Swiggy IPO opens today: Is it worth subscribing? All you need to know

As Swiggy's IPO opens for subscription, investors must decide: will this food delivery giant serve up solid returns or leave them disappointed?

In Short

• Swiggy IPO will remain open for subsctiption till November 8
• Price band set at Rs 371-390, minimum bid 38 shares
• Mixed analyst views on subscribing to Swiggy IPO

The initial public offering (IPO) of Swiggy Ltd is set to open for subscription on November 6, 2024, and will remain available until November 8.

The total issue size is Rs 11,327 crore, which includes a fresh issue of 11.54 crore shares valued at Rs 4,499 crore, while existing shareholders will offer up to 17.5 crore shares worth Rs 6,828 crore.

The price band for the IPO has been fixed at Rs 371-390, with a minimum bid of 38 shares per lot. Ahead of the opening, Swiggy’s unlisted shares are trading with a grey market premium (GMP) of Rs 12, down from earlier highs of Rs 20.

SWIGGY vs ZOMATO

Krishna Patwari, Founder and Managing Director of Wealth Wisdom India Pvt. Ltd., pointed out that Swiggy is trailing Zomato by 4 to 6 quarters in food delivery and quick commerce, highlighting Zomato's operational efficiency. He noted that Swiggy’s Gross Order Value (GOV) for FY25 is projected at $3.3 billion, approximately 25% lower than Zomato’s.

While Swiggy has 14 million monthly transacting users compared to Zomato’s 20 million, both companies have similar order frequencies, with Swiggy's average order value being slightly higher. Patwari highlighted that the IPO, with its attractive pricing, presents a growth opportunity, particularly if Swiggy can increase basket sizes in quick commerce and expand its dark store presence.

However, he also cautioned that while the IPO could unlock growth potential, there are questions regarding Swiggy’s path to profitability. The company’s competitive stance post-IPO will depend on its ability to close the gap with Zomato.

Despite a reasonable valuation, Swiggy's recent losses raise concerns about long-term sustainability, leading Patwari to advise investors seeking quick listing gains to avoid the IPO.

On the other hand, Ajay Lakhotia, Founder and CEO of StockGro, urged investors to look beyond mere comparisons with competitors. He highlighted the importance of understanding Swiggy’s path to profitability and evaluating whether the IPO pricing reflects its true potential.

"The takeaway is that IPO investing isn't just about peer comparison. It's about understanding Swiggy's path to profitability, evaluating if the IPO pricing reflects current realities, and considering one's own investment horizon, as new listings need time to stabilise. While a profitable peer provides benchmarks, each company's journey can differ significantly," Lakhotia added.

Meanwhile, Gaurav Garg, Research Analyst at Lemonn Markets, acknowledges Swiggy’s valuation relative to Zomato, suggesting that improvements in EBITDA and AOV could help close the valuation gap in the future.

SHOULD YOU SUBSCRIBE OR NOT?

Analysts have mixed views on whether to subscribe to the IPO. Some brokerages advocate for it, citing fair pricing compared to competitors, while others warn of investing in a company with negative cash flows and ongoing losses.

SBI Securities suggested investors to go for long-term subscription, noting that at the upper price band, Swiggy's valuation is at 7.8 times Price/Sales, which is reasonable relative to Zomato. In contrast, Aditya Birla Money advises against participation due to the financial losses and high valuation at 7.7 times FY24 price-to-sales. Bajaj Broking supports a long-term investment, highlighting Swiggy's growth potential despite current losses.

Rajan Shinde, Research Analyst at Mehta Equities Ltd, sees Swiggy’s IPO as an exciting opportunity to invest in a rapidly growing consumer-focused tech company. He notes that the company’s expansion in hyperlocal commerce, its improved Average Order Value (AOV), and shrinking losses as indicators of its operational efficiency and resilience. “Looking at all attributes we recommend investors to “SUBSCRIBE” the Swiggy Ltd for long term perspective," Shinde adds.

Shivani Nyati, Head of Wealth at Swastika Investmart Ltd, notes that while Swiggy showcases impressive growth, it remains loss-making, suggesting that conservative investors proceed with caution. She said that the valuation seems reasonable compared to industry standards, even as the overall market remains uncertain.

"Investors should consider Swiggy’s long-term growth potential alongside its current profitability challenges, making this IPO more aligned with those comfortable with high-risk exposure and a longer investment horizon," Nyati said.

SWIGGY IPO KEY DETAILS

Swiggy is anticipated to achieve a post-listing market capitalisation of Rs 87,299 crore at the upper end of the price band. The allocation strategy includes reserving shares for employees, with 75% for qualified institutional buyers, 15% for non-institutional investors, and the remaining 10% for retail investors.

The proceeds from the fresh issue will support strategic initiatives: Rs 1,343.5 crore will fund investment in its subsidiary Scootsy, while Rs 703 crore will be allocated to technology and cloud infrastructure. Additionally, Rs 1,115 crore is earmarked for brand marketing and business promotion, with the remainder set aside for inorganic growth and general corporate purposes.

Founded in 2014, Swiggy partners with over 200,000 restaurants across India, facilitating food delivery in a rapidly growing market. Competing against firms like Zomato, Amazon’s India unit, and Tata Group’s BigBasket, Swiggy operates as a B2C marketplace that aggregates restaurant and merchant partners, enabling consumers to discover and purchase their offerings.

For the June 2024 quarter, Swiggy reported a net loss of Rs 611.1 crore on revenue of Rs 3,310.11 crore, with total losses reaching Rs 2,350.24 crore for the fiscal year ending March 31, 2024. Despite these challenges, Swiggy continues to expand its services and improve operational efficiencies, positioning itself for future growth.

The final allotment for the Swiggy IPO is expected to be announced on November 11, 2024, with a tentative listing date on the BSE and NSE set for November 13, 2024. As retail investors consider participation, weighing the prospects against the associated risks will be crucial in making informed decisions.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)