Swiggy Ltd IPO Analysis 2024: Should You Subscribe?

The IPO (initial public offering) of Swiggy Ltd commences on November 06 and concludes on November 08, 2024. The offering, carrying a Grey Market Premium (GMP) of 3%, saw muted response on its first day of bidding.  

Investors should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Swiggy IPO Details

• Issue Size: Rs 11,327.43 crore
• Fresh Issue: Rs 4,499 crore
• OFS: Rs 6,828.43 crore
• Price Band: Rs 371 – Rs 390
• Lot Size: 38 shares
• Listing Date: November 13, 2024

Swiggy IPO Subscription Status

As of 6 p.m. on the opening day, the IPO of Swiggy Ltd was subscribed 0.12 times overall. Non-institutional investors subscribed 0.06 times their allocation, while retail investors subscribed 0.55 times. Meanwhile, qualified institutional buyers were yet to subscribe to their reserved portion.

Overview of Swiggy Ltd

Swiggy is a user-centric technology company that has established itself as a leader in India's hyperlocal commerce industry. Founded in 2013, Swiggy began with Food Delivery services and expanded into Quick Commerce in 2020. 

Through its comprehensive platform, users can order food, groceries, and household items for doorstep delivery via Swiggy Instamart. The platform also offers restaurant reservations and product pick-up/drop-off services through Swiggy Genie, catering to a wide range of hyperlocal commerce needs.

Swiggy Key Strengths

• Increasing User Engagement: In FY24, Swiggy’s users showed higher monthly transaction frequency than other hyperlocal players, with steady growth in monthly transacting users (MTU) across food delivery, quick commerce, and overall platform use. By June 30, 2024, Swiggy reached a milestone of 112.73 million users who have transacted on its platform.
• Strong Growth in GOV: Swiggy’s Food Delivery business achieved a Gross Order Value (GOV) of Rs 24,700 crore in FY24, a 15% YoY growth. Quick Commerce saw faster growth, with GOV up 58% to Rs 8,100 crore. Management expects Quick Commerce to surpass food delivery, with future funds focused on expanding Instamart Dark Stores. Swiggy also leads in Monthly GOV per MTU among hyperlocal platforms.
• Rising AOV and Expanded Network: Swiggy’s growing Average Order Value (AOV) and the expansion of its Dark Store network (from 301 stores in FY22 to 523 in FY24) are enhancing user engagement and operational efficiency.

Swiggy Risk Factors

• Profitability Concerns: Swiggy has yet to achieve profitability at both operating and net levels. Additionally, the firm has maintained negative working capital from operations since its inception.
• Legal Risks: Swiggy is currently involved in legal disputes, with pending proceedings amounting to Rs 396.61 crore. Unfavourable outcomes in these cases could adversely affect the firm’s reputation and financial health.
• Operational Challenges: Effective management of dark stores is crucial for Swiggy's quick commerce operations, while efficient warehouse management is vital for its supply chain and distribution business. Inability to manage these aspects cost-effectively may adversely affect the company's overall business performance.
• User Retention and Acquisition: Swiggy’s financial condition could be negatively impacted if it fails to retain its existing user base or to acquire new users in a cost-effective manner.

Swiggy Valuation & Recommendation

In terms of valuations, the IPO is priced at a Price-to-Sales ratio of 7.8x, significantly lower than Zomato’s 18x, offering a 57% discount while Swiggy’s order value is only 25% less. The Price-to-Book ratio is also favourable at 7.1x vs Zomato's 10.7x.

Swiggy is India’s only unified app fulfilling all urban food-related needs—ordering in, dining out, and home cooking. Though currently loss-making at the net level, its Food Delivery business turned profitable with Rs 1,000 crore EBITDA in FY24.

The Food Delivery and Quick Commerce markets are expected to grow at a CAGR of approximately 17-22% and 60-80%, respectively, between CY23 and CY28. Swiggy currently holds the second-largest market share in both segments, which are significant, fast-growing markets with increasing online penetration and substantial growth potential.

Given these aspects, investors with a long-term perspective may consider subscribing to the IPO.

For a deep dive into other IPOs, explore: IPO Corner on Liquide