Swiggy IPO: A compelling bet on hyperlocal commerce? Analysts weigh in

Unlisted shares of Swiggy traded at a premium in the grey market ahead of its IPO launch today. Should you subscribe? Here's what brokerages recommend

Swiggy IPO opens today: Leading brokerage firms, including Deven Choksey Research, SBI Securities, Arihant Capital, and Mehta Equities, remain optimistic about the initial public offering (IPO) of SoftBank-backed online food delivery giant Swiggy. With the IPO opening for public subscription today, analysts are recommending long-term investment, citing Swiggy’s growth potential in India’s hyperlocal commerce sector. 

 

The Rs 11,327.43 crore offering includes a fresh issue of 115.36 million shares and an offer for sale of 175.08 million shares, each with a face value of Re 1. Swiggy has already raised Rs 5,085.02 crore from anchor investors following a successful bidding round on November 5, 2024.

 

 

That said, before we dive into the brokerage recommendations, here are the key details of the Swiggy IPO:

 

For the IPO, Swiggy has set the price band at Rs 371-390, with a lot size of 38 shares. Thus, investors can bid for a minimum of 38 shares and in multiples thereof. Retail investors will need Rs 14,820 to apply for one lot of 38 shares.

 

Meanwhile, sources tracking grey market activity reveal that the unlisted shares of Swiggy were commanding a premium of Rs 15, which translates into a grey market premium (GMP) of 3.08 per cent against the upper price band of Rs 390.

 

The three-day subscription window for Swiggy's public offering is expected to close on Friday, November 8, 2024. Subsequently, the basis of allotment of Swiggy IPO shares is likely to be finalised on November 11, 2024, with shares expected to be credited to investors’ demat accounts by November 12, 2024.

 

Shares of Swiggy are expected to debut on the bourses on November 13, 2024, by listing on the BSE and NSE.

 

JP Morgan India, BofA Securities India, Jefferies India, Kotak Mahindra Capital Company, Citigroup Global Markets India, Avendus Capital, and ICICI Securities are the book-running lead managers for Swiggy’s IPO.

 

Swiggy intends to use the proceeds from the public issue to invest in its subsidiary Scootsy for purposes including debt repayment, expanding its Dark Store network for Quick Commerce, upgrading technology and cloud infrastructure, brand marketing, and potential acquisitions.

 

Brokerages on Swiggy IPO:

 

Mehta Equities - Subscribe for the long-term

Rajan Shinde, Research Analyst at Mehta Equities, has recommended investors subscribe to the Swiggy IPO for a long-term perspective. According to Shinde, Swiggy’s continuous expansion in hyperlocal commerce, evident through its increased dark store footprint and faster delivery times, reinforces its leadership in convenience and service quality. With notable improvements in Average Order Value (AOV) and contribution margin—from -7.5 percent to -3.18 percent within a year—Swiggy demonstrates operational efficiency and financial resilience.

 

On valuation, at the upper price band of Rs 390, the issue is asking for a market cap of Rs 87,299 crore, which Shinde sees as fairly valued compared to peers. "We have valued the company on a market cap-to-sales basis due to its current loss status. On this basis, Swiggy's offer is valued at 7.8x market cap-to-sales, which is reasonably priced compared to its competitor Zomato," said Shinde. He notes Swiggy has been more efficient in customer acquisition than Zomato, driven by its unified app model, which enhances cost efficiency and supports user growth. The company’s expansion into Tier 2 and Tier 3 cities, along with its inclusion of groceries and medicines, bolsters its path to profitability. Given its consistent innovation and strategic expansion, Shinde believes Swiggy is well-positioned for sustained growth, making it a compelling opportunity for investors seeking exposure in the evolving hyperlocal commerce space. 

Deven Choksey Research - Subscribe

Analysts at Deven Choksey Research remain bullish on Swiggy and have assigned a ‘Subscribe’ rating to the public issue. According to them, Swiggy's strategic focus on hyperlocal commerce positions it as a key player in the sector, driven by an innovation-led culture. With a consistent rise in Average Order Value (AOV) and a growing network of Dark Stores, from 301 in FY22 to 523 in FY24, the company is well-equipped to enhance user engagement and operational efficiency. As of June 30, 2024, Swiggy reached 112.73 million users, demonstrating robust growth supported by a unified app experience that simplifies diverse service offerings.

 

The expansion of Dark Stores coupled with the introduction of non-grocery categories aims to boost basket sizes and fulfil increasing consumer demand. Given these strengths and the projected growth of the online food delivery and Quick Commerce markets, analysts believe Swiggy is poised for sustained growth. "At the upper price band, the company is valued at 8x Price to Sales, offering a 76 per cent discount to its competition. Hence, we assign a ‘Subscribe’ rating," wrote the analysts in a research report.

 

Swastika Investmart - Subscribe for the long-term

Shivani Nyati, Head of Wealth at Swastika Investmart, suggested that investors consider Swiggy’s long-term growth potential alongside its current profitability challenges. This IPO is more aligned with those comfortable with high-risk exposure and a longer investment horizon. "While the company has demonstrated steady top-line growth, it remains loss-making with a negative P/E ratio, which may raise concerns for conservative investors. However, the IPO valuation appears reasonable when evaluated against other metrics, such as price-to-sales. Given the current market conditions, both the subscription and listing performance could face added pressure," said Nyati. READ MORE

  About Swiggy 

Swiggy established in 2014, provides an integrated platform for food, grocery, and household item delivery. Its five business units cover food delivery, out-of-home consumption, quick commerce, supply chain, and platform innovation. Swiggy's platform supports restaurant reservations, event bookings, and hyperlocal services. The company offers business solutions, payment options, and membership benefits.