Swiggy IPO: Should You Apply? Read DRChoksey's Analysis

Deven Choksey Research Report

Swiggy Ltd. will launch its initial public offering on Nov. 06 and the offer closes for subscription on Nov. 08. One of India’s leading food delivery and hyperlocal logistics company has fixed the price band in the range of Rs 371-390 per share.

The Rs 11327.40 crore IPO comprises of fresh issue of Rs 4,499 crore alongside an offer for sale of 17.51 crore shares of about Rs 6,828.43 crore.

Object of the offer

• Investment in Material Subsidiary, Scootsy,

• Investment in Scootsy for expansion of Dark Store,

• Investment in technology and cloud infrastructure,

• Brand marketing,

• General Corporate Purpose

Strengths:

• Pioneers of high-frequency hyperlocal commerce categories driven by an innovation-led culture.

• A consistently growing network of users.

• Rising user engagement.

• Unified app of “Swiggy” demonstrating rich user experience.

• Platform has created synergetic network effects driven by wide user and partner base.

• A preferred choice of restaurant partners , merchant partners, brand partners and delivery partners.

Strategies:

• Retain and grow user base by expanding offerings and growing partner network.

• Expand Dark Store footprint and basket-sizes for Quick Commerce.

• Improve contribution margin.

• Invest in technology backbone and optimize last-mile network to enable efficient scaling of operations to service more users.

• Invest to enhance brand recall, improve traffic on the app, and increase engagement across businesses.

Outlook & Valuation:

Swiggy's strategic focus on hyperlocal commerce positions it as a key player in the sector, driven by an innovationled culture. With a consistent rise in average order value and a growing network of Dark Stores from 301 in FY22 to 523 in FY24, the company is well-equipped to enhance user engagement and operational efficiency.

As of June 30, 2024, Swiggy reached 112.73 million users, demonstrating robust growth supported by a unified app experience that simplifies diverse service offerings. The expansion of Dark Stores coupled with the introduction of non-grocery categories, aims to boost basket sizes and fulfill increasing consumer demand. Swiggy's customercentric approach, characterized by high transaction frequency and a personalized user experience, ensures strong retention rates and a widening gap in Monthly GOV per MTU.

Given these strengths and the projected growth of the online food delivery and Quick Commerce markets, Swiggy is poised for sustained growth. At the upper price band the company is valued at eight times Price to Sales, offering a 76% discount to its competition. Hence, we assign a ‘Subscribe’ rating.

Risks:

• The company has incurred net losses since its inception and continues to experience negative cash flows from operations, raising concerns about persistent significant losses without adequate revenue growth.

• A key risk is the inability to retain existing users or acquire new ones cost-effectively, which could negatively impact the business.

• Attracting and retaining delivery partners is essential and failure to do so may adversely affect financial performance.

• Furthermore, the inability to retain or acquire restaurant, merchant and brand partners in a cost-effective manner could harm operations; if partners raise operating costs, user engagement and order volumes may decline.

• Effective management of Dark Stores is crucial for the Quick Commerce business, as inefficiencies could significantly affect financial health.

Company Overview :

Swiggy, a leader in India's food delivery and hyperlocal logistics sectors, which quickly gained recognition as a household name. Over the years, Swiggy has transformed into a comprehensive technology-driven multiservice platform, providing food, groceries, and other essentials to millions of consumers across India.

The company’s inception was driven by the need for reliable and convenient access to food in urban environments. By leveraging its technological capabilities, Swiggy created a digital marketplace that effectively connects consumers with a wide network of restaurant partners.

The platform offers a user-friendly app that features extensive menu options, real-time tracking of deliveries, and various payment methods, enhancing the overall customer experience.

Swiggy's rapid scaling, consistent innovation, and commitment to user satisfaction have firmly established its position as a dominant player in India’s on-demand delivery landscape.

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