Zomato: BofA lowers its ratings on Swiggy and Zomato

Mumbai: Bank of America (BofA) Securities downgraded its ratings on Zomato and Swiggy, and cut their target prices citing expectations of rising losses in the quick commerce business over the next 12-15 months and slowing growth in margins in the food delivery unit.

The brokerage has downgraded Zomato from ‘Buy’ to ‘Neutral’, and cut its price target to ₹250 per share, and Swiggy to ‘Underperform’ from ‘Buy’ with price target slashed to ₹325.

Shares of Zomato ended 2.5% lower at ₹203.3 on Wednesday, and Swiggy closed at ₹323.9, down 3.9%.

BofA’s price targets imply 23% and 0.4% upsides for Zomato and Swiggy, respectively, from Wednesday’s closing level. “Between Zomato and Swiggy, we find Zomato better placed with scale and first-mover advantage in quick commerce, leading to better unit economics, higher margins and a stronger cash position (hence, Neutral). Given Swiggy’s higher losses in quick commerce, any prolonged price war would delay breakeven (hence, Underperform),” it said.

Shares of Zomato have declined 26%, and Swiggy is down 40.2% this year.