24 Feb 2022

Swiggy plans $800 million IPO in year 2023


There has been a subtle shift in the food delivery business in India. For a long time, Zomato was the pioneer in the online food delivery business and Swiggy was behind Zomato. A lot has changed in the last 6 months. If you look at the last fund raising of Swiggy and compare with the current market capitalization of Zomato, then Zomato is valued at around $9 billion while Swiggy had raised funds in the last round at a valuation of above $10 billion.

Of course, that comparison may be a little unfair because Zomato has given up nearly 50% in value in line with the digital stock sell-off. Hence Zomato’s market cap has fallen from a peak of around $17 billion to just about $9 billion. Despite the carnage seen in digital stocks, it looks like Swiggy is not deterred and is seriously planning an IPO to raise close to $800 million. However, that IPO is only likely to come in during 2023, so it is still some time away.

According to a recent report in Nikkei Asia, Swiggy may be seriously considering raising up to $800 million via an IPO. It is not clear whether the IPO will be done in India or abroad and there has been no confirmation either ways from the company. Swiggy, backed by Softbank of Japan, is already adding independent directors to the board, which is normally a precursor to a public issue. Swiggy is looking to re-position itself as a logistics company.

Just a few months back, Swiggy had emerged as a decacorn (the private equity jargon to refer to a company that gets an indicative valuation of above $10 billion). The last $700 million funding round was led by Invesco PLC of UK. At that point, Swiggy had seen its valuations double to $10.7 billion overtaking Zomato in the process. However, in the last couple of months, Swiggy has sharpened its lead over Zomato in terms of market cap.

But, Swiggy’s big bet for the future is not about just food delivery but about instant delivery via its Instamart business line. This is the business that assures delivery of groceries in less than 30 minutes. Now, Swiggy plans to invest $700 million in Instamart, currently available in 19 Indian cities. This pegs Swiggy directly against the likes of Dunzo and Grofers who are currently offering delivery of groceries at your doorstep in less than 30 minutes.

Like most of the digital plays in India, Swiggy saw its sales tapering and losses reducing in the fiscal year 2021. For the recently concluded financial year FY21, Swiggy reported 23% YoY fall in revenues to Rs.2,145 crore. However, the positive takeaway is that the net loss decreased 65% YoY to Rs1,314 crore. Clearly, the pandemic has affected top line and the company is likely to see a much sharper recovery in the current fiscal year.

Even as Swiggy firms up its IPO plans, the timing is quite critical. It comes at a time when most of the digital start-ups like Paytm, Zomato, PolicyBazaar and Nykaa have seen the pressures of realism dawning on them. It remains to be seen how these experiences will eventually impact the valuations of Swiggy as it prepares for the IPO. In between, there are a plethora of digital IPOs also slated to hit the market, which will set the eventual tone.
 

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