Why Zomato and Swiggy shares have been downgraded
What's the story
BofA Securities has downgraded the shares of leading food delivery services, Zomato and Swiggy. The firm has also slashed its price target for both new-age companies.
Zomato's rating was downgraded to "neutral" from "buy," with its price target reduced to ₹250 from ₹300.
Meanwhile, Swiggy's rating was downgraded twice to "underperform" from the previous "buy," with a revised price target of ₹325, down from ₹420.
Price drop
Swiggy's new price target falls below its IPO price
Notably, the revised price target for Swiggy is now below its IPO price of ₹390. The stock currently trades below its issue price and near this new target.
The downgrade for both companies, according to BofA Securities, was mainly due to expectations of widening losses in quick commerce and a slowdown in food growth.
Financial forecast
BofA anticipates lower cash flows for food delivery segment
BofA Securities predicts Zomato and Swiggy's EBITDA for FY26 and FY27 will likely be 20% to 50% below consensus.
The brokerage also expects cash flows to decline within the food delivery sector, despite not having seen any significant slowdown so far.
In contrast, BofA expects prolonged competition in the quick commerce sector, which could lead to even greater losses for these companies.
Analyst outlook
Analysts' ratings for Zomato and Swiggy
Among the 30 analysts who have rated Zomato, 24 continue to maintain a "buy" rating, two suggest "hold," and four recommend "sell."
For Swiggy, out of the 18 analysts covering it, 11 suggest a "buy" rating, three recommend a "hold," while four advise to "sell."
In early trading, Zomato's shares opened 3.5% lower at ₹202, while Swiggy's shares fell by 2.7% to ₹328.2. This is a far cry from their respective peaks of ₹304 for Zomato and ₹617 for Swiggy.