Swiggy IPO closes today; analysts recommend `subscribe for long term'

Bengaluru-based Swiggy opened its initial public offering (IPO) within a price band of ₹371 to ₹390 on November 6. The IPO will close today .

The food delivery powerhouse has garnered considerable interest from institutional investors, raising ₹5,085.02 crore through the anchor book introduced on November 5.

Swiggy's IPO has allocated 75% of the shares in the public offering to qualified institutional buyers (QIB), with 15% set aside for non-institutional investors (NII), and 10% reserved for retail investors. There are 7,50,000 equity shares earmarked for employees. A discount of ₹25 per share is available for eligible employees.

Zomato is the main competitor

Founded in 2014, Swiggy provides users with an easy-to-use platform available via a single application to explore, choose, order, and pay for meals (food delivery), as well as groceries and household products (Instamart), with prompt delivery enabled by its network of partners.

The sole listed peer of the company is Zomato Ltd, which has a price-to-earnings ratio of 634.50.

Swiggy Limited's revenue climbed by 34% between March 2023 and March 2024. Meanwhile, its loss narrowed from ₹4,179.31 crore to ₹2,350.24 crore in the same period.

Mohit Gulati of ITI Growth Opportunities Fund emphasised that Swiggy is the modern-day Facebook for old people while the competitors are the young audience focussed on TikToks and Instagram.

Mr Mohit believes Swiggy to be a classic story of the “hare and tortoise” where from being a leapfrogging hare it became complacent and is now losing market share in its home territory.

“I think the company has lost its mojo on innovation where Zomato and Zepto have benefited. On a valuation basis, it deserves to trade lower than Zomato owing to these reasons. Risk reward on this one is more in favour of subscribing to Zomato’s FPO,” added Mr Gulati.

Subscription status

Swiggy IPO subscription status was 35% on the second day of subscription today, BSE data shows. The initial share sale received a bid for 5,57,09,140 shares against 38,70,64,594 shares on offer.

The segment allocated for retail investors saw a subscription rate of 84%, whereas the non-institutional investors' share was subscribed at 14%. The portion reserved for qualified institutional buyers (QIBs) achieved a 28% subscription. Meanwhile, the employee allocation has been subscribed 1.15 times. At the end of the first day of bidding, Swiggy IPO was subscribed 12%. The IPO received bids for 1,89,80,620 shares as against 16,01,09,703 shares on offer.

IPO review

According to Indsec Securities, a brokerage, with an upper price limit of ₹390 per share, the IPO is valued at an EV/sales ratio of 7.8x compared to a listed industry counterpart that stands at 17.6x based on FY24 revenue. Between FY22 and FY24, the company experienced a revenue growth rate of 40.4% CAGR, while Zomato achieved a growth rate of 70%.

The majority of the fresh capital raised will be directed towards expanding the network of dark stores to foster growth in quick commerce, as well as on marketing and advertising initiatives. The management has indicated that the business will continue to incur losses to fulfill its goal of achieving substantial scale amid increasing competition in the quick commerce sector. Consequently, the brokerage advises a “Subscribe for long-term” rating for the IPO.

The SBICAP Securities Ltd brokerage said Swiggy, priced at the upper band of ₹390.0, is assessed at Price/Sales, EV/Sales, and P/BV ratios of 7.8x/7.3x/7.1x respectively based on its FY24 financials after the issue capital. When compared with Zomato, the offering appears to be appropriately priced across all these metrics. The brokerage has advised investors to subscribe to the issue with a long-term investment perspective.

Swiggy IPO details

Swiggy's IPO includes a new offering worth ₹4,499 crore, along with an offer-for-sale (OFS) of 175,087,863 equity shares from the company's selling shareholders.

In the OFS, the stakeholders offloading their shares consist of Accel India IV (Mauritius) Ltd, Apoletto Asia Ltd, Alpha Wave Ventures, LP, Coatue PE Asia XI LLC, DST EuroAsia V B.V, Elevation Capital V Ltd, Inspired Elite Investments Ltd, MIH India Food Holdings B.V, Norwest Venture Partners VIIA-Mauritius, and Tencent Cloud Europe B.V.

The firm intends to use the net proceeds to invest in its primary subsidiary, Scootsy, manage its debt responsibilities, expand its network of dark stores within the quick commerce industry, and address lease or licensing fees associated with those dark stores.

Additionally, the company plans to invest in technology and cloud-based systems. The firm also mentioned that it will set aside funds for brand marketing and related promotional activities. Furthermore, it aims to allocate resources to facilitate inorganic growth through unspecified future acquisitions, as well as for general corporate purposes.

Kotak Mahindra Capital Company Ltd, Citigroup Global Markets India Private Limited, Jefferies India Private Limited, Avendus Capital Pvt Ltd, J.P. Morgan India Private Ltd, Bofa Securities India Ltd, and ICICI Securities Ltd are the main lead managers for the Swiggy IPO, with Link Intime India Private Ltd acting as the registrar for the offering.

(By arrangement with livemint.com)