Zomato and Swiggy Shares Surge After ICICI Securities Highlights Attractive Valuations

Shares of leading quick commerce and food delivery giants, Zomato and Swiggy, saw gains on March 4, rising by 2.6% and 6.5%, respectively. This surge was driven by a bullish report from ICICI Securities, which reaffirmed its "Buy" recommendations for both stocks and significantly raised their target prices.

As of 4:00 PM IST, Zomato share price was at ₹226.90, and the share price of Swiggy was ₹350.05.

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According to ICICI Securities, its recommendations are based on internal market assessments. The report highlighted that quick commerce companies are prioritizing incentives for higher order values. While item-specific discounts remain common, the broader trend suggests a decline in aggressive discounting. The brokerage firm also noted that the recent decline in share prices may be attributed to concerns over substantial cash burns in the quick commerce sector.

From a long-term perspective, valuations appear attractive, prompting ICICI Securities to maintain its positive outlook. The one-year target prices were set at ₹740 for Swiggy and ₹310 for Zomato, indicating potential gains of 127% and 40%, respectively. Additionally, the report pointed to a decline in performance marketing expenditures, signaling a transition towards more sustainable growth strategies.

Market Trends and Growth Prospects

The quick commerce industry in India has been experiencing rapid expansion, with players like Zomato and Swiggy investing heavily in logistics, technology, and customer acquisition. The demand for ultra-fast deliveries, particularly in metropolitan areas, has fueled intense competition among quick commerce platforms. Companies have been leveraging deep discounting strategies and aggressive marketing campaigns to capture market share, but a shift towards profitability is now becoming a priority.

ICICI Securities' note suggested that both companies are gradually reducing their reliance on heavy discounts and instead focusing on optimizing operational efficiencies. This move is expected to enhance margins and ensure long-term sustainability. The brokerage firm also emphasized that consumer behavior in India is evolving, with an increasing preference for convenience-driven purchases. This trend is expected to drive continued growth in the sector, despite temporary slowdowns in stock performance.

Impact of Union Budget and Economic Outlook

Veteran investor Raamdeo Agrawal has also expressed optimism about new-age consumption stocks, including quick commerce firms, citing potential benefits from personal income tax relief introduced in the Union Budget. In a conversation with CNBC-TV18 on February 1, he noted that increased disposable income among taxpayers could drive higher consumption. With additional spending power in consumers' hands, platforms like Swiggy and Zomato could see a rise in order volumes.

Additionally, the Indian economy’s steady growth and increasing internet penetration are expected to provide further tailwinds to the sector. Analysts believe that as more consumers shift towards online ordering for groceries and meals, the demand for quick commerce services will continue to rise.

Stock Performance and Investor Sentiment

Despite the long-term potential, shares of Zomato and Swiggy have faced significant volatility. Year-to-date, Zomato's stock has declined by 18%, mirroring a broader market downturn and earnings-related disappointments, while Swiggy share price have fallen by 35%. However, analysts believe that these corrections present an attractive entry point for long-term investors.

As both companies move towards a more sustainable business model, investors will be closely monitoring their profitability metrics, order growth, and cost optimization strategies. While concerns over cash burn persist, the overall industry outlook remains positive, driven by strong consumer demand and evolving business strategies.