quick commerce: Can Zomato and Swiggy overcome profitability challenges amidst strong competition?

ET Intelligence Group: Shares of food delivery service providers, Eternal (Zomato) and Swiggy, have shown weakness after the quarterly results following pressure on profitability. However, sustained growth in total gross order value (GOV) and focus on expanding quick commerce (QC) services are seen as positive factors. Analysts have maintained ‘buy’ on Eternal owing to Blinkit‘s growth. For Swiggy, even though Instamart lagged Blinkit, food delivery remained strong. Each of the companies reported sequential decline in revenue and GOV for food delivery segment. Sluggish demand, temporary shortage of delivery partners, and competition from QC service providers in the packaged food segment were the major factors hitting demand. Zomato delisted 19,000 non-compliant restaurant partners, which further impacted performance. The trend is expected to improve in coming quarters.

In QC segment, while each of firms reported more than 2-fold rise in GOV and revenue, Zomato’s QC service Blinkit outshone Swiggy’s Instamart. “Instamart continues to lag Blinkit in growth and incremental unit economics,” said Anand Rathi Research.

Swiggy’s Bolt service contributes 12% to its food delivery orders. It has expanded the service to 500 cities and has partnered with over 45,000 restaurants.

“Zomato’s decision to exit the 10-minute food delivery gives Swiggy a clear field to innovate and gain market share in the quick-food delivery market,” said Motilal Oswal Financial Services in a report. The brokerage expects revenue to grow by 63% and adjusted operating profit before depreciation and amortisation (Ebitda) to decline 14% year-on-year for the June quarter. For Swiggy, Motilal Oswal has lowered profitability estimates due to intensified competition and faster darkstore expansion. The brokerage expects the net losses to increase over FY26 and FY27 relative to revenue. This is reflected in its current expectation of net margin of -18.9% and -10% for FY26 and FY27 compared with the earlier estimate of -11.4% and -5.4%.

For Zomato, Elara Capital and Anand Rathi Research have maintained ‘buy’ with target price of ₹300. For Swiggy, Anand Rathi has maintained ‘buy’ with target price of ₹400.