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Zomato Vs Swiggy: Who gets a bigger piece of the pie?

Jefferies expects Zomato's stock to remain rangebound in the coming months as it walks the tightrope between growth and margin.

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By Hormaz Fatakia  Nov 24, 2022 11:16:25 AM IST (Updated)

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Zomato Vs Swiggy: Who gets a bigger piece of the pie?

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Food delivery player Zomato may have achieved its highest ever market share in this highly competitive space during the first half of the calendar year 2022,  while rival Swiggy lost some, according to Prosus data.
Quoting the Prosus data, brokerage firm Jefferies says that Zomato's rival Swiggy may have lost market share despite their aggression through higher discounts and continuing with their flagship "Swiggy One" service.
India's food delivery market has largely been concentrated in the hands of two players - the recently listed Zomato and privately-held Swiggy. Both companies registered robust growth in their food delivery business during the first half of 2022. While Swiggy's revenue witnessed 40 percent growth from the same period last year, Zomato's business grew 55 percent during the same period.
On the quick-commerce front, Swiggy grew 15x with its Gross Merchandise Value (GMV) for "Swiggy Instamart" coming in at $257 million for the first six months of the year. Zomato's Blinkit, the subject of many-a-controversy for the company, also had a similar GMV at $270 million. "Growth numbers clearly point to an increased buy-in from customers," Jefferies wrote in its latest note.
It is the bottomline that differentiates the two companies. On a consolidated basis, Zomato's net loss narrowed to just under $25 million on a consolidated basis for the most recent quarter. For the first six months of the current financial year, its losses, including Blinkit stood at around $170 million. However, Swiggy reported a much higher loss during the first half at over $315 million. In their analysis of restaurant price comparisons in August this year, Jefferies had highlighted the fact that Swiggy offered more discounts in most cases compared to Zomato.
"This partially explains the reason for the higher losses for Swiggy than Zomato," Jefferies wrote.
Zomato may have managed to reduce its losses, but that has come at the cost of growth, also partly attributable to tough macroeconomic conditions, according to Jefferies. Their industry channel checks suggest that the trend for the food service industry has been weak during October and November. That, coupled with an increased dine-out trend points to a possibility of modest growth for the food service industry, including Zomato.
Jefferies anticipates Swiggy to drop its aggressive discounting stance in order to cut down on its losses. "In case that does not happen, Zomato may be induced to increase aggression to drive growth," the brokerage said. With Swiggy continuing with its discounts and the Swiggy One program, Jefferies expects Zomato to come up with a pro membership in some form.
Shares of Zomato are trading 2.7 percent higher at Rs 63.40. The stock is up over 50 percent from its 52-week low of Rs 40.60. However, shares remain below their IPO price of Rs 76. Jefferies expects the stock to remain rangebound in the coming months as it walks the tightrope between growth and margin. It maintains its buy recommendation on the stock with a price target of Rs 100.

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