Swiggy, Zomato shares can surge over 125%: Should you buy?
What's the story
ICICI Securities has projected a massive jump in the stock prices of Swiggy and Zomato.
The investment firm believes Swiggy's shares could more than double, while Zomato's shares could witness a nearly 40% jump.
The forecast comes after both companies witnessed a decline of around 32% and 21%, respectively, in the last three months amid rising cash burns in quick commerce (QC).
Target price
Swiggy's shares could reach ₹740, says ICICI Securities
ICICI Securities has maintained a 'Buy' rating on Swiggy shares with a target price of ₹740 per share. This translates to an upside potential of 127% from Monday's closing price.
The firm's valuation of Swiggy is based on its sum-of-the-parts (SoTP) methodology, which values the food delivery segment at ₹99,800 crore and the quick commerce segment at ₹42,800 crore with a cash balance of ₹9,000 crore.
Zomato's valuation
Zomato's shares could see a 40% increase
ICICI Securities also retains its 'Buy' rating on Zomato shares with a target price of ₹310 per share. This indicates an upside potential of 40%.
The investment firm's valuation for Zomato also relies on its SoTP methodology, valuing the food delivery segment at ₹1.6 lakh crore and the quick commerce segment at ₹96,600 crore with a cash balance of ₹18,000 crore.
Over-baked concerns
Concerns about quick commerce have been over-baked into stock prices
ICICI Securities, however, believes that concerns about rising cash burns in QC have been over-baked into the stock prices of both companies.
The firm stated, "We think Swiggy (consolidated) is now trading at an ~30% discount to par value for the food delivery business, implying negative value for the optionality of success in QC. Zomato on the other hand is trading at a value that ascribes nothing to QC."
Growth outlook
Structural growth remains intact despite Q3FY25 slowdown
Despite the slowdown in Q3FY25, structural growth for both companies remains intact.
Historical data shows that consumption picks up after major tax cuts.
ICICI Securities expects income tax cuts in the FY26 Union Budget to boost middle-class spending, benefiting hyperlocal e-commerce, especially food delivery due to its discretionary nature.