BofA downgrades Zomato and Swiggy citing widening losses; know why target prices were cut and competition intensifies.
Quick commerce stocks may be the most popular in town, but BofA Securities disagrees. The international brokerage firm has downgraded Zomato and Swiggy. It has cut Zomato’s rating from Buy to Neutral and Swiggy’s to Underperform. It expects losses in the Q-Com business to widen over the next 12-15 months and believes margin growth in the food delivery business will slow.
Both Swiggy and Zomato’s stocks saw massive intra-day declines. BofA Securities has assigned a target price of Rs 250 for Zomato, which implies a cut of 16.6%. The target price for Swiggy is Rs 325 per share and this represents a 22.6% reduction in the target price.
BofA on Zomato and Swiggy: Increasing competition, discounting pressure
Not only is competition increasing, but so is the discounting pressure. According to BofA Securities, companies will have to offer more discounts and Amazon is yet to launch, which will further hamper profitability. Existing players are unlikely to let go of their high-end users and they are likely to respond by focusing on first-mover advantage. BofA said, “We expect incumbent platforms to be in expansion mode, leading to more losses in the near term (until these stores become larger).”
BofA on Zomato and Swiggy: Rationale driving downgrade
Compared to Swiggy, BofA feels Zomato is better placed due to scale and first-mover advantage in Q-Com. This led to better unit economics, higher margins and strong cash position, hence giving it a ‘Neutral’ rating. Given Swiggy’s high losses in instant commerce, any prolonged price war will delay breakeven, hence it is given an ‘underperform’ rating.
It also downgraded the stocks based on a cut in its consensus estimates, which are 20-50% lower than FY26 and FY27 EBITDA estimates for Zomato and Swiggy. BofA said, “We expect food delivery GOV growth to slow to 16-18% annually from the market’s expectations of around 20% over the next few quarters. As growth slows, we do not expect the companies to meaningfully increase platform fees.
” Following the report, Zomato’s share price fell 3% to Rs 203.20 in Wednesday’s trade. Swiggy’s share price fell over 4% to hit an intraday low of Rs 323.55 on the National Stock Exchange.
