The IPO of food delivery and quick commerce company Swiggy has opened for public subscription as of 6 November 2024. The offering will be open until 8 November, allowing investors a limited window to secure shares priced between Rs 371 and Rs 390. With an IPO size of Rs 11,327 crore, this much-anticipated public offering is already generating buzz among retail and institutional investors. Let’s take a closer look at what experts are saying about this IPO, the company’s growth plans, potential risks, and how it stacks up against its closest competitors.
IPO Highlights and Key Dates
Swiggy’s IPO has a price band set between Rs 371 and Rs 390 per share, with the shares scheduled to be listed on the stock exchange on 13 November 2024. Out of the total Rs 11,327 crore raised, Rs 4,499 crore will be in the form of fresh equity shares, while the remaining Rs 6,828 crore will come from an Offer for Sale (OFS) by existing investors. Major firms like Prosus and SoftBank, which have been long-term investors in Swiggy, are expected to divest a portion of their holdings through this OFS.
The IPO has reserved 35% for retail investors, 50% for Qualified Institutional Buyers (QIB), and 15% for Non-Institutional Investors (NII).
Expert Ratings and Recommendations
Several top brokerage firms have weighed in on the Swiggy IPO, with mixed views on its potential for short-term and long-term gains. Here’s a look at what different brokerage houses are recommending:
- SBI Securities: Recommends a “Subscribe for long term”, pointing out Swiggy’s strong brand and presence in the high-frequency hyperlocal commerce segment.
- KR Chouksey: Advises to “Subscribe”, highlighting Swiggy’s market reach and customer base.
- Bajaj Broking: Also suggests “Subscribe for long term”, favoring Swiggy’s business model.
- Arihant Capital: Advises “Subscribe only for aggressive investors”, as the company carries high-risk factors.
- Aditya Birla Capital: Advises “Avoid”, citing high competition and valuation concerns.
- Deven Chowksey: Advises a “Subscribe” rating.
Factors Supporting Swiggy’s IPO
- Market Leadership in High-Frequency Commerce: Swiggy has established itself as one of India’s top food delivery and quick commerce companies. Its strong brand recall and vast network across 580+ cities give it an edge in a high-growth sector.
- Growing User Base: Swiggy has over 200,000 restaurant partners and serves millions of users across India. Its growth has been notable in both food delivery and quick commerce under the Instamart brand.
- Experienced Management: Swiggy has a professional management team with a clear strategy for growth, including expansion into new areas like technology and cloud infrastructure, dark stores, and aggressive marketing.
- Strategic Use of IPO Funds: Swiggy plans to use approximately Rs 982 crore from the IPO proceeds to expand its dark store network for Instamart. Additionally, Rs 586 crore will go toward tech development and cloud infrastructure, and Rs 929 crore will be dedicated to brand promotion and business expansion. Swiggy is also earmarking Rs 137 crore to reduce its debt.
- Expansion Potential: By tapping into more verticals and focusing on Instamart’s growth, Swiggy is positioning itself as more than a food delivery company, thereby increasing its value proposition.
Risks and Challenges Facing Swiggy’s IPO
While Swiggy has growth potential, certain risks could impact its long-term success:
- High Competition: Swiggy faces direct competition from Zomato, which has a stronghold in the food delivery space, and Blinkit (owned by Zomato) in quick commerce. Additional rivals like Amazon, Tata Group’s BigBasket, and Flipkart are also in this sector, adding pressure on Swiggy’s margins.
- Cash-Burning Quick Commerce Segment: Swiggy’s quick commerce venture, Instamart, operates in a highly competitive market that demands heavy cash flow for logistics and discounts to attract customers. This segment is considered cash-intensive and currently generates negative cash flow from operations (CFO), leading to concerns about sustainability.
- Regulatory Concerns: Some FMCG distributors have raised questions about Swiggy’s quick commerce model to the Competition Commission of India (CCI), alleging unfair practices. Any regulatory action could hinder Instamart’s growth.
- Recent Valuation Drop: Swiggy reduced its valuation from $15 billion to $11.3 billion before launching the IPO, indicating a potential slowdown in growth. For investors, this suggests caution as the company navigates a highly competitive market while aiming for profitability.
Swiggy IPO GMP (Gray Market Premium)
The gray market is showing limited movement for Swiggy’s IPO, with a premium of around Rs 20 per share. This suggests a modest 5% premium, indicating that market sentiment remains cautious. Investors hoping for a strong listing gain may need to consider this limited premium before making their decision.
How Swiggy’s IPO Compares to Zomato’s
Swiggy and Zomato are direct competitors, with both companies covering similar service areas. Zomato’s IPO launched in July 2021 with an issue size of Rs 9,375 crore and was oversubscribed 35 times. Swiggy’s IPO, though larger at Rs 11,327 crore, may not achieve the same level of enthusiasm due to the slower growth outlook and increased competition. Investors should note that Zomato’s early success was driven by strong investor sentiment in a growing food delivery market, which Swiggy may not be able to fully replicate given current market conditions.
Final Word: Should You Invest in Swiggy’s IPO?
Swiggy’s IPO offers a unique investment opportunity in India’s growing quick commerce and food delivery sector. However, the risks around competition, regulatory factors, and high cash burn make it important for investors to assess their risk tolerance. Those looking for long-term growth might find value in Swiggy’s diversified business and expansion plans, while conservative investors might consider the challenges carefully before committing.
