swiggy's food delivery business has achieved stable unit economics, and Motilal Oswal Financial Services expects margins in this business to improve gradually. They expect contribution margins for the FD business to improve from 6.4% currently (vs. 7.6% for Zomato) to 9.0% in FY28 (8.7% for Zomato). Before its IPO, Zomato's food delivery business had a contribution margin of -11.2% in FY20, which has improved to 6.9% by FY24. This increase in profitability can be attributed to higher commission (platform fees) and reduced variable costs. Additionally, the adjusted EBITDA in FY20 was - 20.5%, and it has now turned positive, reaching 2.8% in FY24. Swiggy's food delivery business model is now established, and similar to Zomato, a gradual, but continual improvement in profitability for Swiggy over the medium to long term can be expected.