Swiggy's $15 Billion IPO Bid: A Test for India's Booming Stock Market

In a bold move set to challenge India's thriving stock market, Swiggy, a prominent food delivery startup, is preparing for its initial public offering (IPO) in Mumbai. The company, supported by SoftBank Group and Prosus, is reportedly targeting a valuation of up to $15 billion, according to recent reports.

Founded in 2014, Swiggy has rapidly expanded its operations to over 500 Indian cities, becoming a household name in the country's burgeoning food delivery sector. The platform, which handles over 1.5 million orders daily, has grown to include more than 2 million restaurant partners and a delivery fleet exceeding 300,000 individuals.

Despite its impressive growth, Swiggy faces stiff competition from its larger rival, Zomato. The $29 billion competitor boasts a more extensive user base and higher sales, with revenue growth nearly doubling that of Swiggy in the fiscal year ending March 31, 2023. Notably, this period also marked Zomato's first full year of profitability.

Acknowledging this disparity, Swiggy appears to be pricing its stock market debut strategically. The target valuation implies a multiple of 10 times forward sales, based on annualized first-quarter revenue, representing a discount compared to Zomato's 14 times multiple.

Interestingly, Swiggy's private market valuation has surged by 40% in the past two months, fueled by investments from local sports stars and Bollywood celebrities. This enthusiasm reflects growing confidence in the company's potential.

Swiggy's financial performance shows signs of improvement. In the quarter ending June 30, 2023, its food delivery segment achieved positive earnings on an adjusted EBITDA basis, contrasting with losses in the same period last year. The company has also made strides in its quick commerce business, launched as Swiggy Instamart in 2020, with improving contribution margins.

"Swiggy does a better job of retaining app users than its rival, even though Zomato's larger user base dulls that edge."

The IPO has garnered attention from major shareholders. Prosus, which recently wrote off its stake in the once-valued Indian startup Byju's, plans to sell only a portion of its 31% position. Meanwhile, SoftBank is retaining its shares, having observed Zomato's stock more than double since divesting its holdings in December 2022.

Recent successful IPOs in India's market provide a positive backdrop for Swiggy's debut. E-bike manufacturer Ola Electric and retailer Brainbees are trading approximately one-third above their offer prices, despite recent market fluctuations.

Swiggy's innovative approach to the food delivery ecosystem extends beyond its core business. The company has launched several initiatives, including Swiggy Access, which provides kitchen spaces to restaurants, and Swiggy Launchpad, designed to assist new restaurants in establishing an online presence. Additionally, Swiggy has implemented sustainable packaging initiatives and created a program called Swiggy Packaging Assist to support restaurants in sourcing eco-friendly packaging materials.

As Swiggy prepares to raise up to $1.25 billion through its IPO, investors are weighing the company's growth potential against the backdrop of India's robust stock market. The offering will comprise fresh shares worth up to 37.5 billion rupees ($448 million) and the sale of up to 185.3 million existing shares.

With its expanding portfolio of services, including Swiggy Genie for pick-up and drop services and partnerships with IRCTC for food delivery on trains, Swiggy is positioning itself as a versatile player in India's evolving on-demand economy. The company's use of AI for demand prediction and route optimization further underscores its commitment to technological advancement.

As the IPO approaches, the key question remains: Can India's booming market digest another significant deal, or will it face indigestion? For bargain hunters, Swiggy's lower multiple compared to Zomato may present an attractive opportunity in the competitive food delivery landscape.