IPO Size: Rs. 11,327 cr

• Rs. 6,828 cr is Offer for Sale (OFS), 2/3^rd of which is from the single largest shareholder Naspers (31% holding to drop to 26% post IPO)
• Rs. 4,499 cr is Fresh Issue for (i) quick commerce expansion Rs. 1,179 cr (ii) business promotion Rs. 1,115 cr (iii) technology investment Rs. 703 cr (iv) debt repayment Rs.165 cr (on Rs. 257 cr gross debt)

Price band: Rs. 371-390 per share

M cap: Rs. 87,300 cr, implying 13% dilution

• Only 10% for retail as company is loss making

IPO Date: Wed 6^th Nov to Fri 8^th Nov 2024, Listing Wed 13^th Nov 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Food Delivery and Quick Commerce Business

Swiggy Limited, a 11 year old company without any identifiable promoter, is a new-age consumer business, mainly operating in the food delivery, quick commerce, supply chain and distribution business. It can be stacked against sole listed rival Zomato.  

Swiggy vs Zomato

1. Slower Growth Rate: Swiggy’s food delivery business revenue grew at 20% YoY in Q1FY25 as well as in FY24. As against this, Zomato food delivery business clocked 30-40% growth. Even in quick commerce segment, Swiggy’s revenue growth of 90% trailed Zomato’s 140%. 
2. Poorer Profitability: Swiggy’s Q1FY25 food delivery EBITDA was at Rs. 58 cr or 3.3% EBITDA margin. Quick commerce EBITDA was negative 79%. In comparison, Zomato clocked 15% and 4% EBITDA for food delivery and quick commerce respectively.
3. Lower Capital Turn: Swiggy has raised USD 3.2 billion capital till date. Excluding cash equivalents of Rs.5,440 cr as of 30.6.24, it has a capital turnover ratio of 0.6x. As against this, Zomato’s capital turn is double, at 1.2x, on USD 3.6 billion fund raise till date, less Rs. 12,200 cr cash on books.

These factors have influenced Swiggy’s IPO pricing, with EV/revenue of 6.4x lower than Zomato’s 10.7x.

However, this pricing is only relative and bottomline remains the ultimate valuation driver for any business.

Very Long Path to Profitability

Swiggy’s FY24 revenue rose 36% YoY to Rs. 11,247 cr, with net loss of Rs. 2,350 cr. Q1FY25 revenue and net loss were at Rs. 3,222 cr and Rs. 611 cr respectively.

Even though food delivery business, accounting for half the revenue, turned EBITDA positive in Q1FY25 (after a decade of operations!), annual depreciation of Rs. 500 cr will take many quarters, if not years, to report a positive bottomline.

This also implies that quick commerce will take atleast 3 years for positive EBITDA (-79% EBITDA in Q1FY25), and we are not yet talking of a positive PAT. We cannot, and do not wish to, crystal ball earnings a decade into the future!

For that matter, even Zomato’s Q2FY25 PAT of Rs. 176 cr was mainly due to Rs. 221 cr other income on Rs. 12,0000 cr treasury book. In this backdrop, Zomato Rs. 2 lakh cr valuation is not convincing.

Look beyond the Frenzy

IRR of selling shareholders Naspers and Tencent is under 20%, for holding of over 5 years. Even public market investors like Motilal and Kotak are holding shares since Feb 2022 at a cost of Rs. 358 per share (i.e. barely 10% rise in 2.5 years). Thus, investors cannot assume returns, merely on basis of Zomato’s share price run in past 2 years. Neither can fear of missing out or scarcity of quick commerce business be a basis of stock picking.

Quick commerce frenzy will die down, as industry matures and competition increases (Zomato also feels the heat and has announced Rs. 8,400 cr QIP, despite Rs.12,200 cr surplus cash; Flipkart, Reliance, Big Basket have already entered the market). When dust settles, even a stock like Nykaa, which was not incurring losses, saw its share price decline. ‘New age futuristic’ Ola shares dropped below IPO price in just 3 months, after doubling post listing.