BofA Securities significantly downgraded the stock ratings of Zomato Ltd. and Swiggy Ltd., the two biggest meal delivery companies in India, on March 26, 2025. The brokerage’s decision has increased investor unease, citing worries about growing losses in the quickly growing quick commerce industry and decreasing development in food delivery.
But what led to this sharp change in outlook? Let’s break it down.
The Downgrade Breakdown: What Happened?
BofA Securities revised its ratings and price targets for both companies:
- Zomato: Downgraded from a “buy” to a “neutral” rating, with the price target slashed from ₹300 to ₹250.
- Swiggy: Faced a “double-downgrade” from a “buy” to an “underperform” rating. Its price target was reduced to ₹325 from ₹420. Notably, this is below Swiggy’s IPO price of ₹390, indicating a bearish outlook.
The Quick Commerce Conundrum
One of the primary drivers of the downgrade is the quick commerce segment — the ultra-fast delivery model that promises groceries and essentials in 10 to 30 minutes. While consumers have embraced the convenience, it’s been a financial black hole for companies.
BofA believes that fierce competition from rivals like Zepto and Blinkit will keep margins under pressure. With the race to expand delivery networks and maintain low prices, profitability remains elusive. Prolonged losses in this segment could weigh heavily on both Zomato and Swiggy.
Food Delivery: Growth Slows but Stability Remains
While the core food delivery business hasn’t seen a sharp decline, BofA expects a slowdown in growth. Saturation in urban markets and rising consumer fatigue may reduce order volumes.
However, the report acknowledges that food delivery remains a stable revenue stream. The challenge is that its contribution to overall profitability is shrinking as quick commerce eats into margins.
EBITDA Projections: A Grim Outlook
BofA’s note anticipates that Zomato’s and Swiggy’s EBITDA for FY26 and FY27 will fall 20% to 50% below current market consensus. This pessimistic view stems from rising operational costs, including delivery rider incentives, infrastructure investments, and marketing expenses.
For investors, this is concerning. Negative cash flows from the quick commerce business could drain resources and force companies to rely on external funding.
Market Sentiment: A Mixed Bag
Despite the downgrade, Zomato still has substantial support from the analyst community. Out of 30 analysts covering the stock:
- 24 analysts maintain a “buy” rating
- 2 analysts suggest a “hold”
- 4 analysts recommend a “sell”
Swiggy, on the other hand, is facing greater skepticism. With its stock price already hovering near the revised price target of ₹325, investor confidence is visibly shaken.
Can Zomato and Swiggy Turn the Tide?
While the downgrade is a setback, it’s not necessarily a death knell. Both companies have several strategies they can deploy to regain investor trust and improve profitability.
1. Rethinking Quick Commerce
A strategic shift towards operational efficiency could help reduce losses. Implementing smarter supply chain management, leveraging AI-driven logistics, and optimizing dark store operations might yield better margins.
2. Diversifying Revenue Streams
- Both companies can expand into adjacent services like:
- Subscription models: Offering loyalty programs that drive repeat purchases.
- Financial services: Providing payments, lending, and insurance.
- Cloud kitchens and private labels: Higher-margin ventures that reduce dependency on third-party restaurants.
3. Cost Control Measures
Zomato and Swiggy will need to prioritize cost management. This includes curbing marketing spends, renegotiating contracts with restaurant partners, and reducing delivery partner incentives without compromising service quality.
4. Geographic Expansion
Expanding into Tier 2 and Tier 3 cities where competition is lower could present new growth opportunities. The relatively untapped markets offer potential for higher market penetration with lower customer acquisition costs.
Credits: CNBC TV18
Conclusion: A Critical Crossroads
BofA’s rating of Swiggy and Zomato highlights the difficulties in growing in a market with extremely narrow profit margins and fierce competition. But there is some hope for the future.
Both businesses may come out stronger in the long term if they can adjust, streamline processes, and diversify their sources of income. Investors will be attentively observing how Zomato and Swiggy recover their growth momentum and negotiate the rough seas of fast commerce.
The winners and losers in the fast-paced world of food delivery and quick commerce will be determined by their ability to adapt and be resilient. The race has just begun.
