Swiggy IPO - should you invest or stay away?

 In its revised draft public issue prospectus filed on September 27, 2024, Swiggy is planning to raise Rs 3,750 crore by way of fresh issue of shares and sales of 18.53 crore shares by existing shareholders at a price to be decided closer to the actual issue.

Sellers include Accel India (1.06 crore shares acquired at an average price of Rs 11.17), Elevation Capital (0.74 crore shares acquired at an average price of Rs 11.44) and MIH India Food Holdings (11.8 crore shares acquired at an average price of Rs 131).

The issue is likely to be around Rs 10,000 crore, giving Swiggy a valuation of around Rs 100,000 crore, ET Prime reported.

Swiggy reported total income of Rs 3,310 crore for the quarter ended June 30, 2024 compared to Rs 2,510 crore for the same period of 2023, an increase of 32 percent. Loss for the period increased to Rs 611 crore from Rs 564 crore.

"We started our operations in 2014 as a food delivery service and have since launched multiple services on our platform, such as quick commerce in 2020, dineout in 2022, pick-up/drop-off service Genie in 2020, and engage in other hyperlocal commerce through Swiggy Minis," says the document.

Swiggy is also testing out other services - Bolt for food delivery in 10-15 minutes and Rare Club, a high-priced concierge membership that offers subscribers purchase access to high-end experiences and events for a starting membership fee of Rs 50,000.

How funds will be used
Swiggy reported an increase of 22 percent in average monthly transacting restaurant partners at 223,671 for the quarter ended June 30, 2024, and its active dark stores increased 32 percent to 557 during the period under review.

Swiggy plans to invest Rs 137 crore in its subsidiary Scootsy Logistics for repayment of its borrowings, expansion of dark stores (Rs 982 crore), technology and cloud computing (Rs 586 crore) and business promotion (Rs 929 crore).

Swiggy has aggressively expanded its dark store network in recent months. From 460 dark stores at the end of FY2024, its dark store count stood at 605 as of September 10, The CapTable reported. "The average size of new dark stores has also jumped significantly as the company has expanded the number of categories on offer. Swiggy plans to double its current dark store count by the end of FY2028."

Zomato vs Swiggy - where is it headed?
Zomato, which listed in July 2021 with an issue size of over Rs 9,000 crore, is now valued at over Rs 2.4 lakh crore, mainly boosted by the performance of its quick commerce division Blinkit. While the Rs 4,300 crore acquisition of Blinkit by Zomato came under a lot of fire, the business has quickly turned out to be a money spinner with increasing average order value (AOV) and repeat orders transaction customers.

In fact, the quick commerce market is where all the action is - Zepto with a valuation of over $5 billion, BB Now, Flipkart Minutes and Amazon also now eyeing the market.

"The operating metric gap between Zomato and Swiggy remains substantial. While Swiggy's implied market cap-to-sales discount may seem attractive, it's not a compelling reason for bullishness unless the company adopts a fresh perspective, improves planning, and executes effectively to close the gap with Zomato," ET reported.

The challenge for Swiggy will be how quickly it can scale its quick commerce business - Instamart - and how it plans to increase the average order value and repeat orders. Market is there, customers are ready - is Swiggy up for the challenge?

To trade on par or at a premium multiple vs Zomato, Swiggy will have to gain market share in food delivery as well as q-commerce, coupled with good execution on profitability to move closer to Zomato’s adjusted EBITDA margin in the food segment (3.4 percent of gross order value in Q1FY25) and achieve a path to break-even in q-commerce, which may be a long haul, writes Karan Taurani for Elara Capital.

Given the #SharkTank clash between Deepinder Goyal, CEO, Zomato (who claims he was ousted from the latest series) and (sponsor) Swiggy, the story is just getting started, right?