CLSA Crowns Swiggy an 'Outperform' Pick, Projecting Up to 17% Upside in India's Digital Arena

In a significant boost for India's burgeoning digital economy, global brokerage firm CLSA has initiated coverage on Swiggy, the nation's leading food delivery and quick commerce platform, with a resounding 'Outperform' rating. This optimistic outlook comes with a target price of Rs 470 per share, suggesting a potential upside of up to 17% from Swiggy's last private market valuation of $12.7 billion.

CLSA's confidence in Swiggy stems from its dominant market position and a clear path towards sustainable profitability.

Analysts at the firm view Swiggy as being at an 'inflection point,' poised for substantial financial growth and operational efficiency.

Swiggy's prowess is undeniable across its key segments. It commands an impressive 45-50% market share in the fiercely competitive food delivery sector. Even more remarkably, its quick commerce arm, Instamart, holds a formidable 45% share, showcasing its strength in rapid grocery and essentials delivery.

These segments are not just market leaders but are also projected for robust growth.

According to CLSA, Swiggy's food delivery segment is anticipated to achieve a Gross Merchandise Value (GMV) compound annual growth rate (CAGR) of 17% between FY24 and FY27. The quick commerce business is set to explode even further, with an astounding 40% GMV CAGR expected over the same period, underscoring the rapid adoption of instant delivery services in urban India.

The brokerage firm highlights several key drivers for Swiggy's projected success, including continuous operational improvements, strategic cost rationalization measures, and the inherent benefits of scaling its vast network.

These factors are converging to significantly enhance the company's financial health.

Indeed, Swiggy's journey towards profitability is well underway. CLSA projects that Instamart, a crucial growth engine, will achieve EBITDA positivity by FY25. The core food delivery business has already turned adjusted EBITDA positive in FY24, a testament to its operational maturity.

Furthermore, the entire company is expected to reach adjusted EBITDA breakeven by FY25, signaling a strong trajectory towards financial independence and investor returns.

CLSA utilized a sum-of-the-parts (SOTP) methodology to arrive at its valuation, employing a Discounted Cash Flow (DCF) model for the food delivery business and a Price-to-Sales (P/S) multiple for the high-growth quick commerce segment.

This comprehensive approach underscores a belief in the inherent value and future potential embedded within Swiggy's diverse operations. With an IPO potentially on the horizon, Swiggy is not just delivering food and groceries; it's delivering a compelling investment narrative for the future of India's digital consumer market.