Swiggy Profitability Could Lead To Re-Rating For Listed Internet Firms, Says JM Financial
JMFL said internet firms will not only be prioritising profitability but will also be communicating the path forward explicitly.
Investors' conviction in new-age firms' potential profitability, such as Swiggy's announcement, could lead to a re-rating event for listed internet companies and ease the path to a public market listing for unlisted names, according to JM Financial Ltd.
Swiggy's food delivery business has turned profitable after factoring in all corporate costs but excluding employee stock option costs as of March 2023, Sriharsha Majety, the chief executive officer of Swiggy, wrote in a blog post on Thursday.
"This, in effect, means both large incumbents in India’s broadly duopoly online food delivery market have now turned profitable in their core businesses," JM Financial wrote in a report dated May 19, referring to Zomato Ltd. It has a 'buy' rating and a target price of Rs 100 on the Gurugram-based company.
The brokerage said that while Swiggy is yet to go public, these developments are in line with its earlier assessment that internet companies will not only be prioritising profitability but will also be communicating the path forward explicitly.
"As such, we continue to expect positive surprises within our coverage in the near term, such that accelerated profitability at a consolidated level is now more realistic than earlier expected by the market."
It added that while demonstrating profitability is a "welcome trend", internet firms should ensure "exponential expansion of their respective categories" for the future.
"We believe investor conviction on potential profitability and timeline could lead to a re-rating event for listed internet companies while easing the path to public market listing for unlisted names like Swiggy," it said.