Swiggy’s IPO: A Fresh Era for Food Delivery
Swiggy, the prominent food delivery service, has taken significant steps towards launching its initial public offering (IPO) by filing a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi). This IPO aims to raise an impressive ₹3,750 crore, including a fresh issue of shares alongside an offer-for-sale (OFS) of 18.53 crore equity shares.
Targeting a $15 Billion Valuation
Swiggy is setting its sights on a valuation of $15 billion through this IPO, marking a substantial increase from its valuation of $10.7 billion in 2022 during its last funding round, which was led by asset management giant Invesco. This jump in valuation highlights the company’s ambition and confidence in its growth trajectory.
Market Dynamics and Competition
The Swiggy IPO arrives at a pivotal moment when the quick commerce and food delivery sectors are undergoing rapid growth. Currently, the Indian food delivery market is characterized by a duopoly, primarily dominated by Swiggy and Zomato, which collectively account for over 90% of the industry’s revenue. With projections suggesting the market could expand to ₹2 lakh crore by 2030, the potential for growth is significant for both companies.
Comparative Analysis: Zomato vs. Swiggy
In light of the imminent Swiggy IPO, analysts have begun comparing it to its primary competitor, Zomato. Zomato successfully debuted in the public markets in 2021, earning considerable returns for its investors. Analysts expect that Swiggy might command a lower valuation than Zomato due to Zomato’s superior performance on key metrics such as average order value (AOV) and food delivery gross order value (GOV).
Performance Metrics
As of FY24, Zomato has reported an adjusted EBITDA of 2.8%, whereas Swiggy shows a marginal loss of 0.2%. In terms of growth, Zomato’s GOV registered a compound annual growth rate (CAGR) of 23.0%, significantly outpacing Swiggy’s 15.5% CAGR during FY22-24. This performance disparity underlines the challenges Swiggy may face in the competitive landscape.
| Metric | Zomato | Swiggy |
|---|---|---|
| Adjusted EBITDA | 2.8% | -0.2% |
| GOV CAGR (FY22-24) | 23.0% | 15.5% |
| AOV CAGR (FY22-24) | 3.7% | 2.5% |
Investment Insights and Future Considerations
Investment analysts are divided on the implications of Swiggy’s IPO for Zomato. While some believe that the Swiggy IPO could intensify competition in the food delivery sector, others argue that Zomato’s established market share and profitability give it a distinct edge. Karan Taurani of Elara Securities notes that Swiggy needs to achieve stronger market penetration and profitability to improve its valuation comparably to Zomato.
Zomato’s Strong Market Position
Zomato has not only outperformed Swiggy in key performance indicators but also maintains a stronger foothold in terms of revenue. Zomato’s food delivery segment is trading at 53x one-year forward EV/EBITDA, showcasing preeminence over Swiggy’s position within the market.
Zomato Share Price Trajectory
Recently, Zomato shares have shown volatility but have bounced back impressively. Zomato’s stock has risen by over 9% in the last month and has reported an astounding 37% increase over three months, with multibagger returns of over 170% year-to-date. Analysts recommend a ‘Buy’ rating for Zomato, with future valuations expected to rise.
Market Outlook
The competition between Swiggy and Zomato will likely shape the future of the food delivery market in India. Swiggy’s ability to navigate this landscape successfully will depend on its ability to capture market share and enhance profitability in both the food delivery and quick commerce segments. Both companies will need to adapt to evolving market dynamics to maintain their competitive advantages in this lucrative sector.
