BofA upgrades Swiggy to buy rating and lists 3 reasons why

Bank of America Securities has upgraded Swiggy to ‘buy’ from ‘neutral’, saying the company is now “well positioned to strengthen its No. 2 market share in the quick com space” following its recent fundraising and a clearer path to improving margins. The brokerage has increased its target price from Rs 475 to Rs 490.BofA’s call rests on three pillars: Swiggy’s strengthened balance sheet and competitive position following the $1.1 billion capital increase; the growing cash-generating firepower of its food delivery business; and the potential opportunity for revaluation as the fast trading segment consolidates and losses narrow.

Stronger financial basis after fundraising

BofA said Swiggy’s recent capital mobilization has significantly improved its ability to defend its market share in the hyper-competitive quick-commerce segment. The brokerage highlighted that both Swiggy and Eternal now have war chests of around $2 billion each, which it said will “discourage aggressive capital injections into the sector” by smaller rivals offering “me-too” products.The brokerage expects consolidation in the sector to accelerate and predicts that the two largest players will “control approximately 70-80% of the NMV share and 80-90% of the EBITDA pool, given network effects.”

Food delivery unit emerges as cash cow

Swiggy’s food delivery business is turning into a reliable money generator, supported by “benign competition and improving cash flows,” BofA said. The analysts added that business momentum is improving in adjacent verticals such as out-of-home consumption and supply chain services.

Management’s “focus on turning CM positive in the fast combiz by June 26” is expected to help reduce losses and improve margins at the group level.

The valuation gap with Eternal could be closing

Since its IPO in November 2024, Swiggy’s share price has remained largely flat even as the Nifty and Eternal have risen 7% and 17% respectively. BofA argued that this underperformance, combined with margin improvements and the rising contribution from fast trading, sets the stage for a possible revaluation. In its revised valuation, BofA shifted its methodology to align with Eternal, moving from EV/GMV to EV/NOV for the fast trade. The brokerage now values ​​Swiggy’s food delivery and quick-commerce units at a discount of 8% and 28%, respectively, to Eternal, reflecting Swiggy’s lower margins and slower NMV growth.

The price target of Rs 490 is based on the average of a Rs 480 DCF valuation and a Rs 500 SOTP valuation.

Risks and catalysts

The brokerage flagged three key upside catalysts: faster consolidation in the sector, Swiggy turning CM positive and improving visibility on EBITDA breakeven, and the top two platforms gaining NMV share.
Key risks include ‘higher losses’, prolonged fast-trading competition and adverse regulatory developments.

BofA concluded that Swiggy’s “rapid com losses have peaked” and the company “needs to help improve its margins” as investments, scale efficiencies and market consolidation gain momentum.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)