Swiggy Ltd.'s highly anticipated initial public offering (IPO) reached 100% subscription on the third and final day of bidding, Friday, November 8. Investors showed strong interest in the online food delivery giant's IPO, with 16.08 crore shares being bid for, compared to the 16.01 crore shares on offer. The successful completion of the IPO marks a significant step for Swiggy as it moves closer to being listed on the stock exchanges.
Retail Individual Investors (RII): The RII category, which is allocated a specific portion of the offering, saw a subscription rate of 97%. This segment has always been a critical part of IPOs, reflecting the confidence retail investors have in the company.
Qualified Institutional Buyers (QIB): The QIB segment was oversubscribed by 1.33 times, indicating strong institutional demand. The heavy subscription from QIBs signals confidence from large investors and institutions, which can provide a stabilizing influence post-listing.
Non-Institutional Investors (NII): On the other hand, the NII category recorded a lower subscription rate of 38%. This shows that high-net-worth individuals (HNIs) were not as enthusiastic as institutional investors, potentially due to concerns about Swiggy's long-term profitability.
Swiggy's grey market premium (GMP) has seen a decline. As of November 8, shares of Swiggy were trading at a premium of ₹1, representing a 0.26% premium compared to the upper price band of ₹390. This decline in GMP may reflect cautious sentiment from investors or concerns about the company's financials.
Price Band: The IPO is being offered in a fixed price band of ₹371-390 per share, and investors can bid for 38 shares in one lot, with additional shares being offered in multiples thereof.
IPO Size: The total size of Swiggy's IPO stands at ₹11,327 crore. This includes a fresh issue of 11.54 crore shares, aggregating to ₹4,499 crore, and a sale of up to 17.5 crore shares from existing shareholders, which will raise ₹6,828 crore.
Swiggy has outlined the intended use of the funds raised from the IPO. The company plans to utilize ₹1,343.5 crore of the net fresh issue proceeds for investment in its subsidiary Scootsy. Another ₹703 crore will be allocated for investment in technology and cloud infrastructure, helping Swiggy strengthen its digital capabilities. Furthermore, ₹1,115 crore will be spent on brand marketing and business promotions to enhance the company's market presence.
The remaining funds will be used for inorganic growth opportunities and general corporate purposes, supporting the company's ongoing expansion in the competitive online food delivery and quick commerce sectors.
Despite its ambitious growth strategy, Swiggy has faced significant financial challenges. For the June 2024 quarter, the company posted a net loss of ₹611.10 crore, with a revenue of ₹3,310.11 crore. For the full financial year ending March 31, 2024, Swiggy reported a net loss of ₹2,350.24 crore and revenue of ₹11,634.35 crore. These losses have raised concerns among some investors, leading to mixed analyst ratings on the IPO.
However, Swiggy's dominant position in India's online food delivery market, its growing presence in quick commerce, and its diversified business model make it an attractive investment for long-term investors willing to navigate short-term financial challenges.
Swiggy competes with several players in the Indian market, including Zomato, BigBasket (under Tata Group), and Amazon India. While Zomato is its most direct rival in food delivery, Swiggy has been expanding into the quick commerce segment, which is rapidly growing in India due to increasing demand for instant delivery services.
The online food delivery and quick commerce industries are expected to continue growing, providing Swiggy with significant opportunities for future growth. However, the competitive landscape remains challenging, with ongoing price wars and customer acquisition costs affecting profitability across the sector.
Analysts have given mixed ratings on the IPO. Some recommend subscribing to the IPO, citing Swiggy's fair valuation and growth potential. However, others have raised concerns about the company's negative cash flows, ongoing losses, and the execution of its growth strategy. These concerns could weigh on the stock's performance post-listing, making it essential for investors to carefully evaluate the risks before committing.
At the upper end of the price band, Swiggy is expected to have a post-listing market capitalization of ₹87,299 crore. The IPO is expected to list on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), with a tentative listing date set for November 13, 2024. The IPO allotment process will be finalized on November 11, 2024, and investors will know their allotments before the listing date.
As part of its growth strategy, Swiggy is planning to expand its retail presence by opening 60 new showrooms across major cities in India over the coming months. This expansion will help the company reach more customers and enhance its brand visibility, both crucial elements for its continued success in the competitive food delivery market.
Conclusion
Swiggy’s IPO has generated significant interest, with strong demand from institutional investors and a solid subscription from retail investors. Despite concerns over its financial performance, the company's dominant position in the food delivery market and ambitious growth plans make it an exciting opportunity for long-term investors. With a post-IPO market capitalization of ₹87,299 crore, Swiggy is poised to play a significant role in India's fast-evolving digital commerce landscape.