On November 6, 2024, Swiggy, the massive food delivery and fast-commerce company with its headquarters in Bengaluru, made its Initial Public Offering (IPO) available for public subscription. Only 12% of the shares were subscribed for on the first day, which was a low reaction from investors despite being one of the year’s most anticipated IPOs. Here is a thorough analysis of the IPO’s performance, the interest shown by various investor categories, and Swiggy’s future plans as the company approaches its November 13 market debut.
Credits: Mint
Strong Start from Retail Investors on Day 1
Swiggy’s IPO attracted significant attention from retail individual investors, who subscribed to 54% of their quota on the first day alone. This high retail interest highlights the brand’s popularity and brand recognition among individual investors. Swiggy’s entry into the IPO market comes after its competitor Zomato went public in 2021, making it an attractive option for many looking to invest in the food delivery and quick-commerce space.
While retail investors showed substantial interest, other categories saw a slower response. Non-institutional investors subscribed to only 6% of their quota, and qualified institutional buyers (QIBs) made minimal bids of 3,496 shares against their large allocation of 8.69 crore shares. The slower uptake among larger investors suggests that institutions may be taking a cautious approach, especially considering Swiggy’s financials and the market’s current volatility.
Anchor Investors Infuse Confidence with Rs 5,085 Crore Investment
Swiggy obtained Rs 5,085 crore from anchor investors one day prior to the IPO’s public opening, which gave the offering more assurance. Prominent international funds such as Government Pension Fund Global, Nomura Funds, BlackRock, Allianz Global Investors, and New World Fund Inc. were among the anchor investors. At the top end of its pricing range, Rs 390 per share, Swiggy distributed 13.04 crore shares to 151 anchor investors.
It’s interesting to note that 19 domestic mutual funds, including those from SBI Mutual Fund and ICICI Prudential Mutual Fund, secured 5.3 crore shares in this anchor investment round. A level of confidence in Swiggy’s long-term growth potential and strategic intentions is indicated by the strong participation rate from both domestic and foreign funds.
Price Band and Valuation: Key Details of the IPO
In order to collect about Rs 11,327 crore, Swiggy has established the pricing range for its IPO between Rs 371 and Rs 390 per share. This goal involves an Offer for Sale (OFS) of Rs 6,828 crore by current shareholders and a new issuance of shares valued at Rs 4,499 crore. Swiggy would be valued at approximately Rs 95,000 crore at the upper end of the pricing range, placing it in direct competition with Zomato, which is presently valued at Rs 2.13 lakh crore.
A cautious demand from unofficial trading circles is shown by the modest grey market premium (GMP) for Swiggy shares. The shares are currently trading between Rs 12 and Rs 20, which indicates a 3% to 5% anticipated listing gain. Given that the food delivery industry has struggled with profitability and high operating costs, this small GMP suggests a cautious prognosis.
Credits: Mint
How Swiggy Plans to Use IPO Proceeds
Swiggy plans to utilize the funds raised through the IPO to fuel its expansion and strengthen its technological capabilities. According to its draft prospectus, the company will allocate the proceeds from the fresh issue towards:
- Investment in Technology and Cloud Infrastructure: Enhancing its technology backbone to support delivery logistics, app functionality, and customer experience.
- Brand Marketing and Business Promotion: Expanding its reach and enhancing its brand visibility to maintain a competitive edge.
- Debt Repayment: Improving its financial health by reducing debt.
- Funding Inorganic Growth: Preparing for potential acquisitions to diversify or bolster its existing capabilities.
- General Corporate Purposes: Managing day-to-day operations as it expands its quick-commerce and delivery footprint across India.
Financial Performance and Road to Profitability
Since its founding in 2014, Swiggy has expanded to become one of the biggest meal delivery services in India. It has also entered the fast commerce market with Instamart. Swiggy reported a reduced loss of Rs 611 crore for the quarter that ended in June 2024, compared to Rs 564 crore for the same time in 2023. The company’s recent efforts to cut losses are in line with its overarching objective of becoming profitable, particularly as it enters the quick-commerce market, which is anticipated to see significant expansion.
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