Swiggy, India’s leading food delivery platform, is all set to launch its Initial Public Offering (IPO) on November 6, 2024. The IPO will remain open for subscription until November 8, 2024. However, with mixed opinions from analysts and a decline in the grey market premium (GMP), investors are divided on whether this IPO is a good investment. Should you subscribe or wait? Let’s break down the key details and what the experts are saying.
Swiggy IPO Overview
- Issue Size: ₹11,327 crore
- Price Band: ₹371 to ₹390 per share
- Shares on Offer: 11.54 crore fresh shares and 17.5 crore shares from existing shareholders
- Minimum Lot: 38 shares
Swiggy’s IPO is one of the biggest in recent times, with a mix of fresh shares and shares offered by existing investors. The company plans to use the proceeds from the IPO to fund growth initiatives, enhance its technology infrastructure, and invest in subsidiary companies like Scootsy.
But before you rush to apply, let’s dive into what analysts are saying about this IPO.
What Analysts Are Saying: Should You Subscribe or Not?
Analysts in Favor of Subscription
Some brokerages are recommending a subscription to the Swiggy IPO, citing fair pricing and long-term growth potential.
- SBI Securities suggests that the IPO is priced reasonably, especially when compared to Zomato, Swiggy’s primary competitor. The valuation of Swiggy at a Price/Sales ratio of 7.8 (at the upper price band) is in line with the industry, making it an attractive option for long-term investors.
- Bajaj Broking also sees merit in subscribing, highlighting Swiggy’s strong 34.8% year-on-year revenue growth. Despite the company’s current financial losses, they believe in Swiggy’s potential for future growth, particularly as it continues to dominate the Indian food delivery market.
- Arihant Capital recommends the IPO for aggressive investors due to Swiggy’s impressive revenue growth, although they acknowledge that profitability remains a challenge for the company.
Analysts Cautioning Against Subscription
On the other hand, some analysts are warning investors to be cautious about subscribing to the Swiggy IPO, primarily due to the company’s ongoing financial struggles.
- Aditya Birla Money advises avoiding the IPO, questioning Swiggy’s high valuation of 7.7 times Price-to-Sales (P/S) ratio for FY24. Given the company’s negative cash flows and continued losses, they believe the valuation may not justify the investment risk.
- SAMCO Securities also sees the IPO as overvalued, especially compared to Zomato, which has recently turned profitable. They argue that Swiggy’s financial struggles make it less appealing, and investors should wait until the company shows consistent profitability.
Grey Market Premium (GMP) Declines
Swiggy’s Grey Market Premium (GMP) — the unofficial market price at which shares are traded before the official listing — has been on a decline. Initially, the GMP was around ₹20, but it has now dropped to just ₹8. This indicates a lukewarm response from the market, which could be a sign that investors are uncertain about the IPO’s potential.
What’s Driving Swiggy’s IPO?
Despite the mixed opinions, Swiggy is a leader in India’s rapidly growing food delivery market. The company has partnered with over 200,000 restaurants and caters to millions of customers across the country. Swiggy competes with other players like Zomato, Amazon’s India food delivery segment, and BigBasket (Tata Group), which makes it a major player in the B2C e-commerce space.
The Swiggy IPO aims to raise funds to support several key areas:
- Technology and Cloud Infrastructure: ₹703 crore will be allocated to improving its technology platform, which is crucial for maintaining a competitive edge in the food delivery and grocery market.
- Brand Marketing: ₹1,115 crore will go towards enhancing Swiggy’s brand presence and promoting its services across India.
- Subsidiary Investments: ₹1,343.5 crore will be used to support its subsidiary Scootsy, which is involved in the delivery of groceries and other essentials.
What Should Investors Consider?
While Swiggy is undoubtedly a leader in the food delivery space, there are a few things investors should keep in mind before subscribing to the IPO:
- Ongoing Losses: Swiggy has faced continuous financial losses, with no clear timeline for profitability. This is a key concern for many analysts and could affect the company’s stock performance after listing.
- Competitive Market: The food delivery space is highly competitive, with Zomato already a strong player and new entrants like Amazon and BigBasket continuing to expand. Swiggy will need to maintain its market share and find new ways to grow to justify its valuation.
- Valuation: At a 7.7 times Price-to-Sales ratio, Swiggy’s IPO is priced similarly to its competitors. However, with the company still in the red, some experts argue that the high valuation might not be justified.
Should You Subscribe to the Swiggy IPO?
If you’re looking for a long-term investment and believe in Swiggy’s potential to dominate India’s food delivery and quick commerce market, this IPO might be worth considering. The company’s strong revenue growth and market position are significant positives.
However, if you’re more risk-averse or are looking for an IPO with immediate profitability, it might be better to wait until Swiggy shows clearer signs of financial stability. With its declining GMP and ongoing losses, there’s uncertainty surrounding its post-listing performance.
Final Verdict: Proceed with Caution
In conclusion, the Swiggy IPO is a mixed bag. While there’s long-term growth potential, the company’s current financial challenges and high valuation make it a more risky investment. Depending on your risk appetite and investment strategy, it may be worth subscribing — but with caution.
