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When it’s time to order food, most Indians have two go-to options: Zomato and Swiggy. In 2021, Zomato made headlines with its stock market debut, and now, in 2024, it’s Swiggy’s turn to step onto the public stage.
The online food delivery market in India is booming and is projected to reach an impressive $43.78 billion in revenue this year. As of FY24, Zomato leads the market with a 58% share, while Swiggy holds a substantial 34%, creating a fierce rivalry that has pushed both companies to innovate and expand their offerings.
Many investors are wondering if this opportunity is worth their attention. In this blog, we’ll explore whether the Swiggy IPO is a wise investment choice.
Swiggy IPO is open for subscription from (05th Nov 2024) today onwards!
Swiggy IPO Details:
- IPO Open Date 06th November 2024, Wednesday
- IPO Close Date 08th November 2024, Friday
- Price Band ₹371 to ₹390 per share
- Lot Size 38 shares
- Face Value ₹1 per share
- Issue Size at upper price band ₹11327 crore (Fresh Issue ₹4,499 crore and Offer For Sale ₹2107 crore)
- Listing exchanges NSE, BSE
- Cut-off time for UPI mandate confirmation by 5 PM on November 08, 2024
The tentative timeline for the IPO is as follows:
- Basis of Allotment 11th November 2024, Monday
- Initiation of Refunds (if not allotted) 12th November 2024, Tuesday
- Credit of Shares to Demat (if gets allotments of shares) 12th November 2024, Tuesday
- Listing Date 13th November 2024, Wednesday
About the Company
Swiggy India was incorporated as Bundl Technologies Private Limited in 2013, after which it changed its name to Swiggy Limited. They cater to user’s needs of ease, immediacy, quality, variety, reliability and consistency in their food, grocery & household items consumption and other hyperlocal commerce needs. It earns revenue from commissions from restaurant & merchant partners, advertising revenue, fees from customers & delivery partners & subscription revenue from Swiggy One.
The food delivery business is the most scaled, with a presence across 681 cities in India. Swiggy has developed its services within a single app, enabling it to reduce customer acquisition costs & provide flexibility to launch new offerings quickly and cross-sell or upsell services across different verticals. In FY24, the B2C Gross Order Value of the Swiggy platform was ₹34,969 crore.
The company has 5 business verticals.
- Food Delivery: Swiggy’s primary business segment, food delivery, connects customers with a broad network of restaurant partners. From local eateries to premium dining establishments, users can enjoy a variety of food options delivered to their doorstep. The food delivery business also drives revenue through commissions from restaurant partners and advertising fees.
- Out-of-Home Consumption: Through Dineout and SteppinOut, Swiggy has broadened its scope to include dining solutions and curated outdoor experiences. With Dineout, users can make dining reservations and access exclusive deals, enhancing convenience for restaurant-goers. SteppinOut further diversifies Swiggy’s offerings, giving users access to curated entertainment events, thus catering to those seeking memorable out-of-home experiences.
- Quick Commerce (Instamart): Launched in 2020, Instamart offers users on-demand grocery delivery and a wide selection of household items. Orders are fulfilled through a network of “dark stores” operated by Swiggy in partnership with local merchants. By expanding product categories to include kitchen appliances, toys, games, and athleisure wear via Swiggy Mall, Instamart provides a robust selection for daily needs. As of June 30, 2024, Instamart operates over 557 dark stores across 32 cities in India, backed by a growing network of delivery partners.
- Supply Chain and Distribution: Beyond B2C services, Swiggy supports wholesalers and retailers through supply chain management, warehousing, and order fulfilment services. As of June 30, 2024, Swiggy operates 2.66 million square feet of warehousing space across 13 cities, serves 87,000 retailers and wholesalers, and has 680 authorized brand distribution partnerships. This B2B segment provides logistical support to partners, helping streamline their operations and enhance product delivery capabilities.
- Platform Innovations: Driven by an innovation-focused culture, Swiggy continuously enhances its platform to meet user needs. Recent additions like Swiggy Genie (for delivery of personal items), Swiggy Minis (for small-batch orders), and Private Brands (exclusive products) reflect Swiggy’s adaptability and commitment to delivering convenience in new forms.
You can check the revenue breakup.
Food Delivery and Quick Commerce Sector Outlook in India
The Indian food services market comprises online Food Delivery and Out-of-home Consumption. The size of the industry in 2023 was ₹5.6 lakh crore, which grew at a CAGR of ~8% in the last 5 years. It is further expected to grow at a CAGR of 10-11% to ~₹9.4 lakh crore.
India’s food services market is growing faster than the home-cooked or grocery market (fresh foods like fruits, vegetables, dairy and meat, staples and packaged foods), leading to a change in the traditional trends of food consumption in the country. For a growing base of urban and young consumers, increasing purchasing power has led to increased frequency and improved quality of eating out, making restaurant food consumption a norm rather than a luxury.
Consumers with busy schedules have limited access to home-cooked food, having moved away from their families, which habituates them to order food or dine out frequently. These lifestyle changes are expected to persist, leading to growth in the number of consumers and occasions of eating out, thereby amplifying the need for good quality food outside of the home.
