- ICICIdirect

The Indian market has only a few sectors where a duopoly exists. One such area is the online food delivery business. Zomato and Swiggy hold the duopoly in this segment. Until now, only Zomato was listed, and not all details were available for Swiggy. Hence, comparison was not possible. Now, with the Swiggy IPO going live, all the numbers are available. Hence, we can compare the two to find which one is better if there is a clear winner. Let us look at the details.

Swiggy IPO

Swiggy is coming with a Rs 11,327.43 crore IPO, which opens for subscription on 6th November. The issue has Rs 4499 crore as a fresh issue, while the remaining is an offer for sale. Swiggy IPO price band is set between Rs 371 and Rs 390 per share. The minimum lot size for a retail application is 38 Shares. The minimum amount of investment required by retail investors is Rs 14,820.

The company proposes to utilize the Net Proceeds towards funding the following objects:

Investment in the Material Subsidiary, Scootsy, for repayment or pre-payment, in full or in part, of certain or all of its borrowings;
Investment in the Material Subsidiary, Scootsy, for (a) expansion of Dark Store network for Quick Commerce segment through setting up of Dark Stores; and (b) making lease/license payments for Dark Stores;
Investment in technology and cloud infrastructure;
Brand marketing and business promotion expenses for enhancing the brand awareness and visibility of its platform, across segments; and
Funding inorganic growth through unidentified acquisitions and general corporate purposes.

Zomato IPO

The Zomato IPO was launched in July 2021 and price band for its IPO was set between Rs 72 and Rs 76 per share. The IPO received a strong response from both retail and institutional investors, with the issue being oversubscribed multiple times - 38.25 times to be precise. Zomato shares were listed on the Bombay Stock Exchange (BSE) at Rs 115 and Rs 116 on the National Stock Exchange (NSE) on July 23, 2021, with a premium of more than 50%.

Performance of Zomato Shares

Zomato was listed in July 2021 with excellent listing gains. In November, the stock touched a high of Rs 153 per share. But after that, Zomato share price started to decline. In July 2022 (after one year of listing), the Zomato share price hit rock bottom at Rs 46.80 per share.

Since January 2023, the share has been rising. In the last one year, the share price has jumped more than 95%. In the past 6 months, Zomato's share is up 23.35%. However, in the past month, the shares are down nearly 10%.

Competitor Analysis

Let us look at the financial performance of the two companies:

Revenue: In FY24, Swiggy's revenue grew 36% to Rs 11,247 crore, while Zomato posted a higher jump of 68% to Rs 6,578 crore.
Food Delivery Margins: Zomato's food delivery adjusted EBITDA margin improved from -18% in FY21 to 2.8% in FY24, which led to profitability. Swiggy's food delivery EBITDA margin has improved but still stands at -0.2% in FY24.
GOV: Growth in GOV for Zomato also outpaced Swiggy, with a compound annual growth rate (CAGR) of 23% over FY22-24, compared to Swiggy’s 15.5% for the same period.

Let us now compare the valuations. Zomato's food delivery business, valued at a high forward EV/EBITDA multiple of 53x, reflects strong investor confidence and a promising profitability trajectory. In contrast, Swiggy, as a newer entrant to the public market, is valued at a discount due to its smaller scale and lower profitability.

Zomato holds a significant market advantage, with its food delivery and quick commerce revenues estimated to be 27% and 109% higher, respectively, than Swiggy's. This underscores Zomato's stronger market position and growth potential.

Future of Zomato and Swiggy

The future of Zomato and Swiggy appears promising, with both companies poised to play a significant role in shaping the future of the Indian food delivery and quick commerce industry. Zomato, with its established market position and strong brand recognition, is well-positioned to capitalize on the growing demand for online food delivery. The company's expansion into new areas like quick commerce, ticket booking, and grocery delivery further strengthens its growth potential.

Swiggy, on the other hand, is emerging as a formidable competitor with its focus on customer experience and innovative offerings. The company's recent IPO has provided it with a significant war chest to invest in growth initiatives and compete aggressively. Both companies are likely to continue investing in technology, logistics, and customer experience to drive growth and profitability.

However, the competitive landscape is evolving rapidly, with new entrants (in quick commerce) and changing consumer preferences posing challenges. Both companies will need to adapt to these changing dynamics and innovate to stay ahead.

Which is better?

Well, there is no clear winner as both companies have advantages and some shortfalls. Let us look at key points related to both companies to give you an idea.

Zomato

Strong Market Position: Zomato currently holds a dominant market share in the food delivery segment.
Profitability: Zomato has achieved profitability in its core food delivery business and its quick commerce arm, Blinkit.
Valuation Premium: The company trades at a premium valuation due to its strong performance and growth prospects.

Swiggy

Aggressive Expansion: Swiggy is investing heavily in its quick commerce business, Instamart, to compete with Zomato's Blinkit.
Profitability: Swiggy is still in a loss-making phase, with a focus on scaling its operations and capturing market share.
Valuation Discount: As a newer entrant to the public market, Swiggy may be valued at a discount compared to Zomato.

Based on the above points and numbers shared earlier, experts believe that Zomato holds an edge over Swiggy, given the company has a larger market share and is profitable.

Before you go

Both Swiggy and Zomato are still in the early years of business and have much to explore. Investors, investing, in either company should continuously monitor the updates, results, and guidance given by these companies. In the long term, both companies should do well.