Swiggy’s IPO, valued at nearly $11 billion, is the latest headline in India’s food-tech sector, highlighting the company’s ambition to challenge Zomato’s stronghold in the food delivery and quick-commerce spaces.
Swiggy’s offering, which closed on November 8, 2024, is expected to raise approximately $1.36 billion, positioning it for growth but also drawing attention to ongoing challenges in profitability and market share. As Swiggy steps onto the public stage, questions arise about its ability to compete with the already-profitable Zomato.
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Shifting valuations amid market uncertainty
Swiggy initially aimed for a valuation of $15 billion but adjusted its IPO price to reflect current investor sentiment. The price band was set at $4.44-$4.67 per share, with a combination of $540 million in fresh shares and $820 million in an Offer for Sale (OFS) from existing shareholders, including prominent early backers like Accel, Elevation Capital, and Prosus.
While anchor investors, including Fidelity and Norway’s Norges Bank, injected $610 million pre-IPO, analysts highlight Swiggy’s continued losses and question whether this fresh infusion will help it scale.
Institutional demand versus retail caution
Swiggy’s IPO saw strong institutional demand, especially from Qualified Institutional Buyers (QIBs), with that segment subscribed 140% by the final day. However, retail investor interest was more cautious, with 97% subscription, and the non-institutional investor portion lagged at just 0.38%. Analysts believe this disparity reflects caution among smaller investors wary of Swiggy’s unprofitable status and high valuation relative to its revenue.
The grey market premium, an early indicator of investor sentiment, began at a modest 4% premium but fell to below 1% by the IPO’s final day. This lukewarm response, especially compared to Zomato’s high-demand IPO in 2021, highlights ongoing concerns around Swiggy’s ability to transition to profitability in a competitive landscape.
Financial snapshot: Growing revenues, persistent losses
Swiggy’s financial performance is marked by strong revenue growth but significant losses. For Q1 FY25, the company reported $389 million in revenue, a 35% year-over-year increase, but also reported a net loss of $73 million. Swiggy closed FY24 with total revenue of $1.36 billion but recorded a substantial $283 million net loss, raising questions about its business model and ability to scale profitably.
Unlike Zomato, which has achieved profitability with a $42 million net profit in FY24, Swiggy remains in the red. The company has invested heavily in expansions like Instamart, its quick-commerce service, and Genie, an on-demand delivery platform, but analysts caution that these ventures require ongoing funding and may take years to turn a profit.
Can Swiggy compete with Zomato’s market stronghold?
Swiggy’s IPO marks a new phase in its rivalry with Zomato, whose IPO in 2021 brought it substantial capital and market confidence. Currently, Zomato leads the market with 58% share in food delivery compared to Swiggy’s 34%, and it has leveraged its position to expand profitably. Zomato’s quick-commerce arm, Blinkit, holds an estimated 40-45% market share, compared to Swiggy’s Instamart at 20-25%.
“No frenzy has been seen so far in Swiggy’s IPO as we saw in Zomato’s three years back. Zomato has started producing profit while Swiggy is still yet to, hence risk capital is unlikely to move to Swiggy from Zomato,” said Deven Choksey, Managing Director of DRChoksey FinServ. Choksey’s remarks capture the investor sentiment that, while Swiggy holds a solid position, it lags behind in financial stability and scale.
Long-term returns or risky bet?
Analysts are cautious about Swiggy’s IPO prospects, with mixed recommendations. SBI Securities and Bajaj Broking suggest subscribing with a long-term outlook, given Swiggy’s established brand and potential in quick commerce.
However, others, including Aditya Birla Money, reportedly advise against participation, pointing to Swiggy’s high price-to-sales ratio of 7.7x FY24 and its unprofitable status. The company’s reliance on fresh capital and the rapid evolution of the food-tech market mean that profitability is likely a long-term goal.
Zomato’s profitability and established dominance create a high bar for Swiggy to clear. While the company’s revenue growth indicates demand, its ability to convert this demand into sustainable earnings will be closely monitored.
What do we think about the update
Swiggy’s IPO underscores the continued interest in India’s food delivery sector and the potential for high-growth tech firms in the public market. However, its full subscription largely hinged on institutional backing rather than retail enthusiasm.
As Swiggy begins its life as a public company, it faces the challenge of matching Zomato’s profitability while balancing the demands of growth and diversification. The IPO proceeds give Swiggy a foundation for expansion, but only time will reveal if it can leverage these funds to solidify its position and close the gap with its profitable rival, Zomato.