Swiggy IPO will open for bidding on November 6 and is one of the most anticipated issues of the year. The food delivery giant aims to raise approximately ₹11,327 crore from the primary market and it will be a mix of fresh issue (11.54 crore equity shares worth ₹4,499 crore) and offer for sale (17.51 crore shares valued at ₹6,828.43 crore). The Zomato rival has set an IPO price band of Rs. 371 to 390 and it values the company at $11.3 bn (in INR approx 94,000cr).
Swiggy’s GMP of Rs 20 is indicating a muted start of the issue on the secondary market. Should you bid for the IPO and where does it stand against listed rival Zomato? Let’s analyze
| Issue Details | Key Notes |
|---|---|
| Date of Opening | November 6, 2024 |
| Date of closing | November 8, 2024 |
| Price Band (Rs) | 371 – 390 |
| Fresh Issue (Rs cr) | 4,499 |
| Issue Size (Rs cr) | 11,327 |
| Face Value (Rs) | 1 |
| Bid Lot | 38 shares and in multiples thereof (minimum investment of 14,820 (at upper price band) |
| QIB shares | 75% |
| Retail shares | 10% |
| NIB shares | 15% |
Swiggy IPO: About the company
Swiggy is a new-age, consumer-first technology company offering users an easy-to-use convenience platform, accessible through a unified mobile app. It provides services like browsing, selecting, ordering, and paying for food (“Food Delivery”), grocery and household items (“Instamart”), and having their orders delivered to their doorstep through Swiggy’s on-demand delivery partner network. The platform
can be used to make restaurant reservations (“Dineout”) and events bookings (“SteppinOut”), to avail product pick-up/ drop-off services (“Genie”), and to engage in other hyperlocal commerce (Swiggy Minis, among others) activities.
According to the Redseer Report, Swiggy has successfully pioneered the industry in India, launching Food Delivery in 2014 and Quick Commerce in 2020, and due to the pioneering status it is well-recognized as a leader in innovation in hyperlocal commerce and as a brand synonymous with the categories it is present in.
The company claims to offer comprehensive business enablement solutions to restaurant partners, merchant partners (that sell grocery and household items on its platform), and brand partners including alliance partners such as analytics-backed tools to enhance their online presence and user base; fulfillment services for streamlining their supply chain operations; and last-mile delivery.
Swiggy’s business- an Industry overview
- the food services and quick commerce market (two primary revenue-generating segments of Swiggy) are highly fragmented and unorganized markets and they lend well to aggregation and digital disruption. Further, the segment is poised for high growth due to significant online penetration headroom, affordable offerings, easier-to-adopt categories, habit-forming tendencies with high purchasing frequency and low friction, high ancillary monetization etc.
- The Indian food services market comprises online Food Delivery and Out-of-home Consumption which was ₹5,600bn (US$70bn) as of 2023. The online Food Delivery market is the fastest-growing segment within the food services market and is expected to grow at 17-22% between 2023 and 2028.
- In the Out-of-home Consumption market, the organized segment and the online dining out segment are expected to grow at 15-18% and 46-53% respectively between 2023 and 2028. Both online Food Delivery and Out-of-home Consumption markets are growing on the back of a rapid increase in the share of organized restaurant supply unlocking demand in the Indian market.
- The online food delivery market in India grew from ₹112 billion (US$1.4bn) in 2018 to ₹640 billion (US$8bn) in 2023 and is expected to become a ₹1400-1700 billion (US$17-21bn) market by 2028P, growing at a CAGR of 17-22%.
- The Average Order Value (“AOV”) (average monetary value of a single order pre-discount and including taxes, and customer delivery charges but excluding tips) for the industry has also climbed from approximately ₹290-320 (US$3.6- 4.0) in 2018 to approximately ₹425 (US$5.3) in 2023 and is expected to grow to ₹542-550 till 2028, growing at a CAGR of 5%.
- The company’s other focus segment “Quick Commerce” is also witnessing very rapid growth, currently the total market size of Quick Commerce is at approx $2.8bn which is expected to reach $29-53bn till 2028 growing at a CAGR of 60-80%.
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Swiggy strength
- Swiggy’s unified app is one of its biggest strengths, apart from being user-friendly by providing access to all offered services from one place it also is great in terms of cross-selling. This unified app approach enables them to scale business organically as the co can leverage a common user base across offerings, a growing fulfillment network, a common and reusable technology stack, a broad partner network, and a membership program, among others.