The share of organized food services in the overall food services market in India grew from 35-40% in 2018 to 40- 45% in 2023 and is expected to reach 55-60% by 2028. The online Food Delivery market in India grew from ₹11,200 cr in 2018 to ₹64,000 cr in 2023. It is expected to grow at a CAGR of 17-22% to reach ~₹1.5 lakh crore market by 2028
India’s retail market size stood at ~₹77 lakh cr in 2023, with home-cooked or groceries (including fresh foods like fruits, vegetables, dairy and meat, staples and fast-moving consumer goods (“FMCG”) (packaged foods and non-foods)) forming the bulk (~ 61% in 2023) of it. The other retail categories in the market include fashion, electronics, beauty, personal care, general merchandise, home/ kitchen goods, and pharmaceuticals (including over-the-counter medication). The retail market in India has been dominated by unorganized retail (general trade) that holds over 80% of the market share as of CY2023 and does not sufficiently meet the increasingly diversified needs of urban consumers.
Financial Performance
The company saw significant revenue growth, increasing by 44.9% in FY23 and 36.1% in FY24 while also cutting losses from Rs 4,179.31 crore in FY23 to Rs 2,350.24 crore in FY24. Swiggy’s revenue streams are diverse, encompassing transaction fees, advertising, platform fees, and subscription revenue from Swiggy One. Food delivery is the largest revenue segment, accounting for around 46% of revenue in FY24. Quick commerce, B2B supply chain, and platform innovations further diversify Swiggy’s income sources, contributing to its strong market position in India’s competitive e-commerce and food delivery landscape.
The food delivery segment achieved a 6% contribution margin on Gross Order Value and a take rate of 25%, with 1.3 crore average monthly transacting users and 1.96 lakh monthly transacting restaurant partners. On the other hand, Instamart for quick commerce generated ₹8,069 crore Gross Oder Value but at a -6% margin, and Out-of-Home Consumption (dining/events) with ₹2,183 crore Gross Oder Value and a 2.5% margin.
Now, let’s look at the key fundamental parameters of Swiggy IPO and how it compares with its peer company, Zomato Limited, in this competitive landscape.
In FY24, Zomato achieved a Gross Order Value of ₹32,223 crore compared to Swiggy’s ₹24,717 crore. Zomato also had a more extensive network of restaurant partners, with an average of 2.47 lakh compared to Swiggy’s 1.96 lakh. Zomato’s food delivery adjusted EBITDA margin increased from -18% in FY21 to 2.8% in FY24, showing its path to profitability. Swiggy’s food delivery EBITDA margin has also improved, although it remains at -0.2% in FY24.
Now look at the Swiggy IPO’s object.
Objectives of the Issue
Swiggy IPO aims to raise ₹₹11,327 crore from this initial offer, out of which the fresh issue of ₹4,499 crore. The company proposes to utilize the Net Proceeds from Fresh issue towards funding the following objects:
- Investment in the subsidiary, Scootsy, for repayment or pre-payment, in whole or in part, of particular or all of its borrowings.
- Investment in the subsidiary, Scootsy, for (a) expansion of the dark store network for the Quick Commerce segment and (b) making lease/license payments for dark stores.
- Investment in technology and cloud infrastructure.
- Brand marketing & business promotion expenses for enhancing brand awareness across their segments.
- Funding inorganic growth through unidentified acquisitions and general corporate purposes
There is no such investment in the market that is risk-free. Let’s assess the risk factors for Swiggy IPO.
Risk Factors
Here are the risks that are highlighted for Swiggy IPO
- The growth of the business and revenue is dependent upon the ability to continue to grow the network by retaining existing and adding new restaurant partners, delivery partners and customers in order to increase the GOV, drive revenue growth and achieve profitability. Any failure to implement such additions cost-effectively might impact the business adversely.
- Seasonality, occasions and holidays may cause fluctuations in both the number of orders and Gross Order Value for the businesses, as well as in the advertising and other revenue.
- The company confronts intense competition in the fragmented Indian food delivery industry. It competes with food delivery companies and chain restaurants that have their online ordering platform and restaurants that operate their delivery fleet.
- Moreover, due to low barriers to entry in this industry, switching costs are relatively low. Thus, increased competition could adversely impact the business.
- Their ability to provide an engaging user experience also depends on the success of their promotions and other marketing initiatives. It may require continued investments as it continues to expand its operations. Advertising and sales promotion as a percentage of revenue from operations stood at 16.5% in FY24.
- It currently avails services from third-party service providers, such as customer and back-end support services and third-party delivery services, to operate the platform. It does not have control over the operations of the facilities of these service providers.
Now, the main question arises: should you subscribe to Swiggy IPO?
Should you subscribe to Swiggy IPO?
Swiggy Limited is the second-largest player by revenue, operating across five business verticals. The company meets user demands for convenience, speed, quality, variety, reliability, and consistency in areas like food, grocery, household items, and other hyperlocal commerce services. It has the potential to become profitable with cost-efficient measures but is making losses as of date. High losses in the quick commerce segment have impacted profitability, and a reduction in these losses would enhance overall profitability.
Before you decide to invest, it’s crucial to have a strong understanding of the potential risks and rewards involved. In this blog, we’ve presented a detailed overview of both the benefits and possible drawbacks associated with participating in the Swiggy IPO. Our team of experts at StockEdge has assessed the Swiggy IPO and provided a Good rating. Additionally, we’ve compiled a comprehensive Swiggy IPO Note that dives deep into the company’s financial standing and SWOT analysis, offering thorough analysis to provide you with a more profound insight into the company’s prospects.
You can read our blog’s top 5 upcoming IPOs in India, where you get more insights about Swiggy IPO.
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