Nomura initiated coverage on Swiggy with a ‘buy’ and ₹550 target, citing steady food delivery profitability and room for margin gains in quick commerce.
Nomura retained Eternal's ‘buy’ rating, with the target price raised to ₹370 as it expects margin expansion from its inventory-led quick commerce model.
A new GST levy shifts tax liability on delivery fees to platforms, though brokerages estimate only a marginal cost impact of ₹2–2.6 per order.
Shares of food delivery aggregators Eternal the parent company of Zomato, and Swiggy were buzzing in trade on September 8, following an upbeat growth outlook issued for both by global brokerage Nomura.
While Swiggy received an initiation of coverage from a global brokerage firm and Eternal was awarded a target price upgrade. Brokerage firm Nomura initiated coverage on Swiggy with a 'buy' rating and a price target of ₹550 per share, implying a potential upside of around 25% from Friday's closing levels. Amped up by the upbeat growth outlook painted by Nomura, shares of Swiggy soared 4.5% in opening trade today.
Nomura said that Swiggy's food delivery business is now on a steady profitability trajectory and is expected to remain a key cash generator. While the company's quick commerce vertical still holds a challenger position, profitability in this segment is also likely to improve, the brokerage believes.
The brokerage added that Swiggy is well funded to scale its quick commerce business further, and therefore the risk of equity dilution remains low. However, it cautioned that a broader macroeconomic slowdown could pose risks to growth assumptions in the online food delivery space.
On the other hand, Nomura also reiterated a 'buy' rating on Eternal but raised its price target by over 23% to ₹370. The brokerage expects Eternal's food delivery segment to continue on a steady growth path with improving profitability.
While shares of Eternal also opened on a positive note, sharp profit booking in the stock was quick to pull it off its day’s high, marginally into the red.
Meanwhile, its quick commerce business is witnessing contribution margins bottoming out, and the inventory-led model, which Nomura expects to aid margin expansion going forward.
The upbeat commentary came just a week after the GST Council clarified that online platforms, not delivery agents, will bear the 18% tax on delivery fees. Brokerages expect the financial impact to be marginal, Morgan Stanley estimates Zomato could see an added cost of ₹2 per order and Swiggy about ₹2.6 per order in FY25, with Instamart’s incremental hit under ₹1. As delivery revenues were already taxed in most cases, analysts see the change as more of a formalisation than a fresh burden.
Even so, the ruling comes at a delicate time as food delivery players balance rapid expansion with profitability goals. “We don’t see any incremental impact on Blinkit as delivery fee was already part of revenues and attracting GST,” Morgan Stanley noted.
