Posted on March 26, 2025, by Niftynews
Shares of Zomato and Swiggy, two of India’s leading food delivery giants, have fallen by more than 3% following a series of downgrades issued by BofA Securities. The investment firm lowered its ratings for both companies, reflecting growing concerns about their future growth prospects and the intensifying competitive pressure in the food delivery industry. In addition to the downgrades, BofA Securities reduced the price targets for both stocks, triggering declines in their share prices.
BofA Securities Downgrades Zomato and Swiggy: Reasons and Impact
BofA Securities downgraded Zomato from a “Buy” rating to “Neutral,” adjusting its price target to ₹250 from ₹300. The brokerage cited concerns about the company’s ability to sustain growth in the food delivery sector, as well as increasing competition from other players in the quick commerce space. Zomato’s fluctuating performance over recent months, combined with rising operational costs, led to the downgrade.
In a more significant move, Swiggy faced a double downgrade. The company’s rating was reduced from “Buy” to “Underperform,” with its price target slashed from ₹420 to ₹325. This revised price target for Swiggy now stands below its initial IPO price of ₹390, signaling growing uncertainty around the company’s future performance. Swiggy’s share price dropped significantly after the announcement, continuing a downward trend observed in recent months.
Key Factors Behind the Downgrades
The primary reasons behind the downgrades include rising losses in the quick commerce segment and the slowing growth in the food delivery business. BofA Securities has forecast that both Zomato and Swiggy will see their EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) for FY26 and FY27 fall 20% to 50% below market consensus estimates. The downgrades come amid ongoing concerns about increased competition from both domestic and international players in the food delivery market.
Despite these challenges, BofA noted that there hasn’t been a major slowdown in the food delivery market itself. However, the growing competition in quick commerce—the rapid delivery of groceries and other essentials—could significantly affect the bottom lines of both companies, as they struggle to keep up with operational costs and profitability targets.
Stock Performance of Zomato and Swiggy
Following the downgrades, Zomato’s stock dropped by 3.5%, closing at ₹202. Similarly, Swiggy’s stock saw a 2.7% decline, ending the day at ₹328.2. This sharp decline in stock prices reflects investor sentiment and uncertainty regarding the companies’ future growth potential in an increasingly competitive market.
Competitive Pressure in the Food Delivery Sector
The food delivery sector is becoming increasingly saturated, with multiple players vying for market share. Zomato and Swiggy have historically dominated the industry, but the rise of newer competitors, combined with operational challenges, has raised questions about their long-term sustainability.
In addition to traditional food delivery services, both companies are heavily investing in quick commerce to diversify their revenue streams. However, quick commerce has proven to be a highly competitive and costly sector, where margins are thinner and losses tend to accumulate rapidly. As a result, both Zomato and Swiggy are under pressure to find innovative ways to improve profitability while navigating these challenges.
Future Outlook for Zomato and Swiggy
The downgrade by BofA Securities serves as a reminder of the difficulties that Zomato and Swiggy face in the current market environment. Despite the strong consumer demand for food delivery, maintaining profitability remains a significant hurdle. Both companies will need to find new strategies to stay competitive, whether through improving operational efficiencies, expanding into new markets, or enhancing their quick commerce offerings.
Conclusion
Zomato and Swiggy are facing mounting challenges in an increasingly competitive food delivery and quick commerce landscape. The recent BofA Securities downgrades and the lowered price targets reflect investor concerns about the companies’ future growth potential and the sustainability of their business models. With heightened competition and rising operational costs, both companies may need to adapt quickly to maintain their positions in the market and ensure long-term success.
