Mumbai, March 26
Bank of America (BofA) has downgraded its ratings on Zomato and Swiggy, citing concerns over slowing growth in food delivery and rising competition in quick commerce.
The brokerage has lowered Zomato's rating from 'buy' to 'neutral' and Swiggy’s from 'buy' to 'underperform'.
Along with the downgrade, BofA has also reduced the target price for both companies. Zomato's target price has been cut from Rs 300 to Rs 250, while Swiggy has seen a sharper reduction from Rs 420 to Rs 325.
Despite these changes, the analysts remain positive about the medium-term prospects of both companies.
According to BofA, the quick-commerce industry, which was earlier seen as a high-growth sector with improving profits, is now facing rising losses and intense competition.
Between the two companies, the brokerage believes Zomato is in a better position due to its scale and first-mover advantage in quick commerce.
Zomato has stronger financials, better profit margins, and a healthier cash position compared to Swiggy, which has been dealing with higher losses in its quick-commerce segment.
BofA also highlighted that as new players enter the market, competition is expected to remain high over the next 12 to 15 months.
Established platforms are expanding into each other's areas, and new entrants are likely to attract customers with higher discounts.