Swiggy's India IPO Defies Weak Market With Listing Gain

Swiggy Ltd.’s shares climbed in their Mumbai debut, signaling a vote of confidence for large initial public offerings in India.

(Bloomberg) — Swiggy Ltd.’s shares climbed in their Mumbai debut, signaling a vote of confidence for large initial public offerings in India.

The food-delivery firm listed at 416.20 rupees, about 7% higher than the selling price of 390 rupees, the top of the marketed range. The shares traded at 444.65 rupees at 11:47 a.m. local time, valuing the company at just under $12 billion. 

The $1.3 billion sale, the nation’s second-largest listing this year after Hyundai Motor India Ltd.’s record $3.3 billion IPO, comes as global funds are dumping local shares on concerns over earnings growth. Initial demand for Swiggy’s IPO was subdued, but institutional demand on the final day drove it to a strong close.

Swiggy’s IPO was seen as a test of investor appetite for the country’s burgeoning quick-commerce sector. The debut pits the company against larger listed rival Zomato and privately-held Zepto in India’s rapid delivery space. According to CLSA, these firms are set to top $78 billion in combined gross orders within a decade.

“These companies already have a good presence and people have gotten used to ordering,” said Pranav Bhavsar, a co-founder of Trudence Capital Advisors Pvt. “It is hard to do away with that once you get used to it. That makes quick commerce a good theme to invest.”

The listing defies the recent trend of weak performance among large first-time offerings in India. IPOs raising over $1 billion since 2019 have fallen by an average 3% on their first trading day, data compiled by Bloomberg show. That compares with an average 19% gain for all listings in the country for the period.

Hyundai Motor India’s shares dipped on debut last month, and remain 12% below the IPO price. A handful more big listings are in the pipeline: state-backed NTPC Green Energy Ltd. is set to take bids for its up to $1.2 billion IPO next week. The Indian unit of LG Electronics Inc. and HDB Financial Services Ltd. are also gearing up for their debuts.

“The India IPO market faces a cautious outlook following Hyundai’s underwhelming post-listing performance,” said Manish Bhargava, chief executive officer at Straits Investment Management in Singapore. “Investor skepticism is heightened, especially for startups with high valuations but uncertain profitability.”

While Swiggy’s IPO attracted global funds including Fidelity International, the loss-making company faces challenges. Competition among quick commerce firms has caught the attention of India’s antitrust watchdog, which is investigating the company and Zomato for alleged unfair practices. Both the firms have said no final order has been issued.

Fierce competition means increased spending on small-sized warehouses while “regulatory actions, such as welfare scheme for gig workers will be inflationary,” Macquarie Group analysts including Aditya Suresh wrote in a note. They initiated coverage with an underperform rating and a target of 325 rupees.

Despite these hurdles, Swiggy’s growth is backed by strong online demand in one of the fastest-growing major economies. Its market share stood at about 37%, just behind Zomato’s 39% as of March 31, according to Chryseum Advisors, which tracks unlisted shares. 

“We see immense growth potential given quick commerce is essentially a play for the broader retail market, which was approximately $1 trillion in 2022,” JM Financial Institutional Securities Pvt. analysts wrote in a note. JM began coverage on Swiggy with a buy rating and a target of 470 rupees.

The company was priced at about 40% discount to Zomato’s 12-month forward enterprise value to sales, according to Bloomberg Intelligence. Zomato shares have more than doubled this year, with nearly all the 27 analysts covering the company recommending the stock as a buy.

“Zomato trading up is providing a strong backdrop to Swiggy’s performance,” said Devi Subhakesan, an independent analyst from Investory Pte. 

Read: Prosus Gains $2 Billion on Swiggy Investment with IPO Valuation

Meanwhile, SoftBank Group Corp. and Prosus NV have more than doubled the value of their investments in Swiggy’s listing price. Prosus and its controlling shareholder Naspers Ltd. invested $1.3 billion building a 31% stake in Swiggy ahead of its debut.

—With assistance from Savio Shetty.

(Updates with comments.)