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India’s food delivery market is projected to grow at a robust pace of 13–14% annually, buoyed by easing competitive pressures in the quick commerce space and improving profitability metrics, according to a recent report from HSBC Global Investment Research.
The report signals a cooling-off in the quick commerce segment, where the once-intense competition appears to have moderated significantly in recent months.
“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,” HSBC noted, suggesting a shift in strategy toward efficiency and customer retention.
With abundant capital no longer translating into disproportionate market share gains, companies are expected to pivot from aggressive expansion toward enhancing asset utilization and profitability.
Despite rising variable costs — including picker and delivery partner wages — the cost pressures from dark store operations have begun to stabilize. Overheads related to corporate functions like management and technology currently account for about 5% of gross order value (GOV), but HSBC anticipates this figure will fall to 2–3% over the next four to five years as the industry scales.
The report estimates a steady-state EBITDA margin of around 5% for food delivery companies in India, signaling a gradual but sustainable path to profitability.
A key focus for investors remains sector valuation — particularly in the case of publicly listed food delivery giant Zomato. HSBC suggests Zomato's valuation should align with consumer discretionary peers, citing its strong industry position and low reinvestment requirements.
“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 said.
Consumer discretionary firms in India typically trade at EV/EBITDA multiples ranging from 15x to 60x. HSBC assigns a 40x EV/EBITDA target multiple to Zomato and highlights the company's tax assets, which enhance its valuation attractiveness when viewed on a price-to-earnings basis.
As both the food delivery and quick commerce sectors mature, the focus is expected to shift from rapid growth to sustainable returns — a transition that investors are watching closely.