- Swiggy is among the pioneers of high-frequency hyperlocal commerce categories in India. Its approach is driven by an innovation-led culture so it has a deep understanding of the market in which it operates. Driven by innovation and growth in offerings on a unified platform, Swiggy’s users are constantly growing, from 10.26 million monthly transacting users in 2022 to 15.99 million users in Q1 of FY25 the MTU is showing a steady growth and it is projected to keep growing as co launches its services in new places.
- Swiggy aims to continue increasing the geographical overlap of various offerings including Food Delivery and Quick Commerce to fuel cross-selling opportunities on the platform. It aims to grow its presence to 1000 cities in next few years, Swiggy on average adds 70 new cities in a year.
- To continue increasing the density of Swiggy’s Quick Commerce network in the cities where co currently operates, as well as in new cities it may choose to expand to in the future and increase the Dark Store footprint in terms of aggregate area, to enable merchant partners to offer a wider selection of products on its platform to meet consumer demands and get closer to consumer demand clusters to fulfill orders more efficiently and within the expected delivery time.
Company Financials
| Income Statement (Rs Cr) | FY22 | FY23 | FY24 |
|---|---|---|---|
| Revenue growth YoY(%) | 44.9 | 36.1 | |
| Gross Margin (%) | 60.2 | 59.1 | 59.1 |
| EBITDA | -3651 | -4276 | -2208 |
| PAT | -3629 | -4179 | -2350 |
| EPS (Rs) | -17.1 | -19.1 | -11.1 |
| Free Cash Flow (FCF) | -24,974 | -13,828 | -9,585 |
While the company’s top line saw good growth in the past few years, the bottom line also improved, but the company remains at a loss. In FY 25 Swiggy is expected to make 14,000 – 14,500cr as revenue and (2,500 – 2,600) cr as loss.
Challenges ahead for the company, valuations and peer comparison
- Swiggy builds its business from the start and while it can be beneficial for the company in the long run, it initially requires large capital. Swiggy’s two largest revenue-generating segments, food delivery and supply chain & distribution are progressing well and are on the cusp of becoming adjusted EBITDA-positive but other key segments like quick commerce, out-of-home dining and platform innovations are still miles away from becoming EBITDA positive.
- The company’s expansion plan (of dark stores and other key infra) will further delay the profitability of the Quick Commerce segment. In Q1 of FY25, co spent 1 rupee to earn 1 rupee from this segment. Similarly Out of home dining and Platform innovation (though small segments) are also struggling and have long way to go before becoming EBITDA-positive.
- Apart from financials, Swiggy’s business is such that there is no brand loyalty and users can easily switch to other platforms due to various reasons. Retaining users, delivery partners, restaurant partners etc is key to the success of Swiggy’s business, Quick Commerce is still in a nascent stage and prone to disruptions so the company will have to keep track of changing trends.
- The uninterrupted functioning of the technology platform is essential to the business. Any systems failures, data breaches and resulting interruptions in the availability of website, mobile application or platform could adversely affect business, financial condition and results of operations.
Peer Comparison
| Particulars (Rs cr) | Swiggy Ltd | Zomato Ltd |
|---|---|---|
| CMP | 390 (at upper price band) | 242 |
| Revenue | 11,247 | 12,144 |
| EBITDA | -2,208 | 372 |
| PAT | -3,628 | 351 |
| Market cap | 87,298 | 2,13,725 |
| Enterprise Value | 82,119 | 2,18,778 |
| P/E (x) | – | 288 (on TTM basis) |
| P/BV (x) | 7.1 | 10.1 |
| P/Sales (x) | 7.8 | 18.0 |
| EV/Sales (x) | 7.3 | 18.1 |
Zomato is projected to do 21,000- 22,000 cr sales in FY25 and its profitability is expected to improve as its food delivery, going out segment is already profitable and the Quick commerce blinkit platform is close to achieving EBITDA profitability. Zomato have 55% market share in food delivery segment while Swiggy have 45. Similarly, Zomato has a higher market share in Quick Commerce too.
Conclusion
Investors should stay away from Swiggy IPO, though it seems at a discount from listed peer Zomato but the difference in financials and uncertainty around profitability diminishes the attractiveness. Only very high risk-taking investors should bet on this IPO keeping the long term view in mind, for the rest watching its listing from a distance is the best option. Investors should track the use of IPO proceeds (in promotion and in establishing key infra like dark stores) and their effects on financials to take a cue for the future.
Click here to read the Swiggy’s RHP
