The highly-anticipated initial public offering (IPO) of online food and grocery delivery giant Swiggy is set to hit Dalal Street on November 6, aiming to raise approximately ₹11,327.43 crore from the primary market. Swiggy IPO comprises a fresh issue of 11.54 crore equity shares worth ₹4,499 crore and an offer-for-sale (OFS) component of 17.51 crore shares valued at ₹6,828.43 crore.
At the upper end of the price band of ₹371 to ₹390 per share, Swiggy IPO will value the Softbank-backed company at $11.3 billion, slightly higher than its valuation during the last funding round in 2022.
Market observers are drawing comparisons between Swiggy and its listed peer Zomato, which went public in July 2021 with a market capitalisation of nearly $13 billion ( ₹1.07 lakh crore). Since its listing, Zomato’s market cap has more than doubled, reaching over $25 billion ( ₹2.14 lakh crore) as of November 2024.
Zomato has established its market dominance and turned profitable while Swiggy is incurring losses for the last three reported financial years. Zomato is also likely to maintain a valuation advantage and has shown superior performance metrics across average order value (AOV), gross order value (GOV), and profitability in the food delivery segment.
Investors now wonder whether they should apply for the Swiggy IPO or buy Zomato shares, which have shown a decent performance.
According to Akriti Mehrotra, Research Analyst, StoxBox, Zomato has a competitive advantage thanks to its size, profitability, and better growth indicators.
“Zomato exhibits higher market traction with a robust gross order value CAGR of 23.0% as opposed to Swiggy’s 15.5%. Its average order value growth also surpasses Swiggy’s, underscoring its operational effectiveness. Although the upcoming Swiggy IPO offers a chance for expansion, it is unclear how well it will be able to use its resources to close the gap with Zomato. Swiggy’s capacity to increase the size of its baskets for speedy commerce and broaden its dark store footprint will be crucial to the success of its IPO, which might have a big impact on its market share and profitability,” said Mehrotra.
In the medium term, Mehrotra believes Zomato is a more appealing alternative for investors due to its favourable key performance indicators and track record. However, Swiggy might become a serious competitor if it successfully completes its IPO and exhibits a clear growth strategy, she added.
Echoing similar views, Anshul Jain, Head of Research at Lakshmisgree Investment and Securities said that Zomato is better placed in terms of profitability and advised investors to prefer Zomato shares over Swiggy IPO.
“A major portion of Swiggy IPO comprises OFS, giving exit to early investors at high prices. Swiggy has been incurring losses and there is uncertainty around its profitability. On the other hand, Zomato is a relatively more stable and profitable company. At almost same revenue, Zomato is making profit and Swiggy is making losses. You are getting Zomato shares, a profitable company, at nearly same revenue. Hence, it is advisable to avoid investing in Swiggy IPO and rather buy Zomato shares, which have higher revenue and profit clarity,” said Anshul Jain, Head of Research at Lakshmisgree Investment and Securities.
Jain has a Zomato stock price target of ₹550 apiece for a two-year perspective.
Jathin Kaithavalappil, Assistant Vice President, Choice Broking said that Swiggy's IPO valuation is well-priced, but Swiggy is reporting losses and its cash flows are negative.
“Swiggy also faces stiff competition from Zomato, among others. Swiggy commands about 45% market share in food delivery, but only about 25% in quick commerce. Therefore, there is uncertainty surrounding Swiggy’s way to profitability. Zomato is offering proven scale and profitability with solid metrics, such as gross order value (GOV) and average order value (AOV), which makes it the more stable choice in the short term,” said Kaithavalappil.
Speaking on whether investors should apply for Swiggy IPO or buy Zomato shares, Kaithavalappil advised to go overweight on stable Zomato and cautiously put some capital towards Swiggy hoping it grows well post-IPO.
Zomato shares have been under pressure recently but have given decent returns since its listing. Zomato stock price is down more than 11% in one month but has rallied over 23% in the past six months. Zomato shares have jumped more than 95% year-to-date (YTD) and have given multibagger returns of 109% in one year and over 285% in two years.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
