Swiggy IPO: Investors Can Participate Until November 8
The much-anticipated Initial Public Offering (IPO) of Swiggy, one of India’s leading food delivery and quick commerce platforms, has officially opened for subscription. With a total worth of ₹11,324 crore, the IPO consists of a fresh issue of ₹4,500 crore and an offer for sale from various institutional investors. The offer for sale includes shares from notable investors such as Accel India, Apoletto Asia, Alpha Wave Ventures, DST Euro Asia, and Norwest Venture Partners, all of whom are selling portions of their holdings. This IPO marks a significant milestone for Swiggy, which aims to utilize the fresh issue funds for debt repayment, dark store expansion, technological improvements, marketing initiatives, and acquisition strategies.
Swiggy IPO: Price Band and Grey Market Premium
Investors can participate in the Swiggy IPO until November 8. The company has set a price range of ₹371 to ₹390 per share, with a minimum lot size of 38 shares, allowing for additional investments in multiples thereof. As of now, the shares are trading at a Grey Market Premium (GMP) of ₹12, indicating a modest 3% premium above the issue price. This suggests a cautious optimism among investors regarding the IPO’s performance.
The valuation of Swiggy through this IPO implies a market capitalization of ₹87,299 crore, which values the company at 7.7 times its FY24 annualized revenues. In comparison, its primary competitor, Zomato, is valued at a significantly higher multiple of 17 times, highlighting the competitive landscape in the food delivery sector.
Swiggy IPO: Should You Subscribe?
The question on many investors’ minds is whether to subscribe to the Swiggy IPO. While Zomato has recently achieved profitability in FY24 after three years of being publicly listed, Swiggy continues to operate at a loss. This unprofitability, coupled with fierce competition in the quick commerce sector, raises concerns about Swiggy’s immediate financial outlook. An analysis by ET suggests that despite these challenges, the potential for growth in India’s quick commerce market makes the IPO appealing for long-term investors.
Market analysts have varied opinions regarding the Swiggy IPO. Some, like Samco Securities, recommend avoiding the IPO until Swiggy demonstrates improved financial performance and a clearer path to sustainable growth. They argue that waiting for more favorable financial results would be a more prudent investment strategy.
On the other hand, SBI Securities views the IPO more favorably. They note that at the upper price band of ₹390, Swiggy is valued at Price/Sales, EV/Sales, and P/BV multiples of 7.8x, 7.3x, and 7.1x, respectively, based on its FY24 financials. When compared to Zomato, they believe the issue appears fairly priced across these metrics and recommend subscribing for a long-term investment perspective.
About Swiggy
Founded in 2014 in Bengaluru, Swiggy initially focused on food delivery but expanded into quick commerce in 2020. The platform now offers a unified application that includes various services such as food delivery, Instamart for groceries, Dineout for restaurant bookings, SteppinOut for events, and Genie for pickup services. This integration not only enhances user convenience but also creates cross-selling opportunities, with over 75% of Instamart users coming from the food delivery segment.
As of the latest quarter, Swiggy boasts 15.9 million monthly active users, supported by 557 dark stores and 54 warehouses, and utilizes 457,249 delivery partners monthly. The food delivery segment remains the most profitable, contributing 50% of gross revenues and holding a 43% market share. Instamart, which generated 11.6% of gross revenues in the same quarter, has shown significant growth potential, expanding from two to 43 cities since its launch.
Swiggy’s revenue has increased at a remarkable 40% CAGR over the past three years, reaching ₹11,247 crore. Notably, net losses have decreased from ₹3,629 crore in FY22 to ₹2,350 crore in FY24, indicating a positive trend. Additionally, advertising expenses have significantly reduced from 35% to 16.5% of revenues between FY22 and FY24. However, the company faces challenges, including rising employee attrition rates, which increased from 37% to 54% during the same period.
Conclusion
The Swiggy IPO presents a compelling opportunity for investors looking to tap into the growing food delivery and quick commerce market in India. While the company’s current financial performance raises questions, its long-term growth potential cannot be overlooked. As investors weigh their options, the decision to subscribe will ultimately depend on their risk appetite and investment horizon. With the IPO open until November 8, interested investors should carefully consider their strategies before making a move.