Swiggy IPO to Open Next Week. Is it Worth the Hype?

The Indian primary markets have witnessed remarkable growth this year, with a notable surge in initial public offerings (IPOs). According to data from the BSE (erstwhile Bombay Stock Exchange), a total of 127 companies have gone public so far in 2024.

This week alone has seen the successful listing of three mainline IPOs-namely, Waaree Energies, Deepak Builders & Engineers, and Godavari Biorefineries-on both the National Stock Exchange (NSE) and BSE.

Additionally, five companies from the Small and Medium Enterprises (SME) segment have listed on the SME platforms.

Beginning with the listing of Afcons Infrastructure on Monday, 4 November, the upcoming week promises to be equally exciting for investors.

One of the most awaited IPOs of 2024, Swiggy, is set to hit the market soon.

About Swiggy

Founded in 2014, Swiggy Limited is a comprehensive platform that allows users to easily search, select, order, and pay for food, groceries, and household goods through a single app.

The company operates five key business units: food delivery, out-of-home consumption (including restaurant visits and events), quick commerce for on-demand grocery delivery, supply chain and distribution for B2B deliveries, and logistics, and platform innovation for new initiatives like Swiggy Genie and Swiggy Minis.

Swiggy's platform also facilitates restaurant reservations through Dineout and event bookings via SteppinOut.

Additionally, the company offers a membership program called "Swiggy One," which provides discounts and exclusive offers, along with various in-app payment solutions, including a digital wallet, Swiggy UPI, and a credit card in partnership with HDFC Bank.

Key IPO Details and Structure

Here are the key details of the upcoming offering.

Issue period: 6 November 2024 to 8 November 2024

Type of issue: Book Built Issue

Price band: Rs 371-390 per share

Face value: Rs 1 per equity share

Lot size: 38 shares

Application limit: The minimum lot size for an application is 38 shares, requiring a minimum investment of Rs 14,820 for retail investors.

Tentative IPO allotment date: 11 November 2024

Tentative listing date: 13 November 2024

The IPO of Swiggy is a mix of a fresh issue of shares worth Rs 44.9 bn and an offer for sale for Rs 68.3 bn.

The company proposes to utilize the Net Proceeds towards funding the following objects:

• Debt Management: Repayment or pre-payment of borrowings for the material subsidiary, Scootsy.
• Expansion of Dark Store Network: Investment in Scootsy to establish new Dark Stores for the Quick Commerce segment, including lease/license payments.
• Technology Enhancement: Upgrading technology and cloud infrastructure to improve platform performance.
• Brand Marketing: Allocating funds for marketing and business promotion to boost brand awareness and visibility across segments.
• Inorganic Growth: Funding for unidentified acquisitions and general corporate purposes to drive future growth.

A Close Look at Financials

For the June 2024 quarter, the company reported a revenue of Rs 33,101.1 million (m), with the net loss at Rs 6,110.1 m. By the end of the June quarter, its net worth stood at Rs 74,449.9 m.

In FY24, Swiggy recorded revenues of Rs 116,343.5 m, reflecting a substantial growth of approximately 33.5% from Rs 87,144.5 m in FY23.

This marks a robust upward trajectory for the company as it seeks to capture a larger share of the food delivery market.

However, despite the revenue growth, Swiggy faced persistent net losses, with the net loss narrowing from Rs 41,793.1 m in FY23 to Rs 23,502.4 m in FY24.

Swiggy's Financial Snapshot (2022-24)

Particulars	31-Mar-22	31-Mar-23	31-Mar-24
Revenues (Rs in m)	61,197.80	87,144.50	116,343.50
Revenue Growth (%)	-
Net Profit (Rs in m)	(-36,289.0)	(-41,793.1)	(-23,502.4)
Net Worth (Rs in m)	122,669.10	91,566.10	77,914.60

Data Source: Company's Red Herring Prospectus (RHP)

Over the three-year period, Swiggy's revenue expanded from Rs 61,197.8 m in March 2022 to Rs 116,343.5 m by March 2024, a compound annual growth rate (CAGR) of approximately 27.3%.

Meanwhile, the company's net worth has seen a decline, dropping from Rs 122,669.1 m in March 2022 to Rs 77,914.6 m in March 2024, highlighting challenges in profitability amidst rapid expansion.

Peer Comparison

Swiggy and Zomato are the two titans in India's food delivery and quick commerce markets.

While Swiggy takes on Gurgaon-based Zomato in the food delivery arena, its quick commerce vertical, Instamart, faces stiff competition from Zomato-owned Blinkit, Zepto, Flipkart Minutes, and Tata Digital's BigBasket.

Peer Comparison

Company	Revenue FY24 (Rs in million)	Return on Net Worth (%)
Swiggy	112,473.90	-30.2
Zomato	121,140.00	1.7

Data Source: Afcons Infrastructure ' RHP

Zomato showcased impressive financial performance with a net profit of Rs 2.5 billion in Q1 FY25, up from Rs 20 m last year. Its revenue soared to Rs 42.1 bn, more than double the previous year's Rs 14.2 n, highlighting strong operational efficiency.

