UBS Slashes Zomato, Swiggy Targets on Fierce Q-Commerce Competition
Overview
Swiss bank UBS has lowered price targets for Zomato and Swiggy, citing intense competition and rising discounting in the quick commerce segment. While maintaining 'Buy' ratings, UBS cut EBITDA estimates for both firms, though it remains positive on the sector's long-term growth outlook following recent stock corrections.
UBS Revises Targets Amidst Quick Commerce Scrutiny
Swiss investment bank UBS has tempered its price targets for food delivery giants Zomato, referred to as Eternal Ltd. by the bank, and Swiggy. Zomato's stock experienced a modest decline on Wednesday following the brokerage's revised outlook, which also saw Swiggy's target valuation adjusted downwards.
Zomato's price target was adjusted downward to ₹375 per share from ₹400, although UBS maintained its 'Buy' recommendation. For Swiggy, the brokerage retained its 'Buy' rating while cutting the target price to ₹510 from ₹580. UBS highlighted that aggressive discounting and ongoing network expansion are fueling increased competition in the quick commerce sector, impacting profitability projections.
Profitability Pressures Mount
The brokerage’s analysis indicates that while the core food delivery business shows stable growth, the quick commerce segment is experiencing significant headwinds. UBS has consequently reduced its adjusted EBITDA estimates for Zomato by 10-18% and for Swiggy by 12-28% over the next two to three years.
Despite these revisions, UBS expressed continued optimism for the sector. The bank pointed to recent stock price corrections as creating a more favorable entry point, coupled with a persistent strong growth trajectory for the companies involved.
Analyst Consensus Remains Bullish
Investor sentiment towards Zomato appears robust, with 33 analysts covering the stock, 29 of whom recommend a 'Buy'. Only four analysts suggest selling. Swiggy garners coverage from 28 analysts, with a strong majority of 24 recommending 'Buy', while two each advise 'Hold' and 'Sell'.
On Wednesday, Zomato shares shed 0.31% to ₹293.65, though the stock has gained over 4% this year. The reduction in targets for Swiggy reflects broader sector pressures.
