Whalesbook
HSBC Cuts Targets Amid Delivery Race
Brokerage firm HSBC has cut price targets for leading Indian delivery companies Zomato and Swiggy, flagging potential challenges ahead. HSBC noted that Zomato's Blinkit service is still 6-8% pricier than rivals, which could lead to losing customers. The firm also pointed to long-term worries about artificial intelligence and increasing competition as significant risks for the stocks. Despite these concerns, HSBC kept a 'Buy' rating on Zomato, lowering its price target to ₹300 from ₹350. The firm maintained a 'Hold' rating on Swiggy with a reduced target of ₹300, down from ₹380. Zomato's stock traded around ₹238.05 and gained 4.89% on March 25, while Swiggy closed up 1.61% at ₹276.95. Both stocks are trading below recent peaks, with Swiggy's price significantly lower than its initial public offering price.
Valuation Concerns Rise Amid Competition
Zomato holds a large market value of about ₹2,19,015 crore as of March 23, 2026. However, its valuation, especially its Price-to-Earnings (P/E) ratio, appears high. P/E ratios have ranged from 293 (trailing twelve months as of May 2025) to over 994 (as of March 24, 2026). These high figures suggest investors expect significant future growth, but such valuations are facing tougher questions due to rising competition and potential profit squeeze. Swiggy, though private, is valued highly, reportedly at $7.87 billion as of March 13, 2026, with revenues of ₹15,600 crore for FY25.
Fee Hikes Aim to Boost Profits, But Risks Remain
To counter rising costs and competition, both companies are raising platform fees. Swiggy recently increased its fee to ₹17.58 per order, and Zomato raised its fee by 19.2% to ₹14.90 (before GST). These increases are important for profitability. Zomato's profit per order (adjusted EBITDA) is reportedly ₹20 to ₹22, so a fee rise of around ₹2.5 is significant. However, about 40% of these higher fees are being used for discounts to keep customers ordering. This shows the difficulty in raising prices without pushing away price-sensitive buyers. Analysts note that platforms must find a balance to avoid hurting demand.
Intense Rivalry Fuels Price Wars
The quick commerce market is highly competitive. Blinkit holds an estimated 40-50% market share, with Zepto and Swiggy Instamart each holding about 23-30%. Zepto has expanded aggressively with significant funding. This rivalry often leads to price wars and deep discounts, hurting profit margins. Last January, Jefferies downgraded Zomato, citing competition's potential to slow earnings growth and reducing its target price. Zomato's stock has seen significant drops from its peak due to these sector issues. While companies are shifting focus to profitability, concerns remain about prioritizing growth too much. Emerging platforms like ONDC, which offer lower commissions, could also impact the market.
Analysts Mostly Bullish Despite Caution
Most analysts remain positive on Zomato and Swiggy, despite HSBC's target cuts. Thirty of 33 analysts covering Zomato recommend 'Buy', and 23 of 28 covering Swiggy also rate it a 'Buy'. Elara Capital, for example, predicts Zomato's stock could reach ₹415, viewing the platform fee increases as a positive for profit margins. The overall Indian technology sector is growing, with IT spending expected to surpass $176 billion in 2026, supported by AI and cloud adoption. However, the intense competition within quick commerce, whether customers will accept higher prices long-term, and the companies' ability to achieve lasting profitability without losing customers are key factors for future performance.