Swiggy IPO Expectations & Recommendations

1. IPO Overview

Swiggy's IPO has garnered significant market attention, though investor expectations for listing gains are cautious, following a muted response to Hyundai India's IPO. Swiggy, a prominent player in India’s online food delivery and quick commerce sectors, faces stiff competition from Zomato and potential entry threats from Jio in the hyperlocal delivery market.

• IPO Issue Size: 16.01 crore shares
• Total Subscription: 35% (5.55 crore shares)
• Retail Investors: 83% subscription
• Non-Institutional Investors (NII): 14% subscription
• Qualified Institutional Buyers (QIB): 28% subscription
• Grey Market Premium: Rs 4-5, or a 1% premium in the unlisted market.

2. Financial Performance and Valuation

Swiggy currently operates at a loss and may face challenges in achieving profitability in the near term due to high competition and investment requirements in the quick commerce space. Although the company has shown growth in its Average Order Value (AOV) and expanded its network of Dark Stores from 301 in FY22 to 523 in FY24, these have yet to translate into profitability on a consolidated basis.

• Valuation: 8x Price to Sales at the upper price band, with a 76% discount compared to competitors.
• Profitability: Long-term focus needed as profitability remains challenging due to high operational costs and competitive pressures.

3. Key Growth Drivers

• Quick Commerce Expansion: Swiggy has aggressively expanded into quick commerce, broadening its service offerings and customer base.
• Dark Stores Network: The growth from 301 to 523 stores has improved user engagement and operational efficiency, supporting higher order frequencies and better retention rates.
• Unified App Experience: A streamlined platform integrating various services has helped drive user growth, hitting 112.73 million users by June 2024.
• Focus on User Retention: High transaction frequency, personalization, and basket-size expansion have supported retention and engagement, increasing Monthly Gross Order Value (GOV) per Monthly Transacting User (MTU).

4. Challenges and Competitive Landscape

• Profitability Concerns: As Swiggy continues to invest heavily in quick commerce and user engagement, it may take years to reach profitability.
• Rising Competition: Swiggy faces strong competition from Zomato, which has a solid market presence, and may also face competition from Jio’s potential entry.
• Market Sentiment: Despite strong growth prospects, the IPO has not shown robust initial demand in the grey market, with a low premium reflecting cautious investor sentiment.

5. Investment Recommendation

Given Swiggy’s high growth potential in India’s rapidly expanding online food delivery and quick commerce markets, the IPO presents an attractive long-term investment opportunity. However, due to the company's current loss-making status and uncertain short-term profitability, it is suitable only for high-risk investors willing to commit for the long term.

• Recommendation: SUBSCRIBE (for long-term, high-risk investors)

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This report provides a balanced overview, assessing both Swiggy’s strengths in user growth and hyperlocal commerce while considering the challenges related to profitability and competition