Swiggy IPO review (May apply)

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Review By Dilip Davda on November 2, 2024

•    The company is pioneering in the field of technology driven food delivery, e-commerce and other related services. 
•    The company marked steady growth in its top lines for the reported periods.
•    Its bottom line remains in red for all the reported fiscals.
•    The IPO with negative P/E appears aggressively priced. 
•    Well-informed/cash surplus/risk seekers may park moderate funds for long term.

ABOUT COMPANY:
Swiggy Ltd.  (SWIGGY) is a new-age, consumer-first technology company offering users an easy-to-use convenience platform, accessible through a unified app - to browse, select, order and pay for food ("Food Delivery"), grocery and household items ("Instamart"), and have their orders delivered to their doorstep through its on-demand delivery partner network. Its platform can be used to make restaurant reservations ("Dineout") and for events bookings ("SteppinOut"), avail product pick-up/ dropoff services ("Genie") and engage in other hyperlocal commerce (Swiggy Minis, among others) activities. 

Being among the first hyperlocal commerce platforms, Swiggy has successfully pioneered the industry in India, launching Food Delivery in 2014 and Quick Commerce in 2020, and due to the pioneering status of Swiggy, it is well-recognised as a leader in innovation in hyperlocal commerce and as a brand synonymous with the categories it is present in, according to the RedSeer Report (section 7, page 19).

It augments the value proposition to users through its membership programme called "Swiggy One" providing discounts and offers; in-app payment solutions like digital wallet "Swiggy Money" (a pre-paid payment instrument), "Swiggy UPI", and Swiggy-HDFC Bank credit card for additional benefits. The company offers comprehensive business enablement solutions to restaurant partners, merchant partners (that sell grocery and household items on its platform) and brand partners including alliance partners such as analytics-backed tools to enhance their online presence and user base; fulfilment services for streamlining their supply chain operations; and last-mile delivery.

The company caters to users' needs of ease, immediacy, quality, variety, reliability and consistency in their food, grocery and household items consumption and other hyperlocal commerce needs. Although Food Delivery and Quick Commerce categories in India are large addressable markets that are witnessing rapid online penetration, they are relatively nascent and have high growth headroom, according to the RedSeer Report (section 2, page 7). Due to high frequency, habit formation and recall value, these categories have the potential to unlock additional revenue through monetisation of ancillary services, as per the RedSeer Report (section 2, page 7). Its experience, execution capability and network of users and partners, together with innovation-led approach, positions SWIGGY well to tap into this growing market opportunity.

Swiggy is unique, as it is the only unified app in India that fulfils through its own platform all food and related missions of urban users of ordering-in, eating-out and cooking-at-home, as of June 30, 2024, according to the RedSeer Report (section 7, page 19). This unified app approach enables it to scale business organically as it is able to leverage a common user base across offerings, its growing fulfilment network, common and reusable technology stack, broad partner network and
membership programme, among others. According to the Kantar BrandZ Most Valuable Indian Brands Report 2024, Swiggy is the most valuable brand in the Consumer Technology & Services Platforms category and is among the Top 25 most valuable brands in India overall (RedSeer Report - section 7, page 19). The combined effects of its brand recognition, unified app approach and high frequency offerings help it increase user engagement across multiple offerings on its platform, ensures user stickiness, enables quick introduction of adjacent and new offerings cost-effectively, and drives enhanced earning opportunities for platform partners.

It has an innovation-led approach, the core of which is to identify and address convenience needs of users, thereby increasing the frequency with which they interact on its platform. Leveraging insights from interactions on hyperlocal platform by its network of users, and experience in Food Delivery and Quick Commerce, the company identifies convenience needs of users and address these supply-demand gaps by enabling partners to provide seamless services on its platform. SWIGGY's multi-tenanted (supporting multiple businesses on a common technology stack) flexible and scalable technology stack, comprising in-built algorithms and use of third-party software, enables it to integrate offerings on the platform quickly, resulting in a reduction of costs and time in introducing new offerings in the market. Its operations are further supported by divisional structure of dedicated leaders for each business line. 

Its primary business is operating a B2C (business-to-consumer) marketplace platform where it aggregates restaurant and merchant partners that can list their food and products; users can discover and purchase such items; and the company facilitates the fulfilment of these orders through enabling delivery, reservations and payments, and lead generation for partners. It has five business segments - (i) Food Delivery; (ii) Out-of-home Consumption, covering dining out and events; (iii) Quick Commerce covering on-demand delivery of grocery and household items, (iv) Supply Chain and Distribution covering business-to-business ("B2B") supplies, warehousing, logistics and distribution for wholesalers and retailers, and (v) Platform Innovations covering its new initiatives and offerings, such as Swiggy Genie, Swiggy Minis, among others.

