With Swiggy filing its draft red herring prospectus (DRHP) for an initial public offering (IPO), the food delivery giant is taking a significant step towards joining its competitor, Zomato, in the public markets. The IPO will include a fresh issue worth Rs 3,750 crore and an offer for sale (OFS) expected to exceed Rs 6,500 crore, bringing the combined IPO size to well over Rs 10,000 crore. Investors looking to diversify away from Zomato will be keeping a close eye on this listing.

Swiggy’s growth journey

Founded in 2014 by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini, Swiggy initially focused on food delivery, but has since expanded into a broader tech-driven platform, offering hyperlocal delivery services. Over the years, it has partnered with over 1.5 lakh restaurants across India, securing a strong foothold in both major cities and tier-2 towns.

Swiggy's growth has been bolstered by ventures into new segments like grocery delivery through Instamart, which directly competes with BigBasket, and quick commerce. The competition has further intensified with Walmart, via Flipkart, entering rapid delivery. Yet, Swiggy’s diversification aligns with the industry’s shift towards integrated, convenient services beyond food.

Swiggy’s financial challenge: Is profitability within reach?

However, Swiggy’s financial performance shows the challenge of achieving profitability. In full fiscal FY24, Swiggy reported a 36 percent jump in revenue to Rs 11,247 crore, but losses still stood at Rs 2,350 crore -- though significantly narrowed from Rs 4,179 crore in FY23. This reduction in losses was on the account of the company's efforts to control costs and improve margins ahead of the IPO. The updated DRHP shows that the latest quarterly loss widened from a year ago though.

In contrast, Zomato turned a profit in FY24, reporting a net gain of Rs 351 crore on revenue of Rs 12,114 crore. Zomato’s success in going public in 2021, along with its quick commerce expansion through the Blinkit acquisition, has helped it grow into a $20 billion-plus company.

Amitabh Bachchan, Madhuri Dixit, Rahul Dravid, other celebrities invest in Swiggy ahead of IPO

Swiggy has not only drawn venture capital heavyweights but also high-profile celebrity investors. Several Bollywood stars and sports personalities have acquired stakes in the company in the unlisted market ahead of the IPO.

Notable investors include Bollywood actors Amitabh Bachchan, Madhuri Dixit, and filmmaker Karan Johar. Cricketers Rahul Dravid and Zaheer Khan, tennis star Rohan Bopanna, and Innov8 founder Ritesh Malik have also invested in Swiggy’s pre-IPO shares.

Global investors such as SoftBank Vision Fund, Prosus, Accel, and Elevation Capital also hold significant stakes in Swiggy. Additionally, Raamdeo Agrawal, chairman of Motilal Oswal Financial Services, is among the key shareholders.

Swiggy vs Zomato: The race for market leadership.

As Swiggy moves closer to its IPO, investors will closely watch how it compares to Zomato in India’s Rs 2 lakh crore food delivery market. The two companies together control over 90 percent of the market.

While Zomato had a head start in going public, Swiggy’s IPO comes at a time when investor sentiment in India’s IPO market is buoyant. Both companies have expanded beyond food delivery, but their financial trajectories differ.

Zomato's profitability, driven by optimisation and pricing power, has positioned it as a market favourite. Swiggy, on the other hand, is still working to convince investors of its path to profitability. Although Swiggy has implemented stricter cost controls, reduced discounts, and diversified its offerings, it faces pressure from competitors like BigBasket, Flipkart, and Zomato itself in the quick-commerce space.

Swiggy IPO valuation

Swiggy aims to raise funds for future growth while also offering an exit route to early investors through the OFS. The company, last valued at $10.7 billion in 2022, is expected to seek a valuation between $10 billion and $13 billion upon listing.

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Published-Sep 27, 2024 09:23 am