The brokerage highlights the company’s strong growth prospects in quick commerce but notes operational hurdles could impact its long-term profitability trajectory. The target price shows a 5.7% potential downside from the stock’s closing price of Rs 455.95 on BSE on its debut day.

Swiggy shares slipped 5.6% to Rs 430.30 on BSE after rising over 7% in the morning trade on Thursday. Meanwhile, the company’s market capitalization crossed Rs 1 lakh crore mark on its debut day.

The brokerage notes challenges that Swiggy faces in achieving profitability and maintaining market share against competitors like Zomato, which currently leads in operational efficiency.

Swiggy, once a pioneer and leader in the food delivery market, has witnessed shifts in market dynamics. According to HDFC Securities, Swiggy is “approximately 4-6 quarters behind Zomato” in several key performance indicators within food delivery, including order growth, average order values (AOVs), and customer acquisition metrics.

“While Swiggy remains well-positioned due to its robust brand recognition and user base, its path to profitability remains complex given rising competition and operational challenges,” HDFC Securities states.Also read | Swiggy IPO: 9 executives who will make the most from ESOP windfall

For the quick commerce segment, the brokerage highlights a more positive outlook. HDFC Securities expects Swiggy’s quick commerce sales to grow at a compound annual growth rate (CAGR) of 76% through FY24-27. “Density is destiny in quick commerce,” said Jay Gandhi, an analyst at HDFC Securities, emphasizing the importance of sales density and order volume in driving quick commerce profitability.

The brokerage’s projections suggest that Swiggy’s quick commerce segment could achieve a 2.5% EBITDAM by FY27, supported by growth in GOV (Gross Order Value) and improving order densities. Despite the potential, HDFC Securities underscores that Swiggy’s quick commerce path to profitability remains “hazy” amidst competition from well-capitalized players such as Blinkit, Reliance, and Tata Neu.

With the company taking steps to expand its quick commerce segment, the brokerage highlights that “Swiggy needs to achieve over 2,000 orders per day per store for its Instamart unit to break even, while Blinkit is nearing break-even at around 1,500 orders per store.”

Overall, HDFC Securities’ coverage underscores optimism tempered by caution. The target price reflects a valuation based on four times the projected sales for FY27, indicating that while Swiggy’s growth potential is significant, its journey toward profitability will be closely watched by investors.

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