The company collects payments from users for transactions completed on its platform, which typically includes the cost of the food or product purchased, delivery fees and other fees. It then facilitates the transfer of the cost of food or product and delivery related fees to its partners at regular intervals after retaining certain fees.

According to the Kantar BrandZ Most Valuable Indian Brands Report 2024, Swiggy is the most valuable brand in the Consumer Technology & Services Platforms category and is among the Top 25 most valuable brands in India overall (RedSeer Report - section 7, page 19). Swiggy is unique as the only unified app in India that fulfils through its own platform all food-related missions of urban users of ordering-in, eating-out and cooking-at-home, as of June 30, 2024, and captures the largest share of consumer wallet in terms of Monthly GOV per MTU in the hyperlocal commerce use-cases, in the three months ended June 30, 2024, according to the RedSeer Report (section 7, page 19). As of June 30, 2024, it had 5401 employees on its payroll. 

According to the management, its food delivery related business has turned profitable, but the other diversified activities has yet to break the ice, the way it has pan out so far and with the influx of IPO funds, management is hoping to turn all the diversified activities profitable in coming years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 290446837 equity shares of Re. 1 each worth Rs. 11327.43 cr. (at the upper cap). The company has announced a price band of Rs. 371 - Rs. 390 per share. The issue constitutes fresh equity shares worth Rs.4499.00 cr. (approx. 115358974 shares at the upper cap), and an offer for sale (OFS) of 175087863 shares (worth Rs. 6828.43 cr. at the upper cap).  The issue opens for subscription on November 06, 2024, and will close on November 08, 2024. The minimum application to be made is for 38 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 12.98% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 164.80 cr. for investment in its material subsidiary Scootsy for repayment/prepayment of its certain borrowings, Rs. 1178.70 cr. for investment in its material subsidiary for expansion of dark store network for its quick commerce segment, Rs. 703.40 cr. for investment in technology and cloud infrastructure, Rs. 1115.30 cr.  for brand marketing and business promotion expenses, and the rest for funding inorganic growth through unidentified acquisitions and general corporate purposes.
 
The company has reserved 750000 equity shares for its eligible employees and offering them a discount of Rs. 25 per share, and from the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., J. P. Morgan India Pvt. Ltd., Citigroup Global Markets India Pvt. Ltd., BofA Securities India Ltd., Jefferies India Pvt. Ltd., ICICI Securities Ltd., and Avendus Capital Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. Syndicate members for this IPO are Kotak Securities Ltd., and Spark Institutional Equities Pvt. Ltd. 

The company has issued initial equity capital at par value, and has issued/based on Re. 1 FV) between February 2015, and October 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Rs. 0.00, Rs. 11.17, Rs. 11.44, Rs. 13.98, Rs. 14.82, Rs. 20.14, Rs. 90.81, Rs. 94.75, Rs. 101.49, Rs. 131.15, Rs. 141.58, Rs. 165.11, Rs. 165.47, Rs. 178.90, Rs. 188.65, and Rs. 357.87 per share. 

Post IPO, company's current paid-up equity capital of Rs. 212.31 cr. will stand enhanced to Rs. 223.84 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 87298.60 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 6119.78 cr. / Rs. - (3628.90) cr. (FY22), Rs. 8714.45 cr. / Rs. - (4179.31) cr. (FY23), and Rs. 11634.35 cr. / Rs. - (2350.24 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a loss of Rs. - (611.01) cr. on a total income of Rs. 3310.11 cr. Thus it has posted losses for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. - (14.90), and an average RoNW of - (35.39) %. The issue is priced at a P/BV of 11.60 based on its NAV of Rs. 33.61 as of June 30, 2024, and is at a P/BV of 7.31 based on its post-IPO NAV of Rs. 53.36 per share (At upper cap). 

If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a negative P/E, and based on FY24 earnings also it is at a negative P/E, as the company has posted losses for the reported periods. On other parameters the issue appears aggressively priced. 

The offer document is missing PAT margins and RoCE margins data. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents. It adopted a dividend policy in April 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Zomato Ltd., as their listed peers, it is trading at a P/E of 297 (as of November 01, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The Seven BRLMs associated with the offer have handled 71 public issues in the past three fiscals, out of which 16 issues have closed below the offer price on listing date.

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