The highly anticipated Initial Public Offering (IPO) of Swiggy, one of India’s leading food delivery giants, has garnered much attention from both institutional and retail investors. With an impressive growth trajectory and a substantial market share in the food tech industry, Swiggy IPO Listing is expected to be a landmark event. However, as with any investment, it’s essential to examine both the potential returns and the risks before participating. Here’s a comprehensive look at the critical factor’s investors should consider.
Company Overview
Swiggy, launched in 2014 with a smartphone app for ordering, rapidly rose to prominence in India’s food delivery sector, directly competing with Zomato. The company expanded its operations to over 500 cities and introduced multiple service verticals like Swiggy Genie (instant delivery), Swiggy Supr Daily (grocery delivery), and Instamart (quick commerce). Swiggy’s growth and continuous innovation have cemented its strong position in India’s highly competitive food delivery space. Today, it holds approximately 45% of the market, trailing only Zomato.
Financial Performance and Metrics
- Revenue – Swiggy posted revenue of about INR 5,705 crore for the fiscal year ending in March 2023, which is a 60 per cent on year growth.
- Net Loss – While Swiggy has shared the losses have been in the red, its total net loss reached INR 3,700 crore in FY2023 versus INR 1,900 crore from FY2022.
- Operational Metrics
- Order Volume – In FY2023, Swiggy grew to 750 million orders, 50 per cent higher than 500 million orders seen in FY2022.
- Average Order Value (AOV) – The average order value for Swiggy has been around INR 450 and this is an increase in our customers spending.
- Cash Burn – High operational costs of Swiggy are because of promotional discounts, driver incentives and delivery logistics that lead profitability.
Market Opportunity
Rapid Growth Forecast
By 2025, India will be responsible for a market size of Food delivery of USD 20 billion with a CAGR of 25%. Key drivers include: –
- Urbanization – The potential customer base for Swiggy is boosted by increasing urbanization and convenience requirement of working population.
- Rise of Quick Commerce – There is a growing quick commerce market (15-30 minute delivery) with a CAGR of 40%, assumed by Swiggy’s Instamart segment.
- Tier-2 and Tier-3 Market Penetration – Swiggy’s potential market in smaller cities is its expansion. In these areas, the demand for food delivery is going up rapidly and Swiggy has the ability to create untapped growth opportunities to serve them.
Strengths and Competitive Advantages
Diverse Business Model – Swiggy’s foray into grocery and convenience delivery has expanded its reach and captured additional market share, addressing customer daily needs beyond food delivery.
Strong Brand Equity – As a brand with a high brand recall and a sharp edge over smaller players, Swiggy has a strong stand at the heel of Zomato, its primary competitor.
Technological Capabilities – With AI and machine learning in the platform, Swiggy looks to customize customer recommendations, optimize delivery routes and improving user experience.
Challenges and Risks
- Profitability: Like many tech-driven companies, Swiggy is heavily reliant on external funding. Its net loss for FY2023 indicates a significant cash burn, which could become an issue if the path to profitability is prolonged.
- Rising Competition: Zomato, backed by an existing market presence and similar strategies, remains Swiggy’s primary competitor. Additionally, hyper-local platforms are emerging, making the competitive landscape more challenging.
- Regulatory Risks: The food delivery industry faces regulatory scrutiny around delivery partner wages, tax structures, and service fees. Potential government regulations on gig economy platforms could impact Swiggy’s operating model.
Valuation Comparison with Peers
Swiggy’s primary competitor, Zomato, went public in July 2021. Here’s how Swiggy stacks up based on comparable data:
| Metric | Swiggy (Projected) | Zomato (FY2023) |
| Revenue | INR 5,705 crore | INR 6,325 crore |
| Net Loss | INR 3,700 crore | INR 2,800 crore |
| Market Cap (est.) | INR 50,000 crore | INR 60,000 crore |
Swiggy’s IPO valuation, expected to be in the range of INR 45,000 – 50,000 crores, is comparable to Zomato’s listing valuation. However, Zomato’s post-IPO performance has been volatile, with its stock fluctuating significantly over the past two years.
Investors Final Considerations
Growth Potential – With Swiggy’s diversification and market share achieved, they have a strong potential of growth in the smaller city markets and quick commerce.
Path to Profitability – We don’t see it making money just yet. Since Swiggy is a loss making company at present, investors with a higher risk tolerance can think of it as a growth opportunity while conservative investors may choose to remain on the sidelines until they can see clearer financial sustainability.
Market Sentiment: As of November 8, 2024, Swiggy’s IPO subscription rates are:
- Qualified Institutional Buyers (QIB) – 5.80x
- Non-Institutional Investors (NII) – 0.39x
- Retail Investors – 1.08x
- Employees – 1.59x
- Overall – 3.46x
GMP Performance: The Grey Market Premium (GMP) for Swiggy’s public issue has seen a decline. While it started at ₹12 on the day of the anchor round (Tuesday), it eventually fell to Rs.1. This signals changes in market sentiment over time.
Conclusion
Swiggy’s IPO marks a pivotal moment in India’s growing food delivery industry. While the company’s growth and market position are promising, its path to profitability remains a concern. The IPO received a mixed response, with a total subscription rate of 3.46x as of November 8, 2024, driven primarily by Qualified Institutional Buyers (QIB) at 5.80x, whereas the Non-Institutional Investors (NII) category saw lower interest at 0.39x. The Grey Market Premium (GMP) performance also reflects evolving market sentiment, starting at ₹12 on the anchor round day before eventually declining to Re 1. Investors with a long-term horizon and a high-risk appetite may find Swiggy’s IPO attractive. However, more conservative investors may prefer to observe its post-IPO performance before committing.
Swiggy’s IPO listing date is November 13, 2024.
