Restaurant India News: India’s Food Delivery Market to Grow 14 Percent as Quick Commerce Cools Off

The food delivery sector in India is projected to grow by 13–14 percent in the coming years, with a steady-state EBITDA margin of around 5 percent, according to a new report by HSBC Global Investment Research. The report also highlights that competitive intensity in the quick commerce segment has moderated recently, supporting stock performance in the near term.

According to HSBC, competition in quick commerce appears significantly more manageable than it was six months ago.

“To be fair there is no dearth of capital for most players even now but as discussed in our earlier note, we believe the incremental benefit of high cash burn is diminishing now,” the report states.

With capital still accessible but its effectiveness diminishing, companies are expected to shift focus toward improving asset utilization and retaining customers acquired over the past year.

“Overall, we think that near-term growth is likely to remain strong and profitability should gradually improve as well,” HSBC adds.

The report notes that while variable costs — including picker and delivery partner wages — have increased over the past few quarters, dark store cost trends have shown signs of stabilizing. Corporate-level costs, which include management and technology, currently account for about 5 percent of gross order value (GOV), but HSBC expects this figure to decline to 2–3 percent over the next four to five years as operations scale.

A key topic among investors remains the appropriate valuation benchmark for the sector. HSBC comments on Zomato’s valuation within the broader consumer discretionary category.

“With a duopoly industry structure and very low reinvestment rate, we think valuations for Zomato should be at least the average of the other consumer discretionary companies in India,” the report says.

Most consumer discretionary firms in India trade at an EV/EBITDA multiple between 15x and 60x. HSBC applies a 40x EV/EBITDA target multiple to Zomato, also noting that the company has significant tax assets, which make it appear cheaper on a price-to-earnings basis compared to peers.