Swiggy IPO analysis

Swiggy IPO (initial public offering) will open for subscription on November 6, 2024, and close on November 8, 2024. We break down the food delivery and quick commerce giant's strengths, weaknesses, and growth prospects to help investors make an informed decision. Swiggy IPO in a nutshell Quality : Its three-year average ROE and ROCE were nearly -32 and -33 per cent, respectively, during FY22-24. Growth : Its revenue grew nearly 40 per cent per annum between FY22 and FY24, but it reported net losses (after tax) during the same period. Valuation : After listing, the stock will be valued at a P/B ratio of around 7 times. The P/E ratio cannot be ascertained as the company is loss-making. Overview: Swiggy is the second largest player in the online food delivery and quick commerce markets. The tech-driven platform is expected to ride sectoral tailwinds like rapid urbanisation, growing household incomes, and customer preference for time-saving online delivery services. However, it faces intense competition in the quick delivery market, which is still dominated by unorganised retail players that hold a 65 per cent share. Competition among organised players is also high, which makes the industry's market share distribution extremely volatile. These factors along with the industry's low barriers to entry pose threats to Swiggy's growth prospects. About Swiggy Swiggy is an online food and grocery delivery platform. It has a strong presence with food delivery services available in over 680 cities and its quick commerce arm, Instamart, operating in 43 cities as of September 2024. Supporting its quick commerce operations are Swiggy's 557 active dark stores (small warehouses) that the company is planning to increase to fuel growth. Strengths of Swiggy Solid brand value : At the second spot, Swiggy holds 43 per cent market share in the online food delivery business. This is due to its strong brand recall that the company has managed to leverage for other segments as well including quick commerce and online event bookings. The strong brand value is also reflected in the lower requirement for marketing. These spends have fallen from nearly 10 per cent in FY22 to around 7 per cent. Weaknesses of Swiggy No profitability: Despite operating for over a decade, Swiggy has been unable to turn profitable. The company reported Rs 2,397 crore of net losses for 12 months ending June 2024. Its EBIT margin was nearly -22 per cent for this period. Its cash flows have also remained negative over the last three years, reflecting the company's reliance on external funds to meet working capital requirements. Pricing pressure: The quick commerce market, where the company is rapidly expanding, has low entry barriers and fierce competition from large players like Amazon, Flipkart, and Reliance. This adds to the pressure on Swiggy's books as the competitive heat necessitates deep discounts and affords the company low pricing power. Swiggy IPO details Total IPO size (Rs cr) 11,327 Offer for sale (Rs cr) 6,828 Fresh issue (Rs cr) 4,499 Price band (Rs) 371-390 Subscription dates November 6-8, 2024 Purpose of issue To fund dark stores' expansion, prepay debt and invest in IT infrastructure Post-IPO M-cap (Rs cr) 87,298.6 Net worth (Rs cr) 11,944.0 Promoter holding (%) - Price/earnings ratio (P/E) -