“Larger platforms such as Amazon, Flipkart and JioMart now appear fully committed to QC with each of them potentially expanding dark store count to 1200-1500 in 12-18 months, per our channel checks,” it said. However, it expects them to expand quick commerce TAM over time by adding new categories, customers and use cases.
It noted that while the near-term quick commerce competition seems to be intense, it has not worsened since December as these platforms raised their threshold for free delivery and improved discounting, which will likely help margins in Q4 FY26. UBS highlighted that growth is moderating for Blinkit and Instamart partly due to seasonality and partly as Blinkit and Instamart balance between growth and margins.
Food delivery to remain stable
UBS said that the food delivery segments of the two companies remain stable, although it is keeping an eye on LPG pricing and supply constraints. “We therefore build in a NOV slowdown in Q1-Q2FY27E (15-17% YoY vs 17-18% in Q3/Q4FY26), but expect growth to recover in H2FY27E as this is a “supply rather than demand” driven issue. Importantly, supply constraints should also result in lower discounting, supporting margins. We also see a risk of higher delivery costs (1.5-2% higher in FY27 vs earlier) from expanded delivery radii to compensate for reduced customer choices, partly offset by recent platform fee hikes by Zomato and Swiggy,” it added.
UBS cuts target prices for Swiggy, Eternal
UBS maintained its ‘Buy’ rating on both the shares of Eternal and Swiggy, citing “attractive valuations”. For Eternal, it reduced its target price to Rs 310 apiece, implying an upside potential of nearly 32% from the stock’s previous closing price.
For the shares of Swiggy, UBS kept a target price of Rs 390 per share, implying an upside potential of nearly 42% from the stock’s previous closing price of Rs 275.35 apiece. “Eternal trades at 34x FY28E EV/adjusted EBITDA vs Indian consumer average of 26x, but offers higher EBITDA CAGR of 67% over FY27-30E (vs 12% for consumer sector). While Swiggy’s Instamart, as the second/third largest QC platform, is more exposed in our view, recent QIP has strengthened its balance sheet. Moreover, our valuation of Swiggy’s food delivery business alone stands at Rs231 per share, implying negligible value for QC at the current price levels,” UBS said.
Swiggy shares declined more than 1% to trade at Rs 271.55 apiece, while Eternal shares were trading with marginal gains at Rs 232.34 apiece, as seen at 3 pm on Monday.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
