BofA Lowers Ratings for Swiggy & Zomato, Cites Rising Losses & Competition

Global brokerage firm BofA Securities has downgraded Zomato and Swiggy, raising concerns over their growth prospects due to increasing competition and rising losses in the quick commerce (QC) sector. The firm predicts that losses in QC will grow over the next 12-15 months as new entrants intensify price wars with discounts and higher marketing expenses.

Downgraded Ratings & New Target Prices

• Zomato: Rating downgraded from "Buy" to "Neutral", with the target price slashed to ₹250 per share (earlier ₹300).
• Swiggy: Rating lowered from "Buy" to "Underperform", with the price target reduced to ₹325 per share (earlier ₹420).

Why BofA Sees Challenges for Swiggy & Zomato

BofA expects the food delivery market to see slower growth and lower cash flow in the coming quarters. It estimates that Gross Order Value (GOV) growth will slow to 16-18% YoY, lower than the previously expected 20% YoY growth.

Additionally, BofA revised its EBITDA expectations for both companies:

• Zomato: EBITDA multiple reduced from 38X to 35X
• Swiggy: EBITDA multiple cut from 36X to 32X

In quick commerce, Zomato’s Blinkit and Swiggy’s Instamart are under pressure, with BofA slashing its GMV expectations for QC from 0.8X to 0.4X for Zomato and from 0.6X to 0.3X for Swiggy.

Financial Performance in Q3 FY25

Zomato reported a 57.2% YoY drop in net profit to ₹59 crore, mainly due to weak growth in its core food delivery business and higher losses at Blinkit. While some other business segments grew over 90% YoY, the food delivery vertical saw only a 17% YoY increase in adjusted revenue.

Swiggy posted a net loss of ₹799 crore, up 39.1% YoY and 27.7% QoQ. The company's quick commerce division accounted for a major part of the losses, with a standalone loss of ₹527.68 crore. Swiggy’s food delivery revenue grew 23% YoY to ₹1,636.88 crore, with a GOV growth of 19.2% YoY.

Macquarie Also Cautious on Zomato & Swiggy

BofA’s downgrade follows a similar stance from Macquarie, which also expressed concerns about Zomato and Swiggy’s financial outlook. Instead, the brokerage firm showed more confidence in quick-service restaurant (QSR) chains like Devyani International and Westlife Foodworld, stating they are better positioned to benefit from increasing discretionary spending in the restaurant sector.