On the other hand, Swiggy reported FY24 revenue of Rs 112.5 bn but faced a net loss of Rs 23.5 bn. Despite this, it achieved a 44% reduction in losses compared to the previous year, indicating progress in managing its finances.

Furthermore, In FY24, Swiggy reported revenues of Rs 112,473.9 m with a return on net worth of -30.2%, while Zomato generated higher revenues of Rs 121,140 m and achieved a return on net worth of 1.7%.

This stark contrast highlights Swiggy's challenges in profitability despite its substantial revenue base.

Quick Commerce Strategy

Swiggy, the renowned food and grocery delivery service, is redefining its growth trajectory as it approaches its Initial Public Offering (IPO).

The company has submitted its red herring prospectus (RHP) to the Securities and Exchange Board of India (SEBI) for a Rs 113 bn IPO, emphasizing a significant shift toward quick commerce.

To enhance its competitiveness against rivals like BigBasket, Blinkit, and Zepto, Swiggy is increasing its primary fund target by issuing new shares, raising it from Rs 37.5 bn to Rs 44.9 bn.

The company plans to allocate Rs 11.8 bn-20% more than initially projected-specifically for its quick commerce division, Instamart.

• Explosive Growth in Quick Commerce

  India's quick commerce sector has witnessed remarkable growth, particularly during the COVID-19 pandemic, as consumers increasingly sought fast and convenient delivery of groceries and essentials.

  With expectations for deliveries within 30 minutes, the market is projected to reach nearly US$ 9.95 bn by 2029, expanding at over 4.5% annually.

  This surge is driven by enhanced digital infrastructure, affordable data, and widespread smartphone adoption, leading to a cultural shift in online shopping habits.

• Expansion of Dark Stores

  Central to Swiggy's quick commerce strategy is the expansion of its dark stores-dedicated warehouses designed for rapid order fulfilment.

  Swiggy intends to invest Rs 7.6 bn to increase its dark store footprint and Rs 423.3 crore for leasing and licensing.

  This expansion will elevate Swiggy's dark store count to 741, encompassing approximately 2.59 million square feet, positioning it competitively against Blinkit, which has 791 dark stores. Currently operating 605 active dark stores, Swiggy aims to meet the rising consumer demand for ultra-fast deliveries.

• Intensifying Competition

  Swiggy faces stiff competition in the quick commerce arena, particularly from Zepto, Blinkit, and Reliance. Zepto's recent US$ 150 m funding round indicates strong investor confidence in quick commerce.

  Reliance is also making strides by transforming its supermarket network into quick commerce hubs, enhancing competition in the 10-30 minute delivery segment.

  This intensification will pressure Swiggy and other players to expand aggressively.

• Investment in Technology and Marketing

  To maintain its competitive edge, Swiggy is dedicating Rs 7 bn to technological enhancements, including cloud infrastructure and logistics optimization, vital for efficient inventory management and timely deliveries.

  Additionally, Swiggy is committing Rs 3.2 bn to marketing efforts aimed at promoting Instamart, enhancing consumer adoption and brand loyalty.

  These investments are designed to streamline operations, improve customer experience, and bolster Instamart's presence across key Indian markets.

Grey Market Premium

Swiggy IPO GMP today is +25. This indicates Swiggy share price was trading at a premium of Rs 25 in the grey market

Considering the upper end of the IPO price band and the current premium in the grey market, the estimated listing price of Swiggy share price is indicated at Rs 415 which is 6.41% higher than the IPO price of Rs 390.

According to the grey market trends observed over the past eight sessions, today's IPO GMP is showing an upward movement, indicating a robust listing.

The positive GMP often serves as a barometer for demand and investor enthusiasm, hinting at potential gains for those participating in the upcoming public subscription.

Risks to Consider

Since its inception, the company has incurred net losses annually and has experienced negative operating cash flows. If it cannot achieve adequate revenue growth while effectively managing costs and cash flows, it may continue to face substantial losses.

Additionally, if the organization fails to retain its current user base or acquire new users in a cost-effective manner, its business, financial health, and operational results could be adversely impacted.

Conclusion

In India, with roughly over 600 m internet users and 185 m online shoppers, the country has the third-largest digital shopping base after the United States and China.

India's D2C market is expected to grow at an exponential rate of 30-40% CAGR over the next few years.

The pandemic has surged the amalgamation of offline and online shopping. Brands are now integrating with online sales channels to ensure a seamless shopping experience for customers.

The expected growth in the market would be aided by macroeconomic factors like the growth in per capita earnings as well as trends like an explosion in the variety of brands and the increasing focus on personalisation.

These industry trends are set to enhance sector performance, with Swiggy positioned to benefit from these favourable developments.

With many exciting players emerging, it's a fantastic time to explore your options in this space.

Be sure to conduct thorough research before making any investment decisions. Ensure the investment aligns with your financial objectives and matches your risk tolerance.

For more information on IPOs, check out the list of upcoming IPOs.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...