HDFC Securities Reaffirms Buy Rating on Swiggy After 37% Price Drop
HDFC Securities has maintained its buy recommendation on Swiggy shares, setting a target price of Rs 460 that implies 77% upside from the current Rs 260 level. This stance follows a 37% stock correction over six months, which the brokerage views as creating a valuation reset. The call emphasizes resilience in food delivery and quick commerce segments despite macroeconomic pressures like LPG shortages and high crude prices.
Valuation Highlights Undervalued Growth Potential
Swiggy trades at 32x FY28 EV/EBITDA for its food delivery business alone, with quick commerce and other verticals effectively priced at zero. HDFC Securities' sum-of-the-parts model justifies the Rs 460 target: food delivery at 40x EV/EBITDA contributes Rs 270 per share, Instamart at 0.6x net ordered value adds Rs 90, out-of-home consumption at EV/GOV brings Rs 30, and supply chain plus others at EV/sales yield Rs 27.
| Segment | Valuation Basis | Per Share Value (Rs) |
|---|---|---|
| Food Delivery | 40x EV/EBITDA | 270 |
| Quick Commerce (Instamart) | 0.6x NOV | 90 |
| OOH Consumption | EV/GoV | 30 |
| Supply Chain & Others | EV/Sales | 27 |
| Total Target Price | - | 460 |
This framework positions Swiggy as a deep value play, where core operations generate cash flows to fund expansion in high-growth areas like quick commerce.
Food Delivery Holds Steady Amid Supply Challenges
Order volumes in food delivery show minimal disruption from LPG shortages affecting restaurants, as partners adapt menus and platforms raise fees by 17-19% to offset costs. Gross order value growth projects at 17%, with margins stabilizing near 3%, though expanded delivery radii could pressure fulfillment expenses short-term. Q4 anticipates a 2.3% quarter-on-quarter order decline due to seasonality, but low-average-order-value competitors have not yet eroded market share significantly.
Quick Commerce Shifts Toward Profitability
Instamart prioritizes unit economics, optimizing product mixes for higher-margin non-grocery items and reinstating user fees previously waived. Contribution margins should improve by 360 basis points, targeting breakeven by Q1 FY27, with Q4 orders growing 7% quarter-on-quarter and net ordered value hitting Rs 56 billion. Food delivery's cash flows will sustain these investments, backed by Rs 15.9 billion in reserves.
Financial Path and Investor Considerations
Revenue will expand from Rs 228,039 million in FY26 to Rs 345,959 million in FY28, with adjusted EBITDA losses narrowing from Rs 28.5 billion to Rs 4.2 billion. Quick commerce drives most gross order value growth through FY28, diversifying revenue as its share rises. Risks include prolonged macro headwinds, margin squeezes from costs, competitive pricing, and execution in quick commerce. HDFC suggests accumulating between Rs 250-270, with a stop loss at Rs 220 and 12-24 month horizon, treating volatility as an entry chance.
