Is Swiggy IPO Good or Bad - Detailed Review

One of the leading food and grocery delivery companies in India, Swiggy Limited has submitted its revised draft documents to the Securities and Exchange Board of India to list its shares in the Indian Stock Market. In this article, we'll provide a comprehensive Swiggy IPO review, diving into its business operations and fundamental analysis to help you make a well-informed investment decision.

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Swiggy IPO - Company Overview

Established in 2014, Swiggy is a new-age consumer-first technology company that offers users an easy-to-use convenience platform, accessible through a unified app. Through the app, consumers can browse, select, order, and pay for food (Food Delivery), groceries, and household items (Instamart) delivered to their doorstep through its on-demand delivery partner network. The app can also be used to make restaurant reservations (Dineout), book events (SteppinOut), and pick-up/drop-off services(Genie). Furthermore, the company also engages in other hyperlocal commerce activities (Swiggy Minis, among others) through the app.

The company also adds value for its users through the "Swiggy One" membership program, which gives them access to special discounts and offers. It also provides convenient payment options like the "Swiggy Money" digital wallet, "Swiggy UPI," and the Swiggy-HDFC Bank credit card for extra benefits.

For its business partners, including restaurants, grocery sellers, and brands, Swiggy offers tools to help them improve their online presence and reach more customers. It also helps them with fulfillment services to manage their supply chain better and provides last-mile delivery to ensure fast and reliable deliveries.

Swiggy IPO Review - Financial Overview

The table below shows the key financial and operating metrics for the company’s business segments for the periods indicated

Talking briefly about the company’s business, we can see that the company has witnessed good growth. The platform's average monthly transacting users grew from 10.16 million in FY22 to 15.86 million in FY24. 

Its gross order value (GOV) has increased from Rs 20,122.26 crore in FY22 to Rs 34,969.08 crore in FY24, and consolidated gross revenue increased from Rs 6,860.44 crore to Rs 12,320.31 crore during the same duration. Additionally, the GOV grew from Rs 8,277.17 crore in FY24 (3 months) to Rs 10,189.59 crore in FY25 (3 months), while consolidated gross revenue increased from Rs 2,693.85 crore to Rs 3,477.29 crore. 

The Food Delivery segment of the company is its largest revenue contributor, with GOV increasing from Rs 18,478.83 crore in FY22 to Rs 24,717.44 crore in FY24, and gross revenue growing from Rs 3,974.59 crore to Rs 6,081.55 crore during the same duration. 

The Quick Commerce segment which is the third largest segment showed the highest percentage growth, with GOV increasing from Rs 1,224.83 crore in FY22 to Rs 8,068.57 crore in FY24, and gross revenue increasing from Rs 124.22 crore to Rs 5,421.70. 

Despite the growth in every segment of the company, the company is incurring EBITDA losses in every segment. However, these losses have narrowed down over the past three years and the food delivery segment has reported an EBITDA of  Rs. 57.84 crores for the 3 months of FY25. 

During FY24, the total losses incurred by the company stood at Rs. 2,350.24 crore which was 20.90% of the total operating revenue of the company. These losses were mainly due to the expenses incurred to fuel its growth, including costs related to advertising and sales promotions aimed at expanding its user base and enhancing brand recognition. 

Additionally, substantial investments have been made in delivery and related services to support its delivery facilitation operations, along with employee benefit expenses to maintain and support its overall business operations.

Swiggy IPO - Risk Factors

1. User Retention and Acquisition: Failure to retain existing users or cost-effectively attract new ones could negatively affect Swiggy's user base, impacting revenue and growth.

2. Dependence on Delivery Partners: Attracting and retaining delivery partners is critical. If Swiggy is unable to do this efficiently, it may struggle with service quality and order fulfillment.

3. Partner Retention: The inability to retain restaurant and merchant partners could reduce product selection on the platform, leading to lower user engagement and order volumes.

4. Competition: Intense competition in the food delivery and quick commerce sectors could pressure Swiggy's margins and impact its ability to grow and retain users, partners, and market share.

6. Increased Advertising Costs: Swiggy incurs significant expenses on advertising and promotions. If these costs increase without corresponding revenue growth, it could impact profitability.

7. Rising Operating Costs for Partners: If restaurant and merchant partners pass on increased costs to users (due to inflation or other factors), it could reduce order frequency and user engagement on the platform.

