Zomato shares witnessed a drop of nearly 3% on September 25, trading at ₹282.95 per share on the BSE. This decline came as reports surfaced about rival Swiggy receiving approval from the Securities and Exchange Board of India (SEBI) to launch its initial public offering (IPO) in November.
The competition between these two major food delivery players has heated up, leaving many investors questioning how this might affect Zomato's future and whether this is a good time to invest in stocks of companies within the food delivery sector.
Swiggy’s IPO sparks market reaction
Swiggy, founded in 2004 and headquartered in Bangalore, has been a dominant player in the Indian food delivery market. With operations in over 580 cities and a valuation of $9.3 billion as of August 2023, Swiggy’s growth has been closely watched by market analysts. The company’s recent filing for an IPO, expected to raise ₹11,000 crore with a fresh issue of ₹5,000 crore, has attracted considerable attention.
This move is being viewed as a significant step for Swiggy as it seeks to expand its market share and strengthen its position against competitors like Zomato, making it a compelling time for those looking to invest in stocks of fast-growing companies.
Swiggy's strategy and future growth
While Swiggy’s food delivery business has achieved profitability, its grocery delivery arm, Instamart, remains a loss-making venture. However, with around 550 grocery warehouses spread across 35 Indian cities, Swiggy is positioning itself to capture a larger share of India’s online grocery market.
A report by Goldman Sachs highlights that quick deliveries account for nearly 45% of India’s $11 billion online grocery market, with predictions that this could reach a 70% share by 2030. For those looking to invest in stocks, Swiggy’s growth potential in the grocery delivery space makes it a noteworthy option.
Zomato's impressive stock performance
Despite the recent dip, Zomato has been a standout performer over the past 12 to 15 months. The stock has surged by an impressive 192% in the last year and 131% in 2024 alone. Zomato’s strategic moves, including the acquisition of Blinkit, have fueled its growth and led to its stock becoming one of the best performers in the Indian market.
This meteoric rise has caught the attention of finance experts, including Aswath Damodaran, a well-known professor of finance, who admitted to underestimating Zomato’s value during its IPO. For those planning to invest in stocks, Zomato's strong performance might still offer potential.
Expert opinions and future outlook
In a recent interview, Damodaran reflected on his initial valuation of Zomato at ₹42 per share, based on the data available at the time of its listing. However, the stock's current value of around ₹250 indicates significant market shifts and operational improvements within the company. He pointed out that Zomato capitalised on India’s urban infrastructure challenges, such as traffic and parking issues, which helped fuel its rapid growth.
Nevertheless, he cautioned that Zomato might still be overvalued, even at ₹125 per share. Investors should weigh this information when deciding whether to invest in stocks like Zomato, especially considering the ongoing competition from Swiggy.
The competitive landscape in the food delivery market
As Swiggy gears up for its IPO and Zomato continues to strengthen its position, the competition in the Indian food delivery market is intensifying. Both companies have unique strategies and growth prospects that could shape their futures.
Investors looking to invest in stocks of innovative companies in this space should carefully analyse the developments in both Zomato and Swiggy. Each has its strengths and challenges, but the dynamic nature of the industry presents potential opportunities for those seeking growth in their portfolios.
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