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Swiggy’s upcoming IPO on Wednesday will give many analysts finally an audience similar to what has long been considered the Indian Internet Stock: Zomato. It will also test the country’s appetite for initial public offerings that could exceed the $1 billion mark.
For its IPO, Swiggy has already secured $1.4 billion from institutional investors including Norwegian sovereign wealth fund, BlackRock and eight of the top 10 Indian mutual funds. However, it will enter a public market where Big Tech stocks have historically struggled — three years after its $2.5 billion IPO, Paytm is still trading 47% below its IPO price.
More than a dozen Indian technology startups have gone public in the past four years, but the market has shown little interest in large IPOs. Beauty and wellness e-commerce company Nykaa is still trading 53% below its debut price, and Star Health and Alliance Insurance Company is still 48% below its IPO price three years later. In comparison, startups that have raised less than $500 million in India have performed incredibly well.
India has emerged as a hotbed for technology IPOs this year even as the US market remains muted. All eyes are on Swiggy’s IPO at the moment, especially as many growth-stage startups – and their investors – are eyeing a similarly large listing in the next 24 months.
Moreover, for many US- and Singapore-based Indian startups, moving their official headquarters to India would allow them to better comply with local regulations for undertaking such an IPO. It’s also an opportunity to reap the benefits of a market whose benchmark has risen more than 10% in the past year. As many as three dozen startups could move their headquarters to India in the coming years, according to investors.
Swiggy’s IPO prospects look good – especially given that rival Zomato’s shares have risen more than 100% since its $1.3 billion listing in 2021, reaching a peak market capitalization of $29 billion this year. In comparison, Swiggy is seeking a valuation of $11.3 billion.
It helps that the Indian food delivery market has long been a duopoly between Zomato and Swiggy. What makes the offer even more attractive to investors is that Swiggy is among dozens of companies trying to disrupt the $1.1 billion Indian retail market that is still dominated by millions of convenience stores.
Swiggy’s Instamart is among the top three express commerce companies in the country, which promises to deliver groceries, health and beauty products and more within 10 minutes. It remains to be seen whether these companies will be able to disrupt India’s broader retail market, but they have already captured 56% of the online grocery delivery market from e-commerce companies, according to JP Morgan.
Qig commerce companies such as Instamart, Zomato-owned BlinkIt, Zepto, BigBasket and Minutes are changing consumer behavior in India’s urban cities, which are home to about 80 million people. Together, they’re on track to record more than $6 billion in sales this year, according to TechCrunch estimates.
“I don’t think Swiggy will be just an e-commerce company in the future, but I do think that given Instamart’s growth rate, and the total addressable market it is going after, the percentage of e-commerce at Swiggy is going up,” said Sriharsha Majety, co-founder and CEO, Swiggy. Pictured above) in an interview with TechCrunch: “We have to have radical change.”
This business model is based on a unique supply chain system that involves setting up hundreds of separate warehouses or “dark stores” strategically located kilometers away from residential and commercial areas. This allows companies to make deliveries within minutes of an order.
This approach differs from that of e-commerce companies such as Amazon and Flipkart, which have fewer but much larger warehouses in areas where rent is cheaper and far from residential areas.
Swiggy operates over 600 such establishments, while Zomato’s Blinkit ended the September quarter with 791 stores.
Swiggy, which counts Prosus, SoftBank, Accel and Elevation among its backers, has expanded Instamart to 30 Indian cities. But many investors and analysts have expressed doubts about the feasibility of expanding the express trade model to smaller Indian cities and towns.
“Do we have an operating model for the 500th city? Honestly, I don’t know,” Magetti said. Asked if the model is working in the 75th city, Magetti said: “I think it probably exists.” “We shall see the city 75 enjoying brisk trade.”
Swiggy’s IPO will also show how investors are willing to bet on business models that prioritize growth over profits amid challenging global conditions.
For Dutch investor Prosus, a Swiggy listing could deliver a return of up to three times. It would also be the biggest hit to the investment firm from India, where its $1 billion gain from Byju’s has all but evaporated. Accel is expected to see a return of more than 35 times, one of its largest returns in the past five years.
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