Shares of food delivery and quick commerce major Swiggy rose 3 percent to Rs 342 in morning trade on June 3 after global brokerage Morgan Stanley initiated coverage with an “overweight” rating, setting a price target of Rs 405 per share. This implies a potential upside of 22 percent from the stock’s last close and places the firm’s target slightly above Swiggy’s IPO price of Rs 390.

The investment thesis hinges on three key pillars: Swiggy’s strengthening performance in food delivery, the large and growing addressable market in quick commerce, and a mismatch between investor assumptions on capital outlay versus topline growth.

According to the brokerage, the food delivery landscape in India is expected to remain a two-player arena. As Swiggy tightens its execution, Morgan Stanley believes the company could close the profitability gap with its rival, Eterna or Zomato, in this segment.

Quick commerce is another promising frontier. If Swiggy maintains its current share, Morgan Stanley estimates the total addressable market for this vertical could swell to $57 billion by 2030. In terms of valuation, Morgan Stanley has pegged Swiggy’s food delivery business at 25 times its FY28 adjusted EBITDA—about 5 percent lower than Eternal’s corresponding multiple. Meanwhile, the quick-commerce arm Instamart is valued at 27 times FY31 adjusted EBITDA, at a 25 percent discount to Eternal’s Blinkit.

Despite expectations of steep investments ahead, the brokerage feels the market isn’t fully factoring in Swiggy’s growth potential, especially in topline terms—a gap it sees as a key opportunity.

For the broader sector, Morgan Stanley identifies key near-term catalysts: improving growth in quick commerce gross order value (GOV) in the June quarter, better unit economics in food delivery through reduced platform-funded discounts and better fixed cost absorption, and a stabilisation in competitive intensity—which could lift the entire segment, including Swiggy.

That said, risks remain. A slip in Swiggy’s execution could hurt its market share in both food delivery and quick commerce. Heightened competition might also push Swiggy to invest more than expected, increasing cash burn and potentially leading to equity dilution—especially if the market mirrors trends seen in China’s delivery and e-commerce sectors. Additionally, regulatory uncertainties around gig workers or FDI rules in retail could pose structural challenges to the business models of Swiggy and its peers.

At about 9:35 am, shares of the company were trading at Rs 339, higher by 1.7 percent from the last close on the NSE. Swiggy shares have been a tough run since the start of the year, down nearly 40 percent.