Early investors cheer Swiggy’s listing pop, but analysts are mixed on the stock

Food-delivery firm Swiggy’s shares hit the bourses at ₹420 on Wednesday, a 7.7% premium to the issue price of ₹390, making the listing a major liquidity event for its top investors.

“It is a momentous event. We have raised a huge amount of capital in the middle of a tough market, which is a great feat,” Sumer Juneja, managing director for EMEA & India at SoftBank Investment Advisors, told Mint.

Swiggy had raised $3.2 billion in private capital in total from marquee investors such as Softbank, Prosus, Accel, Norwest Venture Partners and Elevation Capital, which have all reaped multifold gains on their investments.

“This validates both our India strategy and food delivery approach. It’s also a very strong economic return for us, so we're very excited,” Ashutosh Sharma, head of growth investments for India and Asia at Prosus told Mint.

Also read: How ‘ideas man’ Sriharsha Majety’s hyperlocal focus put Swiggy on the map

Prosus and controlling shareholder Naspers invested $1.3 billion for a 31% stake in Swiggy. Prosus sold a small part of its holding in the IPO, which will fetch the firm around $500 million. After the dilution, it will still retain a stake of around 25% in the company.

"In the short term, no one can predict exactly what will happen. But in the long term the fundamentals of this company are very strong," Sharma added.

Swiggy’s strong debut defied subdued expectations in the grey market and surprised market watchers.

The IPO, conducted from 6 to 8 November, was subscribed 3.59 times. The retail section was booked only 1.14 times, and the issue was primarily driven by qualified institutional buyers (QIBs), who placed bids for 6.02 times the number of shares they were offered. Swiggy reserved 750,00 shares for employees, which they offered at a discount of ₹25 to the issue price.

Some optimistic, others cautious

Several brokerages have initiated coverage on Swiggy, with perspectives ranging from optimistic to cautious. 

While Macquarie and Aditya Birla Capital have expressed reservations, JM Financial has a brighter outlook for the company. It has rated Swiggy a ‘buy’ with a price target of ₹470. It said Swiggy has played a major role in India’s food-tech sector, launching the country’s first full-stack offering in 2014, and expanding into quick grocery delivery through dark stores during the pandemic.

“Based on robust industry tailwinds and corrective measures taken by the company to turn around of late, we believe Swiggy will be one of the fastest-growing consumption plays in the near to medium term,” it said.

Also read: Bigger than food delivery? Investors rush to bless faith-tech startups

Aditya Birla Capital, however, suggested investors avoid buying the stock, mentioning reasons such as cutthroat competition. It also said the quick-commerce business, Instamart, is a cash burner with negative cash flows.

“The company slashed its valuations prior to the IPO from $15 bn to $11.3 billion, and FMCG distributors have raised concerns with the CCI (Competition Commission of India) about the sustainability and unfair practices of quick commerce, which could hinder growth if action is taken,” it said.

Analysts at Macquarie added to the caution, saying there were multiple headwinds to improving unit economics for Instamart. They said expanding beyond the top eight cities would suppress Swiggy’s average order value and stiffer competition would translate to more dark store rentals, lower commissions, higher discounts and potential regulatory action that could increase costs. "Despite a strong potential growth runway and an improving margin profile, we believe Swiggy still has a long and winding road to profitability," they said in a note.

OGs remain bullish

Nonetheless, older investors are still bullish on the company. Sharma of Prosus said, “We’re extremely bullish, which is why we remain the largest shareholder even though we’ve sold some shares.”

"I believe this is a fundamentally strong business, led by a highly competent management team. With two growing businesses, food delivery and grocery, one profitable and the other trending that way, it’s still early days in India’s large market. Harsha and the team’s innovation DNA will bring more to Swiggy’s portfolio of products," he added.

Also read: Biryani boom drives surge in basmati rice demand across India

Swiggy's Instamart competes with Zepto, Zomato's Blinkit, and Flipkart's Minutes. Other companies such as Tata-owned Big Basket, Amazon and Reliance’s Jio are also evaluating similar moves. Swiggy trimmed its losses by 43% to ₹2,350 crore in FY24, buoyed by rapid growth in food delivery and quick commerce.