Swiggy Set to Launch IPO as It Expands Fast-Food Delivery Dominance

India’s leading food delivery company, Swiggy Set to Launch IPO. As Swiggy continues to expand its footprint in the competitive fast-food delivery sector, investors are eager to see how the company will navigate its growth amid rising competition and operational challenges.

Key IPO Details

Swiggy’s IPO will consist of a fresh issue of shares worth ₹3,750 crore, along with an offer for sale (OFS) of 185,286,265 shares from existing shareholders. The offering will include sections for qualified institutional buyers (QIBs), anchor investors, and mutual funds. Non-institutional buyers will also have the opportunity to participate, with one-third of the allocation reserved for those applying between ₹2 million and ₹10 million. The remaining allocation is reserved for larger applicants investing ₹10 million or more.

Anchor Investors and Major Shareholders

Several early backers of Swiggy, including Accel, Prosus, and Tencent, will sell a portion of their stakes, giving them the potential for significant returns. Other major investors, such as Apoletto, Coatue, DST Euro Asia, Inspired Elite Investments, and Norwest, are also expected to offload part of their holdings. However, SoftBank, which holds shares in Swiggy, has opted not to participate in the OFS and will retain its stake. Co-founder Lakshmi Nandan Reddy Obul, Ramco Systems chairman PR Venketrama Raja, former co-founder Rahul Jaimini, non-executive director Samina Hamied, and co-founder Sriharsha Majety are among the individual shareholders selling their stakes.

Utilization of IPO Proceeds

Swiggy plans to allocate ₹982 crore (approximately 27% of the IPO proceeds) toward expanding its dark store network through its subsidiary, Scootsy Logistics Private Ltd. This investment will be used to fuel the growth of Swiggy Instamart, its rapid commerce arm, which has become a core focus for the company. As of June 30, Swiggy operated 581 dark stores, varying in size from 1,400 sq ft to 10,000 sq ft, with an average delivery time of 12.6 minutes across various cities.

Additionally, Swiggy will allocate ₹929 crore for branding and advertising, aimed at enhancing its marketing and digital presence. In FY24, Swiggy spent ₹558 crore on marketing, slightly less than in the previous year. The remaining proceeds will be directed toward technology upgrades, cloud infrastructure, potential acquisitions, and general corporate purposes.

Strong Financial Backing and Bank Leaders

Swiggy has secured an impressive lineup of banking partners for its IPO. The lead managers include Kotak Mahindra Capital, JP Morgan India, Citigroup Global Markets, BofA Securities, Jefferies India Private Ltd, ICICI Securities Ltd, and Avendus Capital. The participation of such prominent financial institutions reflects high expectations for the offering, as Swiggy aims to attract a diverse group of institutional and retail investors.

Timeline for Listing

Swiggy has already filed its draft red herring prospectus (DRHP) and is expected to launch its public market debut in November 2024. This move marks an important milestone for the company as it continues its journey toward becoming a publicly traded entity.

Financial Performance and Operational Efficiency

Swiggy reduced its losses by 43% in FY24, bringing them down to ₹2,350 crore, driven by strong growth in its food delivery and fast-commerce business segments. Over the past 18 months, the company has focused on optimizing operations and improving margins. Operating income increased by 36%, reaching ₹11,247 crore during the last fiscal year. Swiggy’s consumer-facing businesses, which include food delivery, Instamart, and Swiggy Genie, reported a gross order value (GOV) of ₹35,000 crore, with an average of 14.3 million user transactions per month.

In the June quarter of FY25, Swiggy’s revenue grew to ₹3,222 crore, up from ₹2,389 crore in the same period last year. However, the company’s costs also rose to ₹3,908 crore, leading to wider losses of ₹611 crore, compared to ₹564 crore a year ago.

Rapid Growth in Swiggy Instamart and Fast Commerce

Swiggy’s investment in the fast-commerce segment, particularly Instamart, has been a key growth driver. Revenue from Instamart surged by 108% to ₹374 crore in the June quarter. This growth was fueled by increased commissions from merchant partners, advertising revenue, and fees from both users and delivery partners. Instamart’s gross order value (GOV) increased to ₹2,724 crore, with the average order value rising to ₹487 from ₹441, reflecting growing demand for Swiggy’s services across its various verticals.

Swiggy’s fast-commerce arm has rapidly gained traction, and its gross merchandise value (GMV) reached $2.8 billion by 2023, according to Redseer. Despite the impressive growth, Swiggy faces stiff competition from rivals such as BlinkIt and Zepto. Instamart generated ₹1,100 crore in gross revenue for FY24, but its GOV of ₹8,100 crore trails BlinkIt’s ₹12,469 crore. As BlinkIt and Zepto continue to dominate the fast-commerce market with a combined share of 60-65%, Swiggy is focusing on expanding Instamart’s dark store network to capture more market share.

Competition and Challenges

Swiggy’s foray into rapid commerce has put it in direct competition with companies like BlinkIt, Zepto, Tata’s BigBasket, and even e-commerce giants like Flipkart. As competition intensifies in the instant delivery sector, Swiggy recognizes the need for continuous investment to maintain its edge. Swiggy’s competitors are aggressively expanding their operations, and Swiggy’s ability to maintain its market share will be critical to its long-term success.

Past Fundraising and Valuation

Swiggy has raised approximately $3.62 billion across 15 funding rounds, with backing from over 50 institutional investors and several angel investors, according to Tracxn. In 2022, Swiggy raised $700 million in a round led by Invesco, doubling its valuation to $10 billion. Although its valuation has fluctuated, Swiggy is now targeting a $10 billion valuation for its IPO.

The IPO has also drawn attention from Bollywood celebrities such as Madhuri Dixit, Sidharth Malhotra, and Amitabh Bachchan, along with sports stars like Rahul Dravid, Zaheer Khan, and tennis player Rohan Bopanna, adding star power to Swiggy’s investor list.

Comparing Swiggy and Zomato

Swiggy’s upcoming IPO follows in the footsteps of its rival Zomato, which went public over three years ago. Zomato’s shares have surged nearly 125% this year, with its stock closing at ₹280.15 on Thursday. With a market cap of $25 billion, Zomato holds a significant lead over Swiggy, whose IPO is expected to value the company at $10 billion. Zomato’s leadership in the food delivery sector, bolstered by its acquisition of BlinkIt, will present a formidable challenge for Swiggy’s future growth.

Risks and Considerations

As Swiggy expands its operations across various verticals, the company faces the risk of escalating expenses, including advertising, promotion, delivery costs, and employee benefits. While its revenue has grown, Swiggy’s continued investment in its fast-commerce and food delivery businesses will require careful management to avoid further widening its losses.

In conclusion, Swiggy’s IPO represents an exciting opportunity for investors, but the company’s ability to execute its growth plans amid a fiercely competitive market will determine its long-term success