Swiggy IPO Highlights: Issue got subscribed 12% on Day 01

“Almost 50% valuation compared to Zomato gives some comfort although it should not be considered as an arbitrage in valuation. If Swiggy’s EBITDA catches up to 3-4% in the food delivery business, which is currently at 1% and Average Order Value (AOV) improves to Rs 550-600 levels in quick commerce with higher non-grocery share, we can see bridging in the valuation gap. However, this should not be expected in the near term,” said Gaurav Garg, Research analyst at Lemonn.

“Swiggy’s customer-centric approach, characterized by high transaction frequency and a personalized user experience, ensures strong retention rates and a widening gap in Monthly GOV per MTU. Given these strengths and the projected growth of the online food delivery and Quick Commerce markets, Swiggy is poised for sustained growth. At the upper price band, the company is valued at 8x Price to Sales, offering a 76% discount to its competition. Hence, we assign a “Subscribe” rating,” said Deven Choksey Research in an IPO note.

Swiggy Limited, founded as Bundl Technologies Private Limited in 2013, has grown into one of India’s leading food delivery and hyperlocal logistics companies. The company’s core offerings include on-demand food delivery, grocery delivery and local parcel logistics. Headquartered in Bengaluru, Karnataka, Swiggy has leveraged technology and a vast network of partners to scale rapidly, achieving significant market penetration across Indian cities.

“In FY24, Swiggy reported a revenue of Rs 3,222.2 crore, growing 34.8% YoY, and negative PAT stood at Rs (611 crore). The company’s growth strategy faces notable challenges. While it aims to expand services and partnerships, reducing discounts may impact customer loyalty, and relying heavily on advertising and premium offerings might not be sufficient to drive profitability. Despite efforts to improve operational efficiency, the intense competition and current negative financial metrics raise concerns about long-term viability. At the upper band of Rs 390, the issue is valued at a negative PE of (37.40) based on FY24 EPS of Rs (10.5). We are recommending “Subscribe for aggressive investors” to this issue,” said Arihant Capital Markets in an IPO note.

Swiggy reported a revenue of Rs 3,222.2 crore for the quarter ended June 2024. For the fiscal year ending March 31, 2024, the company generated Rs 11,247 crore, reflecting a significant 36.1% increase from Rs 8,264.59 crore in fiscal 2023. Notably, Swiggy reduced its losses, which decreased from Rs 4,275.74 crore in fiscal 2023 to Rs 2,208.01 crore in fiscal 2024. In the June quarter of the current fiscal year, the company recorded a loss of Rs 611 crore.

The earnings were primarily driven by the food delivery segment, contributing Rs 1,729.63 crore, or 53.7% of total revenue for the June quarter. The quick commerce business followed with Rs 403.3 crore, accounting for 12.5% of revenue, while the out-of-home consumption segment contributed only Rs 46.7 crore, or 1.4%.

Read More: Swiggy IPO opens on November 06: Here are 10 things to know, including price band, issue price, GMP, IPO allotment, listing date

In the Swiggy IPO, around 75% of the shares are reserved for Qualified Institutional Bidders (QIB), with 15% allocated to Non-Institutional Investors (NII) and 10% designated for retail investors. Furthermore, the company has reserved up to 750,000 shares for its employees, who will receive a discount of Rs 25 off the issue price.

Swiggy shares are scheduled to be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on Wednesday, November 13. The allotment of shares is anticipated to be announced by November 12, just prior to the listing date.

Swiggy’s IPO price band has been established between Rs 371 and Rs 390 per share, with a fixed lot size of 38 shares. Retail investors must apply for at least one lot, which consists of 38 shares, or in multiples thereof. This structure enables investors to participate within the defined price range.

Cutthroat competition with few players in the market. The Qcom. (Instamart) business is a cash burning business with negative CFO. The company slashed its valuations prior to the IPO from $15 bn to $11.3 billion. FMCG distributors have raised concerns with the CCI about the sustainability and unfair practices of Qcom, which could hinder growth if action is taken.

The shares of Swiggy were commanding a premium of 5% in the grey market, indicating a flattish debut. The IPO will hit the S-Street on November 13. The IPO will open on November 06.

The company didn’t offer more than 10% of the issue to retail investors. It offered 75% of the issue to qualified institutional buyers and 15% to non-institutional investors.

The company has incurred net losses since its inception and continues to experience negative cash flows from operations, raising concerns about persistent significant losses without adequate revenue growth.

“For the last three fiscals, the company has reported an average EPS of Rs. – (14.90), and an average RoNW of – (35.39) %. The issue is priced at a P/BV of 11.60 based on its NAV of Rs. 33.61 as of June 30, 2024, and is at a P/BV of 7.31 based on its post-IPO NAV of Rs. 53.36 per share (At upper cap). If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a negative P/E, and based on FY24 earnings also it is at a negative P/E, as the company has posted losses for the reported periods. On other parameters the issue appears aggressively priced,” said Bajaj Broking in an IPO note.

The IPO of the food-delivery company is to open on November 06. The company will raise a sum of Rs 11,327.43 crore via a combination of sale of the fresh shares and an offer for sale.