Interested in Swiggy's upcoming IPO? Here are inputs for your homework

India’s leading food delivery startup Swiggy is set to make a splash on the stock market with its much-awaited initial public offering (IPO). As the company continues to expand its footprint in the quick commerce and food delivery sectors, investors are keen to see how Swiggy will navigate its growth story amid rising competition and increasing operational challenges. 

Here’s everything you need to know about the upcoming IPO.

The Swiggy IPO is a combination of a fresh issue of equity shares worth ₹3,750 crore and an offer-for-sale of 18, 52,86,265 equity shares by existing shareholders. The IPO includes segments for qualified institutional buyers (QIBs), anchor investors, and mutual funds. 

Non-institutional buyers will also have opportunities, with one-third of the allocation set for bidders applying between ₹2 to ₹10 lakh, and the rest for those applying for more than ₹10 lakh, alongside a retail portion.

SoftBank keeps off Swiggy OFS

Swiggy’s IPO will see some early backers, such as Accel, Prosus, and Tencent, selling part of their stakes, offering the potential for significant returns. However, major shareholder SoftBank, which capitalised on recent IPOs of Ola Electric, Firstcry, and Unicommerce, has opted not to participate in the offer-for-sale (OFS) and will retain its stake

Other key backers like Apoletto, Coatue, DST Euro Asia, Inspired Elite Investments, and Norwest are also likely to sell portions of their holdings, with some early investors poised to see significant returns.

Among individual shareholders selling stakes are co-founder Lakshmi Nandan Reddy Obul, Ramco Systems chairman P.R. Venketrama Raja, former co-founder Rahul Jaimini, non-executive director Samina Hamied, and co-founder Sriharsha Majety.

Proceeds will support Instamart

Swiggy plans to allocate ₹982 crore—around 27% of the proceeds—towards expanding its dark store network through its subsidiary Scootsy Logistics Private Ltd. This investment will support the growth of Swiggy Instamart, its quick commerce arm, which has become a critical focus area for the Prosus-backed company as it scales rapidly to meet industry demands. 

Additionally, ₹929 crore will be spent on branding and promotional activities, aimed at enhancing performance marketing and digital media efforts. In 2023-24, Swiggy spent ₹558 crore on marketing, a slight dip from the previous year. The remaining proceeds will be used for technology upgrades, cloud infrastructure, potential acquisitions, and general corporate purposes.

Heavyweight lead bankers

Swiggy has brought on a team of heavyweight bankers for the IPO, including Kotak Mahindra Capital, J.P. Morgan India, Citigroup Global Markets, BofA Securities, Jefferies India Private Ltd, ICICI Securities Ltd, and Avendus Capital. This lineup reflects the high expectations for the offering, as Swiggy looks to attract a diverse group of institutional and retail investors.

With the filing of its draft red herring prospectus (DRHP), Swiggy has kicked off preparations for its public market debut. The company is expected to start roadshows soon, with a likely listing date in November 2024, Mint reported earlier this week.

Swiggy’s financials

Swiggy reduced its losses by 43% in FY24, bringing them down to ₹2,350 crore, largely due to robust growth in its food delivery and quick commerce businesses. Over the past 18 months, the Bengaluru-based startup has focused on streamlining operations and improving margins. Revenue from operations jumped 36%, reaching ₹11,247 crore last fiscal year. The company’s consumer-facing business—which includes food delivery, Instamart, and dining—reported a gross order value (GOV) of ₹35,000 crore, driven by 1.43 crore monthly transacting users.

In the June quarter of FY25, Swiggy’s revenue grew to ₹3,222 crore, up from ₹2,389 crore in the same period last year. However, expenses also rose to ₹3,908 crore from ₹3,073 crore, leading to widened losses of ₹611 crore, compared to ₹564 crore a year earlier.

Swiggy’s heavy investment in the quick commerce segment has paid off, with revenue from that unit soaring by 108% to ₹374 crore in the June quarter. This growth was fuelled by higher commissions from merchant partners, advertising revenue, and fees from users and delivery partners. Gross order value (GOV) in quick commerce also surged to ₹2,724 crore, while the average order value rose to ₹487 from ₹441, reflecting increasing demand across Swiggy’s various verticals.

Quick commerce business doing well

Swiggy's quick commerce segment has seen significant growth over the past year, reaching a gross merchandise value (GMV) of $2.8 billion in 2023, according to Redseer estimates. However, as competition intensifies, Swiggy recognizes the need for a sharper focus on this business to maintain its edge, Mint reported earlier this month.

In FY24, Swiggy Instamart generated ₹1,100 crore in gross revenue, while its main competitor, BlinkIt, reported ₹2,301 crore. Instamart's gross order value (GOV) for the year was ₹8,100 crore, compared to BlinkIt’s ₹12,469 crore. With BlinkIt and Zepto together commanding 60-65% of the quick commerce market, Instamart faces tough competition, making Swiggy's planned investments in the unit crucial to gaining market share.

The quick commerce sector as a whole has become highly competitive, with players like BlinkIt, Zepto, and Tata’s BigBasket aggressively expanding to capture market share. Large e-commerce giants like Flipkart are also entering the fray, as consumers increasingly turn to instant deliveries for everything from groceries to big-ticket items like electronics and appliances.

Swiggy has raised approximately $3.62 billion across 15 funding rounds, with backing from over 50 institutional investors and a few angel investors, according to Tracxn. In 2022, the company secured $700 million in a round led by Invesco, doubling its valuation to $10 billion. Since then, its valuation has fluctuated, but Swiggy is now targeting a $10 billion valuation for its IPO.

The IPO has also garnered interest from Bollywood celebrities, including Madhuri Dixit’s family office, Sidharth Malhotra, Amitabh Bachchan, and athletes like Rahul Dravid and Zaheer Khan, along with tennis star Rohan Bopanna and filmmaker Karan Johar, adding star power to its list of investors.

Zomato’s listing

Swiggy’s upcoming IPO comes more than three years after its larger rival, Zomato, went public. Zomato’s stock surged nearly 125% this year, closing at ₹280.15 on Thursday, fuelled by its leadership in the sector. The company, which acquired Blinkit, its quick commerce arm, now competes directly with Swiggy's Instamart.

Zomato’s market capitalisation hovers at $25 billion, more than double Swiggy's projected $10 billion valuation. Zomato's food delivery service contributes 46.17% of its revenue, with additional income streams from its B2B Hyperpure business and Blinkit. The recent acquisition of Paytm’s ticketing business further broadens its service portfolio.

Risk to watch out for

Swiggy, which began as a food delivery startup a decade ago, has since expanded into quick commerce, dining, and services like Genie and Swiggy Minis. While revenue has grown, it has come at the cost of significant expenses, including advertising, promotions, delivery costs, and employee benefits, resulting in negative cash flows.

With its gross order value spread across geographies, Swiggy plans to invest heavily in scaling up its operations. However, there’s a risk that increased investment across its verticals may not translate into higher revenue. If Swiggy fails to drive growth, it may struggle to achieve profitability and could continue incurring losses.

(By arrangement with livemint.com)