Despite being an innovator and a category inventor across both food delivery and quick commerce, Swiggy has let its leadership slip away, Motilal Oswal Financial Services Ltd (MOFSL) said on Tuesday, as it initiated coverage with a ‘Neutral’ rating on the stock. 

In a note, the leading brokerage wrote that tight execution and better leveraging its platform can fix these issues.

Key downside risks for Swiggy are “inefficient management or being unable to scale dark stores as planned may impact quick commerce profitability and high user retention and acquisition costs”.

Further risks cited by MOFSL are Swiggy’s limited ability to expand margins in food delivery and quick commerce businesses, which could delay valuation re-rating, and intense competition in food delivery, quick commerce, and out-of-home sectors, which challenges its market position.

Swiggy’s, through its innovation DNA, has played a pivotal role in both food delivery and quick commerce, effectively inventing these categories and leading the way, according to the brokerage.

“That said, it has let its lead slip in food delivery and is currently behind its key rival Blinkit in quick commerce on both gross order value (GOV) growth and profitability. While the quick commerce race is just getting started, Swiggy’s re-rating depends on accelerating GOV growth, increasing average order values (AOVs), and improving execution in the quick commerce business,” the note further stated.

On Swiggy versus Zomato, MOFSL said that a cursory glance through the numbers indicates Zomato now has market leadership across food delivery and quick commerce, the two key battleground areas for the players.

“The war for the wallet share of the urban affluent consumer has just begun, and it is too early to call off the game. Zomato has continued to gain market share in food delivery, but based on GOV/MTU, Swiggy’s cohorts appear more mature and stickier,” said the brokerage.

In quick commerce, despite Swiggy’s Instamart inventing the category, Blinkit has taken an early lead, and Zepto continues to execute well.

“The market is nascent; however, enough avenues exist to differentiate on stock keeping units (SKUs) and strategy, making it too early to declare winners (or losers),” it added.

Swiggy’s share has slipped to its IPO level after a good public debut in a bearish market, due to profit booking on higher level.

Swiggy’s shares were listed in the stock market at a price of Rs 420 with a premium of 7.69 per cent. On Tuesday, the stock was trading at around Rs 422 apiece.

The company has shown impressive growth potential, yet persistent losses over recent fiscal years signal challenges ahead.