The latest GST changes, which require Eternal and Swiggy to pay 18% GST on delivery charges collected from customers, may not significantly impact these food delivery and quick commerce players, as the prospects of higher consumption following rate cuts on consumer goods and the rapid adoption of quick commerce can offset the GST burden, according to experts.
Experts believe the impact will be negligible for both companies, and the stocks remain compelling buys at this juncture, ahead of the start of the festive season and expected increased consumption.
The new GST regime has made it clear that delivery fees, charged to customers, should be paid by platforms like Swiggy and Zomato.
The government levied 18% GST on delivery services provided by e-commerce players. Previously, platforms did not charge GST consistently for every order because they were not liable to pay the tax. Reports suggest that, as these companies will be liable to pay 18% GST, they will fully pass on the charge to the user.
This means there will be no negative impact of the latest GST changes on these companies.
“We believe that the impact (if any) will be negligible for both because in food delivery, delivery charges typically get waived on two-thirds of their order volumes, and in quick commerce, Blinkit already collects 18% GST on delivery charges, whereas Instamart ends up waiving the charges on most orders,” JM Financial pointed out.
“Importantly, platforms have historically passed on the GST burden to end customers across various fee types, suggesting that any incremental incidence this time around will likely be a pass-through,” the brokerage firm added.
Motilal Oswal bullish on Swiggy, Eternal
Brokerage firm Motilal Oswal Financial Services has upgraded Swiggy to a ‘buy’, and retained its ‘buy’ rating on Eternal.
“We upgrade Swiggy to a ‘buy’ with a target price of ₹560 (implying 32% upside), reflecting the inflexion in food delivery growth and improved unit economics in quick commerce. We retain our ‘buy’ rating on Eternal with a target price of ₹420 (implying 29% upside), as we continue to see structural tailwinds and upside to earnings estimates for the company,” said Motilal.
The brokerage firm expects food delivery growth to accelerate due to the upcoming festive season and the recent GST reforms.
“We believe food delivery growth, which was stunted at 17-18 per cent due to weak consumption and macro pressures, could accelerate beyond 20 per cent in the next two to four quarters, driven by the upcoming festive season, as well as a spur from the recent GST reforms,” said Motilal Oswal.
Heightened competition, accelerated dark store rollouts, and elevated customer acquisition costs have impacted the profitability of quick commerce players, but the brokerage firm says that the cycle could be turning now.
“In quick commerce, all changes point to easing competition: (1) new entrants have found it difficult to execute and make a meaningful dent in quick commerce market share, (2) we expect most players to moderate dark store expansion pace, which peaked in Q4FY25, (3) an intense focus on cost among the top three players should lead to lower discounting, reducing CAC, (4) GST reforms could accelerate quick commerce adoption in non-metro cities,” said Motilal Oswal.
Motilal Oswal has raised its food delivery growth estimates for both Eternal and Swiggy to 21-23 per cent for FY26-FY27, compared to 19-20 per cent earlier. It values the food delivery businesses at 35 times FY27E adjusted EBTIDA, compared to 27 times earlier.
The brokerage firm has also raised its profitability assumptions for quick commerce for Instamart and Blinkit, which has led to upgraded target prices for both Swiggy and Eternal.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.