Swiggy’s quick commerce bet faces tough crowd as IPO nears

Food delivery giant Swiggy's initial public offering (IPO), which will be open for subscription from 6-8 November, places the spotlight on its revised valuation. 

Initially eyeing $15 billion, the food and quick commerce player now targets a valuation between $12.5 billion and $13.5 billion, reflecting cautious sentiment amid intense competition and market volatility. This recalibration also aligns with the company’s strategy of leaving more value “on the table” for investors, as it seeks to avoid the fate of peers that stumbled on debut due to lofty valuations.

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The IPO aims to raise approximately $1.4 billion through a combination of an offer for sale (OFS) and fresh equity issuance, as outlined in the red herring prospectus. The proceeds will support Swiggy’s strategic initiatives, including dark store expansion, Instamart’s quick commerce operations, technology infrastructure upgrades, and brand promotion efforts. 

Additionally, debt repayment and acquisitions are on the agenda, with the funds allocated as follows: 26% for dark store expansion, 24.8% for brand promotion, 15.6% for technology and cloud infrastructure, and 29.7% for inorganic growth and corporate expenses.

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Swiggy operates in a challenging environment, competing head-to-head with Zomato in both food delivery and quick commerce (Q-commerce). As of the June quarter (Q1FY25), Zomato led the food delivery segment with a 58% market share, while its subsidiary Blinkit dominates Q-commerce, boasting 639 dark stores to Swiggy’s 557. 

Emerging rivals like Zepto and Big Basket, alongside giants such as Flipkart, Amazon, and Reliance, are also ramping up efforts to capture market share in this fast-growing segment.

Although Swiggy was the earlier mover in Q-commerce, Blinkit has outperformed it across several metrics. Gross order value (GOV) figures—though calculated differently by the companies—show Zomato’s market share rose from 61% in FY24 to 64% in Q1 FY25. Instamart, Swiggy’s Q-commerce arm, trails with lower average order values (AOV) and negative margins, while Blinkit reports barely positive margins.

Quick commerce is poised to be a major growth driver, with the segment expanding at a CAGR of 148-169% between 2018 and 2023. Swiggy aims to capitalize on this momentum through its Instamart network, which currently operates in 32 cities. 

However, scaling Q-commerce comes at a cost, demanding investments in dark stores, advanced technology, and a well-coordinated delivery network. Thin margins, heightened competitive intensity, and a prolonged path to profitability represent significant risks, not only for Swiggy but also for other players like Blinkit.

Swiggy's financials underscore its uphill climb. The company reported a loss of ₹2,350 crore on ₹11,634 crore revenue in FY24, compared to Zomato’s modest ₹351 crore profit on ₹12,114 crore revenue. 

While Swiggy holds some advantages—such as higher GOV per monthly transacting user and an integrated app—its margins remain a concern. Investors may take a long-term view given the tech-driven nature of the business, but the road to breakeven is uncertain, especially with deep-pocketed players entering the Q-commerce space and squeezing already-thin margins.

Swiggy’s valuation trails Zomato’s $28.5 billion—but that figure reflects post-IPO market dynamics, highlighting the gap between public and private valuations. Zomato also trades at a lofty PE ratio of over 550, setting a high bar with its market leadership and profitability.

Also read | How Zomato and Swiggy are sparking a boom for small-city eateries

The challenge for Swiggy lies in convincing investors that its strategic investments and growth ambitions can offset ongoing losses and mounting competition in the quick commerce space.