Leading food delivery companies, Zomato and Swiggy shares are higher in trade on March 4, 2.6% and 6.5% respectively, assisted by a bullish note from ICICI Securities reiterating a Buy call on both stocks with target prices much elevated than current levels.
ICICI Securities disclosed sharing recommendations on Zomato and Swiggy based on its channel checks.
ICICI Securities note on Zomato, Swiggy
The stock broking company's note said the quick commerce (QC) players could be focusing on incentivising higher-order values.
While item-wise discounting is still prevalent, it may be past its peak on a broader level.
ICICI Securities also believes the fall in share prices may be due to concerns over high cash burns in the quick commerce (QC) business.
Swiggy and Zomato’s one-year target prices were Rs 740 and Rs 310 per share respectively, implying a 127% and 40% upside from current levels.
The ICICI Securities note also mentioned a decline in performance marketing spending, indicating a shift toward sustainable growth.
According to the note from the brokerage, concerns around increasing cash burns in the quick commerce segment were mostly because of a higher discounting by Zepto looking to increase market share post accelerated store expansion.
"We think these concerns have been over-baked into the stock prices for both Swiggy and Zomato," stated ICICI Securities.
It reported that Swiggy (consolidated) is now trading at a 30 per cent discount to par value for the food delivery business, suggesting negative value for the optionality of success in the quick commerce segment.
On the other hand, Zomato is trading at a value that ascribes nothing to the quick commerce industry.
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