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Pioneered hyperlocal commerce platform:

Swiggy has successfully pioneered the hyperlocal commerce industry in India, launching Food Delivery in 2014 and Quick Commerce in 2020, and is well-recognised as a leader in innovation. Currently it is the 2nd largest player in India in both the categories which are large addressable markets, witnessing rapid online penetration and are relatively nascent with high growth headroom. Food delivery and Quick commerce are expected to grow at CAGR of ~17-22% and ~60-80% respectively over CY23-28.

Food delivery has already achieved profitability:

Swiggy’s food delivery business has turned EBITDA positive in Q1FY25 with adjusted EBITDA of Rs57.8cr. It has 1.4cr Avg Monthly Transacting Users (MTU) as of June’24 as compared to 1.27cr in FY24 with constant increase in Average Order Value (AOV) per order. Further, It has launched new initiatives with the 10-minute delivery model Bolt, which is receiving a good initial response.

Swiggy’s take rates are ahead of Zomato’s, indicating better monetization of its platform:

Swiggy’s approach of an integrated app offering vs. Zomato’s multi-app approach helps it innovate faster. Their platform can be used to make restaurant reservations (Dineout) , events bookings (SteppinOut), avail product pick-up/ drop-off services (Genie) and engage in other hyperlocal commerce activities (Swiggy Minis, among others). Although, Avg MTU is still higher for Zomato, Gross Order Value (GOV) per user is higher for Swiggy. This shows Swiggy’s customer cohorts are more mature and stickier compared to its peer.

Boom in Quick-commerce:

Swiggy’s Instamart has been a significant revenue driver and is their second largest business segment by revenue. Company plans to deploy Rs 1,179 cr upto FY28 for expansion of its Dark store network across India. As of H1FY25, Instamart operated 605 Active Dark Stores across 43 cities in India.

Issue Size and Objects:

Rs.113 bn IPO consists of fresh issue of Rs.45 bn and OFS of Rs.68 bn. It proposes to utilize fresh issue proceeds for expansion of dark stores, brand marketing, technology upgradation & debt repayment.

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Swiggy operates in a oligopoly market which is at a nascent stage, thus providing enough opportunities for players to create their niche. Swiggy’s innovation DNA is key to success and it could again be at the forefront through its new 10-minute food delivery offering. However, given that the company is still loss making at an aggregate level, and overall profitability may be some time away, we recommend only High Risk investors to ‘Subscribe for long term’. At the upper price band of Rs.390, the issue is priced at 7.8x FY24 Market Cap to Sales and looks reasonably priced compared to Zomato which is trading at 17.5x.

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