8. Management of Dark Stores: The success of Swiggy’s Quick Commerce depends on efficiently managing Dark Stores. Any inefficiencies or failures in opening new stores or managing existing ones could adversely affect operations.

9. Supply Chain Issues: Managing warehouses and logistics for the Supply Chain and Distribution business is crucial. Any disruptions or failures in these areas could impact Swiggy’s ability to serve its partners effectively, leading to operational setbacks.

Swiggy IPO - Industry Overview 

Changing demographic structures are leading consumers to shop more frequently, while also opting for digital platforms. As a result, online commerce platforms now cover over 950 cities in India. This change in trend has allowed consumer-first technology platforms to interact with consumers at multiple touchpoints. Furthermore, the  Hyperlocal, urban convenience-driven, high-frequency commerce platforms have become popular among the consumers

From 2018 and 2023, the online Food Delivery and Quick Commerce markets have grown at CAGR of 42% and 148%-169%, respectively. Furthermore, there has been an increase in the annual spending by users on online Food Delivery from Rs. 2,800-3,200 in 2018 to approximately Rs. 7,500- 8,000 in 2023. The spend per user for Quick Commerce also witnessed an increase to Rs. 13,400 in 2023 which was negligible in 2018.

Swiggy IPO - Peer Comparison

The below table shows the comparison of Swiggy with its listed peers as of FY24:

From the above table, you can see that Swiggy mainly competes with only Zomato. While both companies operate almost on a small scale, Zomato has an edge over Swiggy with an operating revenue of Rs. 12,114 crores. Furthermore, Zomato is a profitable business with an EPS of 0.41 while Swiggy is operating at a loss with EPS standing at a negative 10.7 as of FY24.

Zomato also has a positive return on net worth of 1.72%, meaning it is providing returns to its shareholders, while Swiggy has a negative return on net worth of negative 30.16%, indicating it is currently struggling to turn a profit. Overall, Zomato, with its positive financial metrics, is in a stronger financial position compared to Swiggy.

Objectives of Swiggy IPO

Swiggy is conducting its IPO party through a fresh issue and the remaining through an offer for sale whose proceeds will go to the selling stakeholders in the company. The proceed from the fresh issue is intended to be used by the company for the following purpose:

• Investment in Scootsy, a material subsidiary, for the repayment or pre-payment of certain or all of its borrowings, either in full or in part.

• Further investment in Scootsy for the expansion of the company's Dark Store network, aimed at supporting the Quick Commerce segment, by setting up Dark Stores and covering lease or license payments for these stores.

• Investment in technology and cloud infrastructure to enhance operational capabilities.

• Brand marketing and business promotion expenses to boost brand awareness and platform visibility across various segments.

• Funding inorganic growth through unidentified acquisitions and other general corporate purposes.

Swiggy IPO Details

Swiggy IPO Date

Swiggy IPO is open to subscription from November 06, 2024, to November 08, 2024. The shares will be allocated to investors on November 11, 2024, and the company will be listed in the NSE and BSE on November 13, 2024.

Swiggy IPO Issue Price

Swiggy is offering its shares in the price band of Rs.371 to Rs.390 apiece. This means you would require an investment of Rs.14,820 per lot (38 shares) if you are bidding for the IPO at the upper price band.

Swiggy IPO Size

The company is offering a total of 290,446,837 shares, amounting to Rs.11,327.43 Crores. Out of these, 115,358,974 shares worth Rs.4,499.00 Crores are offered through a fresh issue, and 175,087,863 shares worth Rs.6,828.43 Crores are offered through an offer for sale.

Swiggy IPO GMP

Many investors look at the Grey Market Premium (GMP) before applying for the Swiggy IPO. The GMP gives an idea of market sentiment and can hint at the possible listing price. However, it should be noted that it does not reflect how financially strong Swiggy is. Thus, it is important to analyze the details of Swiggy before investing in it.

Is Swiggy IPO a Good or Bad Investment? Final Thoughts

Swiggy IPO Review: Swiggy's upcoming IPO presents a compelling opportunity for investors, driven by its strong user base growth and expansion into high-potential segments like quick commerce. The company has shown significant revenue growth, and the funds raised through the IPO will be used for strategic investments in dark store expansion, technology infrastructure, and brand marketing. However, despite these promising signs, Swiggy still operates at a loss and faces tough competition from rivals like Zomato, which has already achieved profitability. Investors should carefully weigh Swiggy's future growth potential against its current financial position and the risks in the competitive food delivery and quick commerce sectors before making an investment decision.

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