How Did Swiggy Make A Direct Entry Into Morgan Stanley's 'Overweight' List?

Swiggy shares were riding high on June 4, climbing as much as 8.5%, its biggest single-day gains in a month, as investors rushed to grab a piece of the action. The rally came hot on the heels of Morgan Stanley initiating coverage on the quick commerce platform with an ‘overweight’ rating, reflecting bullishness over the company’s growth trajectory. The global investment firm has set a price target of ₹405, nudging past Swiggy’s IPO price of ₹390, and hinting at a promising 22% upside from the last traded level.

Morgan Stanley’s upbeat stance isn’t without reason. At the heart of its optimism lie three key pillars, with the most significant being Swiggy’s steadily improving performance in food delivery. It's worth noting that the company outpaced its arch-rival Zomato in the food-delivery segment during the March quarter, a sign that it’s gaining ground.

With the food delivery space evolving into a duopoly, analysts at Morgan Stanley believe Swiggy’s sharper execution could help it close the margin gap with Zomato in the near future. Looking ahead, if Swiggy manages to hold its market share, the total addressable market for food delivery in India could balloon to a staggering $57 billion by 2030, the firm projected.

On the valuation front, Morgan Stanley has assigned a multiple of 25 times FY28 adjusted Ebitda to Swiggy’s food delivery business, slightly more conservative than Zomato’s, which stands around 5% higher. Still, for investors betting on execution, scale, and sectoral tailwinds, Swiggy might just have the recipe for a rewarding long-term play.

Aside from that, Morgan Stanley also sees the fast expanding addressable market for quick commerce and Swiggy’s aggressive investment in the space as the second pillar of its growth.

Lastly, Morgan Stanley believes the market is underestimating the long-term benefits of Swiggy’s heavy investments. While these outlays may appear steep, the firm argues they are poised to boost topline growth, a factor not fully priced into current market pricing.

Not stopping there, Morgan Stanley also sees quick commerce as another promising frontier for Swiggy. Quick commerce is tapping into a large total addressable market (TAM), and its penetration within both the broader retail and e-commerce segments remains nascent. In Morgan Stanley’s view, this early stage of adoption leaves ample room for significant growth across the industry. Despite intense competition, the firm believes that each major player in the space has meaningful headroom to expand materially over the next 3–5 years.

Swiggy’s quick-commerce arm Instamart is valued at 27 times FY31 adjusted Ebitda, at a 25% discount to Eternal’s Blinkit.

As for the broader quick commerce space, Morgan Stanley identifies key near-term catalysts, namely--improving growth in quick commerce gross order value (GOV) in the June quarter, better unit economics in food delivery through reduced platform-funded discounts and better fixed cost absorption, and a stabilisation in competitive intensity, a culmination of which could lift the entire segment, including Swiggy.

That said, the firm also flagged some risks that threaten to derail Swiggy’s growth here on. On top of the list are concerns of a slip in Swiggy’s execution which could hurt its market share in both food delivery and quick-commerce, the investment firm cautioned.

Adding to that, the ongoing push and pull between pursuing growth and achieving profitability also poses challenges for Swiggy.

As a result, the company risks losing market share, with execution delays and a slowdown in overall growth within its core food-delivery segment, Morgan Stanley warned.

The firm also shed light on the sluggish adoption of quick commerce services in non-metro cities, which could limit market expansion and keep the actual market size below its full potential within the total addressable market.

“Heightened competition might also push Swiggy to invest more than expected, increasing cash burn and potentially leading to equity dilution, especially if the market mirrors trends seen in China’s delivery and e-commerce sectors. Additionally, regulatory uncertainties around gig workers or FDI rules in retail could pose structural challenges to the business models of Swiggy and its peers,” Morgan Stanley added.

On the stock front, Morgan Stanley highlighted the recent expiry of Swiggy’s pre-IPO lock-in period. “The pre-IPO offer investors had a lock-in of six months since listing, which has expired recently, and any potential selling by such investors could create liquidity events and could be an overhang on the stock,” the investment firm stated.