Running into the Swiggy IPO, a key point of debate was the difference in growth rate with its close peer Zomato. For example, in Q1 FY25, Zomato’s year-on-year (y-o-y) revenue growth rate at 62 per cent was much stronger than Swiggy’s 34 per cent. The difference was also notable when one considers the booming quick commerce segment, where Zomato’s 130 per cent growth was way above Swiggy’s 89 per cent.

This and the fact that Zomato was running many quarters ahead of Swiggy when it comes to reaching adjusted EBITDA break-even were key factors resulting in Swiggy IPO being priced at a good 50 per cent discount to Zomato’s prevailing EV/Revenue valuation. Also, the somewhat sombre mood of the Street, as indicated by the lukewarm response to Hyundai Motor India’s IPO, was another factor as well.

At bl.portfolio, we had recommended investors to subscribe to the IPO despite this differential growth rate as the discounted valuation more than adequately factored for the same. Further, the competition is still in early stages with outcomes wide open. Insights from Q2 results indicate the same as well.

On the face of it, Swiggy’s Q2 y-o-y revenue growth at 30 per cent is still much lower than Zomato’s 58 per cent. But looking into the granular details on a quarter-on-quarter (q-o-q) basis (which was not available in the IPO filings), it is clear the growth rates differentials will narrow, going ahead.

On a q-o-q basis, Swiggy’s Q2 consolidated revenue growth at 12 per cent is almost on par with Zomato’s 13 per cent. Swiggy’s quick commerce sequential revenue growth at 27 per cent was in fact better than Zomato’s 23 per cent. This implies that although Swiggy’s market share in quick commerce with Q2 gross order value at ₹3,382 crore is lower than Zomato’s ₹6,132 crore, with better sequential growth it has actually gained market share in Q2. If this trend sustains, the y-o-y differential in growth rates will narrow over the next few quarters.   

Valuation differential

This makes it more likely that at some point in time over the next few quarters, markets will take a relook at the wide valuation differential that persists between the two companies.

There are other factors too, like, for example, Zomato reached adjusted EBITDA break-even at consolidated level in Q1FY24. Swiggy has now guided to achieving adjusted EBITDA break-even by Q3FY26. This implies Swiggy is 9-10 quarters behind Zomato in profitability.

Currently, Swiggy is valued at a trailing EV/Revenue of close to 8 times, while Zomato trades at 17 times. This over 100 per cent premium of Zomato is hard to justify in the current context even after factoring the difference in profitability timelines.

Nevertheless, investors must be careful not to interpret this as Swiggy too can scale up to a similar high valuation as that of Zomato. It only indicates that on a relative basis, Swiggy appears a more attractive bet than Zomato.

Overall at current levels, Swiggy’s risk-reward appears balanced. IPO investors with long-term perspective can continue to stay invested. New investors can look to accumulate on 10-15 per cent dips.