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A buffet of tailwinds

Upgrade Swiggy to BUY; maintain BUY on Eternal

The food delivery and quick commerce industry has faced multiple headwinds over the past few months. Food delivery (FD) growth slowed due to weak consumption and macro pressures, while quick commerce (QC) profitability came under strain from heightened competition, accelerated dark store rollouts, and elevated customer acquisition costs. We now believe the cycle is turning.

We believe FD growth, which was stunted at 17-18%, could accelerate beyond 20% in the next 2-4 quarters, driven by the upcoming festive season, as well as a spur from the recent GST reforms. In QC, all changes point to easing competition: 1) new entrants have found it difficult to execute and make a meaningful dent in QC market share; 2) we expect most players to moderate dark store expansion pace, which peaked in 4QFY25; 3) an intense focus on cost among the top 3 players should lead to lower discounting, reducing CAC; 4) GST reforms could accelerate QC adoption in non-metro cities.

In summary, we believe the perfect storm has given way to multiple tailwinds. We raise our FD growth estimates for both Zomato and Swiggy to 21-23% for FY26- FY27 (19-20% earlier) and value the FD businesses at 35x FY27E adjusted EBTIDA (27x earlier). We also bring our profitability assumptions for QC forward for Instamart and Blinkit. These lead to upgraded TPs for both Swiggy and Eternal. We upgrade Swiggy to BUY with a TP of INR560, implying 32% upside, and retain our BUY rating on Eternal with a TP of INR420, implying 29% upside.

Food Delivery: Time to eat that cake

* FD growth had decelerated meaningfully in recent quarters, weighed down by weak consumer sentiment and broader macro headwinds. As shown in Exhibit 9, FD GOV growth slowed from 19-20% in FY23-24 to 18% in FY25 for both Swiggy/Zomato. We now see this trend reversing.

* Discretionary spending could rebound, supported by GST reforms that leave more disposable income in the consumer’s hands. As confidence returns, both dining-out and at-home delivery should accelerate too, providing a boost to platform order volumes as well as order frequency.

* We raise our FD growth estimates and now forecast 23% CAGR in GMV over FY26-28 vs. 19% earlier.

Quick Commerce: Counting calories

* The QC industry is transitioning from the land-grab phase to a more costconscious operating model.

* Past pressures:

* High competitive intensity: Between Sep’24 and Apr’25, customer acquisition costs and dark store expansion peaked as all major players pushed aggressively to capture share. Intense discounting and promotional burn led to contribution margin loss across much of the industry.

* Dark store expansion: The number of dark stores grew rapidly during this period, pressuring utilization and economics (Exhibit 8).

* Customer acquisition costs: These costs surged to unsustainable levels as platforms fought for new users, pushing payback periods further out, leading to poor contribution margins (Exhibit 10).

* What is changing:

* Rational competition: We believe discounting intensity will ease going forward, supported by measured aggression by new entrants as well as incumbents. We expect this rationalization to deepen over the next few quarters.

* Moderation in dark store expansion: Swiggy has slowed its rollout pace, focusing instead on sweating existing assets. Blinkit, while still expanding, benefits from higher density and leadership positioning.

* Policy support: Lower GST burden provides a structural tailwind for penetration and unit economics.

* Improving operating leverage: With expansion peaking behind us, dark store costs as a % of GMV should decline steadily, driving margin expansion.

Regarding Section 9(5) and the additional GST burden on delivery charges

* The new GST regime has explicitly brought delivery fees (charged to customers) under Section 9(5), requiring platforms like Swiggy and Zomato to pay GST directly on this component.

* Previously, aggregators were already liable for restaurants and small sellers (since Jan-2022), but delivery services were excluded, creating a loophole. This gap triggered large tax notices—on Zomato and Swiggy over the past couple of years—as authorities argued that delivery workers or customers should bear the burden.

* The recent clarification closes this gap, formalizing liability at the platform level. It is unclear whether companies will pass this on to consumers or absorb it; either way, the impact is modest (≈0.3-0.5% of EBITDA for FD), and we believe the knock-on positives from higher consumption and quick commerce adoption outweigh this.

Valuation and view: Upgrade Swiggy to BUY; raise estimates

* We raise our FD growth estimates for both Zomato and Swiggy to 21-23% for FY26-27 (vs. 19-20% earlier). To capture this stronger growth outlook, we now value FD businesses at 35x FY27E adjusted EBITDA, compared to 27x earlier, reflecting not only faster top-line recovery but also improved visibility on profitability.

* On the QC side, we bring forward our profitability assumptions for Instamart and Blinkit, as easing competitive intensity, moderating dark store expansion, and declining customer acquisition costs have accelerated the path to breakeven. We expect contribution margins to recover meaningfully over the next few quarters.

* The revisions lead to upgraded target prices for both Swiggy and Eternal. We upgrade Swiggy to BUY with a TP of INR560 (implying 32% upside), reflecting the inflection in FD growth and improved unit economics in QC. We retain our BUY rating on Eternal with a TP of INR420 (implying 29% upside), as we continue to see structural tailwinds and upside to earnings estimates for the company.

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