Swiggy IPO: Should you subscribe as GMP declines ahead of opening?

The initial public offering (IPO) of Swiggy Ltd is set to open for subscription on November 6, 2024, and will remain available until November 8. With a total issue size of Rs 11,327 crore, the IPO includes a fresh issue of 11.54 crore shares valued at Rs 4,499 crore, while existing shareholders will offer up to 17.5 crore shares worth Rs 6,828 crore.
The price band for the IPO has been fixed at Rs 371-390, allowing investors to bid for a minimum of 38 shares in a single lot. Ahead of the opening, Swiggy’s unlisted shares are trading with a grey market premium (GMP) of Rs 8, marking a decline from the earlier Rs 20.
Analysts are divided on whether to subscribe to the IPO. Some brokerages recommend subscription, arguing that the pricing appears fair in comparison to competitors, while others caution against investing due to the company’s reported negative cash flows and ongoing losses.
For instance, SBI Securities advises a long-term subscription, noting that at the upper price band, Swiggy is valued at 7.8 times Price/Sales, making it reasonably priced relative to Zomato.
On the other hand, Aditya Birla Money suggests avoiding the IPO, highlighting the ongoing financial losses and questioning the high valuation at 7.7 times FY24 price-to-sales. Meanwhile, Bajaj Broking sees merit in subscribing for the long term, given Swiggy’s growth potential despite current losses.
For more aggressive investors, Arihant Capital offers a subscription recommendation, citing Swiggy’s significant revenue growth of 34.8% year-on-year, though they acknowledge challenges in profitability.
In contrast, SAMCO Securities advises against investing, labeling the IPO as overvalued given Swiggy’s financial struggles compared to Zomato, which has recently turned profitable.
Swiggy is expected to achieve a post-listing market capitalisation of Rs 87,299 crore at the upper end of the price band. The allocation strategy includes reserving shares for employees and setting aside 75% for qualified institutional buyers, 15% for non-institutional investors, and the remaining 10% for retail investors.
The proceeds from the fresh issue will be directed toward various strategic initiatives: Rs 1,343.5 crore will support investment in its subsidiary Scootsy, while Rs 703 crore will be allocated to technology and cloud infrastructure.
Additionally, Rs 1,115 crore is earmarked for brand marketing and business promotion, with the remainder designated for inorganic growth and general corporate purposes.
Founded in 2014, Swiggy partners with over 200,000 restaurants across India, facilitating food delivery in a rapidly growing market. Competing against firms like Zomato, Amazon’s India unit, and Tata Group’s BigBasket, Swiggy operates as a B2C marketplace that aggregates restaurant and merchant partners, allowing consumers to discover and purchase their offerings.
Swiggy reported a net loss of Rs 611.1 crore and a revenue of Rs 3,310.11 crore for the June 2024 quarter, with total losses reaching Rs 2,350.24 crore for the fiscal year ending March 31, 2024. Despite these challenges, Swiggy continues to expand its services and enhance operational efficiencies, positioning itself for future growth.
The final allotment for the Swiggy IPO is expected to be announced on November 11, 2024, with a tentative listing date on the BSE and NSE set for November 13, 2024. As retail investors consider participation, weighing the prospects against the associated risks will be crucial in making informed decisions.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)