Zomato, Swiggy shares: Brokerages see up to 49% upside, but here’s the catch

Eternal, Swiggy Share Price Today: Food delivery stocks are back in the spotlight, but this time with mixed signals from brokerages. Shares of Zomato Ltd and Swiggy Ltd saw limited movement on Monday, even as global brokerage Morgan Stanley trimmed its price targets on both companies. At the same time, domestic brokerage Elara Securities remains upbeat on the sector heading into the March quarter results.

Zomato, known as Eternal Ltd officially, ended at Rs 232.09 with marginal gains of 0.16 per cent, while Swiggy Ltd closed at Rs 271.80, down over 1 per cent.

Add Zee Business as a Preferred Source

Morgan Stanley trims targets, stays selective

The latest moves reflect a shift in how global brokerages are viewing the space.

Morgan Stanley has maintained its ‘overweight’ rating on Zomato Ltd but cut its target price to Rs 345 from Rs 420 earlier.

For Swiggy Ltd, it retained an ‘equal weight’ stance and reduced the target to Rs 319 from Rs 375.

The message is fairly clear. The long-term growth story is intact, but valuations are being recalibrated as competition intensifies and profitability remains a work in progress.

Also read: Trent shares rally; what’s driving surge in Tata group stock?

Elara stays bullish ahead of Q4

In contrast, Elara Securities is taking a more constructive view.

The brokerage expects food delivery gross order value to grow around 20 per cent year-on-year for Zomato and about 19 per cent for Swiggy in the March quarter. It has also named Zomato among its top picks, seeing potential upside of up to 49 per cent, while flagging strong upside potential of nearly 36 per cent in Swiggy as well.

Demand trends remain steady

One of the key takeaways is that demand has not really weakened.

Also read: Upcoming IPOs: One REIT issue next week; more in pipeline — Full list inside

Despite disruptions linked to LPG issues, order growth has held up. Consumers appear to be shifting towards QSR chains and outlets that are less dependent on LPG, which is helping maintain volumes.

At the same time, contribution margins are expected to improve slightly on a sequential basis, which could support better operating performance.

Quick commerce shifts focus to profitability

The quick commerce segment is entering a slightly different phase.

Growth may moderate as companies start focusing more on profitability rather than just expansion. Even so, store additions remain strong. Blinkit is expected to add significantly more dark stores compared to Instamart in the quarter.

Margins in this segment are also likely to improve, with contribution margins expected to expand and early signs of profitability beginning to emerge.

What investors should watch

For now, the sector sits at a turning point. Growth is still visible, demand remains steady and profitability is slowly improving. At the same time, valuations are being questioned more closely than before.

With March quarter results approaching, the fact that will matter the most will be execution. The fact that how these quick commerce companies will balance growth with profitability is likely determine sentiment in these stocks.