Over the last one year, since the funding crunch hit India’s new economy ecosystem, putting a question mark on when startups would be able to raise their next round of funding and at what valuation, companies, including Swiggy, have undertaken cost-cutting measures. It is now weighing on their business growth.
In a research note, Bernstein said Swiggy has been losing market share to Zomato over time in the food delivery market. The funding slowdown, it said, could further strengthen Zomato’s position.
For the six months through June 2022, Zomato had a market share of 55.7%, an increase from 53% in a year, even as Swiggy’s market share reduced to 44.3% from 47% in the same period.
Bernstein said the dynamics between Zomato and Swiggy could be further impacted by factors such as the re-launch of the Zomato Gold loyalty programme. The Gold programme is expected to drive stronger growth, but could weaken the company’s unit economics, the report said.
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Zomato founder Deepinder Goyal, however, said earlier this month that the launch of Gold would not impact profitability as the company was working on the programme for a while and had it “baked in” in its previous estimates.In addition to food delivery, Zomato and Swiggy also compete in the quick commerce segment through their Blinkit and Instamart offerings.
Challenging conditions
In 2022, funding in Indian startups dropped by almost 75% over 2021, and the trend continued into 2023, with a 70% fall in funding for Indian startups in January at $1.38 billion, as per Tracxn data.
Last month, in an internal staff note announcing the layoffs of 380 people, Swiggy chief executive Sriharsha Majety had said companies around the world were adjusting to the new normal amid challenging macroeconomic conditions.
He wrote that the company’s cash reserves would allow it “to be fundamentally well positioned to weather harsh circumstances”, but it must continue identifying efficiencies “to secure our long-term”. He also said the growth rate for food delivery had slowed down against projections.
Zomato chief financial officer Akshant Goyal, too, in a shareholder letter had acknowledged the industry-wide slowdown in the food-delivery business since late October 2022. Goyal, though, said in January that the company had witnessed some green shoots in the segment.
Swiggy, which is reportedly gearing up for an initial public offering, was last valued at $10.7 billion. Its listed rival, Zomato had a market capitalisation of nearly $5.4 billion as of Friday’s closing share price of Rs 51.85 on the BSE.
The stock has lost value after its stellar debut on the bourses in mid-2021.
Bernstein has given an outperform rating to Zomato with a target price of Rs 90 per share, as per the report released earlier this month.
Nykaa performance
Noting that Mumbai-based Nykaa was the market leader in the beauty and personal care category, Bernstein ascribed a “market perform” rating on Nykaa with a price target of Rs 185 on its shares.
On Friday, the shares of Nykaa’s parent, FSN E-Commerce Ventures, closed 0.32% higher at Rs 139.45 on the BSE.
Earlier this week, the company declared its earnings for the quarter ended December 2022, reporting a 71% drop in net profit at Rs 8.48 crore compared with little over Rs 29 crore a year earlier. Operating revenue grew 33% to Rs 1,462 crore in the Decemeber quarter.
In a post-earnings conference call with analysts, founder and chief executive Falguni Nayar said some growth in the company’s revenue could have been shaved off because of a slowdown in discretionary spending.
“But we’ve acquired customers nicely, and I wouldn’t call it a difficult quarter at all … There could be downtrading from certain brands to cheaper brands but nothing in a very meaningful way that would be of concern,” Nayar said.
Nykaa shares closed on BSE at Rs 139.45 per share on Friday. Bernstein Research has set a target price of Rs 185 per share.
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