Swiggy's IPO debut tests demand for rapid-delivery firms in India

By Ashutosh Joshi and Dave Sebastian

 

Swiggy Ltd.’s shares are set to start trading in Mumbai on Wednesday, marking a test for investor interest in India’s burgeoning quick-commerce sector. 

The food-delivery firm’s $1.3 billion share sale, which was subscribed more than three times last week, is the nation’s second largest listing this year, following Hyundai Motor India Ltd.’s record $3.3 billion IPO.

 

The market debut will position Swiggy against larger listed rival Zomato and privately-held Zepto in India’s rapid delivery space. According to CLSA, these firms are set to top $78 billion in combined gross orders within a decade, potentially affecting existing consumer-product majors like Hindustan Unilever Ltd. and Marico Ltd.

 

 

“Swiggy’s IPO not only underscores the increasing confidence in India’s digital economy but also highlights the competitive dynamics in the quick commerce space,” said Mukul Goyal, a co-founder of Stratefix Consulting.

 

The offering comes at a time when global funds have been dumping local shares on concerns about slower earnings growth. Initial demand for Swiggy’s deal was subdued, but institutional demand on the final day drove it to a strong close. Shares were priced at Rs 390 apiece, the top of the marketed range.

 

Historically, Indian IPOs exceeding $1 billion have averaged a 4.8 per cent gain on their first day, data compiled by Bloomberg show. Trends in the country’s unofficial gray market point to a modest start for Swiggy, similar to Hyundai Motor India’s recent lukewarm debut. 

“I don’t expect a bumper listing as the broader market is extremely weak,” said Aditya Shah, founder of Mumbai-based Hercules Advisors. “Swiggy lags Zomato in most operating metrics, which is a dampener.”

 

While Swiggy’s IPO attracted global funds including Fidelity International, the company faces challenges, including turning a profit. Competition among quick commerce firms has caught the attention of India’s antitrust watchdog, which is investigating the company for alleged unfair practices. The probe is at a preliminary stage and no final order has been issued, Swiggy said in a statement Monday. 

 

Despite these hurdles, Swiggy’s growth is backed by the surge in online demand within one of the fastest-growing major economies. Its market share stood at about 37 per cent, just behind Zomato’s 39 per cent as of March 31, according to Chryseum Advisors, which tracks unlisted shares. 

 

Zomato’s shares have surged fourfold since the start of 2023, with all but three of the 27 analysts covering the company recommending the stock as a buy.

 

“Swiggy’s investment in technology and dark stores has enhanced operational efficiency and reduced delivery times from 17 to 12 minutes,” Stratefix’s Goyal said. “This underscores its commitment to creating a competitive advantage in a crowded market.”