GST on Delivery Charges: Minimal Impact Expected for Food Delivery Giants
- THE MAG POST
- 16 hours ago
- 5 min read
The recent implementation of an 18% Goods and Services Tax (GST) on delivery charges by platforms like Swiggy and Eternal marks a significant regulatory update, yet industry experts anticipate minimal disruption to the food delivery and quick commerce sectors. This perspective is rooted in the belief that sustained consumption growth, itself propelled by prior GST rate adjustments on consumer goods and the swift embrace of quick commerce, will effectively counterbalance the added tax burden. Analysts foresee a negligible overall financial impact on these companies, maintaining their attractiveness, particularly as the crucial festive season approaches, a period historically characterized by a pronounced upswing in consumer spending. The government's clarification that customer-paid delivery fees are now taxable places the onus on platforms such as Swiggy and Zomato to remit the GST, a departure from earlier practices where direct platform liability was less consistently applied.
Navigating the New GST Landscape for Food Delivery Platforms
The recent mandate requiring food delivery and quick commerce platforms like Swiggy and Eternal to collect and remit an 18% Goods and Services Tax (GST) on customer-facing delivery charges marks a significant shift in regulatory compliance. While this change introduces a new layer of taxation, industry experts suggest its impact on the overall sector may be less disruptive than initially feared. The prevailing sentiment is that robust consumer spending, bolstered by earlier GST rate reductions on various goods and the burgeoning quick commerce market, is poised to absorb this additional tax burden without materially hindering growth. Analysts are keenly observing how these platforms will adapt, with a prevailing expectation that the increased cost will be fully passed on to consumers, thereby maintaining the companies' profit margins.
Assessing the Financial Ramifications and Market Outlook
The immediate financial implications of the new GST directive are being closely scrutinized. However, projections indicate a negligible effect on the bottom line for major players. This optimism is further fueled by the approaching festive season, a period historically associated with heightened consumer activity and spending. The new tax regime specifically targets delivery fees charged directly to customers, clarifying that platforms are now directly liable for GST collection, a departure from previous, less consistent applications. This regulatory clarity, while potentially increasing upfront costs, is seen as a move towards a more standardized tax environment.
Analyst Upgrades and Growth Projections
Leading financial institutions are expressing confidence in the sector's resilience and future growth prospects. Motilal Oswal Financial Services, for instance, has upgraded its rating for Swiggy to ‘buy,’ setting an ambitious target price of ₹560, which suggests a potential 32% increase. This recommendation is underpinned by an observed acceleration in food delivery growth and marked improvements in the economic viability of quick commerce operations. Similarly, Eternal has received a reaffirmed ‘buy’ rating with a target price of ₹420, reflecting a projected 29% upside, attributed to strong underlying growth drivers and substantial earning potential.
Re-acceleration of Food Delivery Growth
The food delivery segment, which had experienced a slowdown to approximately 17–18% growth due to subdued consumer spending and broader economic headwinds, is now anticipated to rebound. Motilal Oswal forecasts a resurgence, with growth rates expected to exceed 20% over the next two to four quarters. This projected acceleration is attributed to a confluence of factors, including the anticipated surge in demand during the festive season and the stabilizing effect of GST reforms. The brokerage has consequently revised its growth estimates for both Swiggy and Eternal upwards to a range of 21–23% for the fiscal years 2026–2027, an increase from prior projections of 19–20%.
The Shifting Dynamics of Quick Commerce Profitability
The quick commerce sector has grappled with significant challenges, including intense competition, aggressive expansion of dark stores, and substantial customer acquisition costs, all of which have pressured profitability. However, the market dynamics appear to be evolving favorably. Recent trends indicate that new entrants are finding it difficult to capture market share, and the rapid proliferation of dark stores, which peaked in the fourth quarter of fiscal year 2025, is now moderating. Established players are strategically focusing on cost optimization and reducing reliance on deep discounting. Furthermore, the recent GST adjustments might spur greater adoption of quick commerce services, particularly in non-metropolitan areas, by creating a more level playing field and potentially standardizing operational costs across different regions.
Revised Valuations and Future Earnings Potential
In light of these evolving market conditions and improved growth forecasts, financial analysts have adjusted their valuation models. Motilal Oswal has increased its valuation multiple for food delivery businesses to 35 times the estimated adjusted EBITDA for FY27, a notable increase from the previous 27 times. Concurrently, profitability assumptions for quick commerce operations, such as Swiggy's Instamart and Eternal's Blinkit, have been revised upward. These adjustments in valuation metrics and profitability outlook have directly contributed to the enhanced target prices for both Swiggy and Eternal, signaling a positive outlook for investors in the evolving food tech and quick commerce landscape.
Concluding Thoughts on Market Resilience
The food delivery and quick commerce industries are demonstrating remarkable resilience in the face of evolving regulatory and economic conditions. The new GST regulations, while requiring adjustments, are unlikely to derail the sector's growth trajectory. Instead, the combination of strong consumption trends, strategic cost management by key players, and the inherent convenience offered by these platforms suggests a robust future. The market's ability to absorb the additional tax burden and continue its upward momentum underscores the fundamental strength and adaptability of this dynamic sector.
Aspect | Details |
GST on Delivery Charges | Mandatory 18% GST on delivery fees collected from customers by platforms like Swiggy and Eternal. |
Market Impact Assessment | Experts believe the impact will be negligible due to strong consumption trends and rapid quick commerce adoption. |
Consumer Impact | Companies are expected to pass on the full 18% GST cost to customers. |
Analyst Ratings | Motilal Oswal upgraded Swiggy to 'buy' (target ₹560) and reaffirmed 'buy' on Eternal (target ₹420). |
Food Delivery Growth Forecast | Expected to accelerate beyond 20% (from 17-18%) over the next 2-4 quarters, driven by festive demand and GST reforms. |
Quick Commerce Profitability | Improving due to moderating dark store expansion, focus on cost-cutting, and reduced discounting. |
Revised Growth Estimates (FY26-FY27) | Swiggy and Eternal's food delivery growth estimates raised to 21-23% from 19-20%. |
Valuation Multiple for Food Delivery | Increased to 35x FY27E adjusted EBITDA from 27x previously. |
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