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Swiggy shares fell 4% to Rs 401 on Wednesday as the food delivery and express commerce company concluded India’s second-largest IPO this year, in a closely watched debut that puts it in direct comparison with what analysts have long viewed as India’s internet stock. Standard: Zomato.
The listing of the 10-year-old Bengaluru-headquartered company marks a major milestone in India’s startup ecosystem, with many companies eyeing similar large public offerings in the next 24 months. It also provides a major liquidity event for Swiggy’s backers, including Prosus, whose paper revenues have already reached $2 billion, as well as SoftBank and Accel. The roughly 5,000 employees are expected to collectively generate about $1 billion in wealth.
In the run-up to the IPO, Swiggy had set its valuation at $11.3 billion, a remarkably conservative number given rival Zomato’s recent market cap of $29 billion. In an interview, Sriharsha Majety, co-founder and CEO of Swiggy, said the company wants to make the offering exciting for new investors. Zomato shares also fell 8% this month as foreign institutional investors continue to sell billions in Indian stocks.
“One of the things I’m most excited about is that Swiggy itself is happening at an incredible time,” he said in a speech on Wednesday. “When we look at the next decade or two, I think they are the next two decades for India. There is a lot of economic growth ahead of us. Indian pride is at an all-time high.
Swiggy is entering the public markets at a pivotal moment in India’s digital commerce landscape. Although it has established itself as the second-largest food delivery platform in India with 14 million monthly active users, it lags behind market leader Zomato across key metrics. Food delivery’s $3.3 billion annual gross order value lags about 25% behind Zomato, according to Macquarie research.
The gap is even wider in express commerce – where the express delivery sector promises to deliver groceries within 10 minutes. Swiggy’s Instamart service, which operates through a network of over 550 dark stores, has 5.2 million monthly users compared to 7.6 million users of Zomato’s Blinkit service. What’s even more worrying for potential investors is that while Blinkit has reached its adjusted EBITDA break-even level, Instamart is still making losses even at the contribution margin level.
“We believe each of Swiggy’s business segments deserves a lower target valuation multiple compared to Zomato due to poor execution in the past, which has resulted in a widening market share gap,” JMFinancial analysts said on Wednesday.
However, the opportunity before us is great. Morgan Stanley estimates that India’s e-commerce market could reach $42 billion by 2030, representing more than 18% of the country’s total e-commerce market. The sector has already grown a staggering 77% annually since its pandemic-era inception, far outpacing traditional retail’s 14% growth.
JPMorgan reported that express commerce platforms have already captured 56% of online grocery deliveries from traditional e-commerce companies.
However, competitive pressures are increasing. Traditional retail giants like Flipkart and Reliance’s JioMart are launching their own express delivery services. Questions remain about the viability of the express trade model outside major urban centres, given its reliance on dense networks of small warehouses.
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