Swiggy, the second-largest delivery service in India, is preparing for an IPO to raise around $1.3 billion as it competes with Zomato and other rivals like Blinkit and Zepto. Despite facing losses and challenges in expanding its grocery delivery amidst rising costs and consumer concerns, Swiggy’s growth potential remains strong due to the increasing number of affluent consumers. However, investor interest has been tepid, prompting a revision of its valuation target.
Swiggy’s Journey in India’s Delivery Service Market
From enjoying a masala dosa for lunch to having weekly groceries conveniently delivered, the evolution of delivery services in India’s bustling cities has transformed daily life. In metropolises like Mumbai, Delhi, and Bengaluru, where traffic snarls can turn simple errands into time-consuming challenges, these services have become a vital relief for urban residents.
Swiggy’s IPO: A Step Towards Growth Amidst Competition
Now, the second-largest player in the delivery service industry, Swiggy, is set to make waves with its upcoming IPO, aiming to raise approximately $1.3 billion. Founded in 2014 in Bengaluru, Swiggy initially focused on food delivery but expanded into online retail three years ago with backing from Japanese investor Softbank. Today, it stands as a formidable competitor to market leader Zomato.
While Zomato has recently celebrated profitability, Swiggy has faced challenges, recording a loss of 6.1 billion rupees ($64 million) in the second quarter of this year. The company has heavily invested in establishing a robust network of warehouses in major cities to ensure prompt deliveries, promising to reach customers in just 20 minutes by optimizing routes to nearby warehouses.
Despite its established presence across more than 600 cities, the competition remains fierce. Swiggy battles rivals such as Blinkit, Zepto, and Big Basket, especially after Uber Eats exited the Indian market two years ago and Dunzo recently ceased operations despite its backing from Mukesh Ambani’s Reliance group.
The anticipation surrounding Swiggy’s IPO is palpable, as the delivery market in India holds immense potential. With Goldman Sachs projecting the number of Indians earning over $10,000 annually to soar from 60 million in 2023 to 100 million by 2027, the future seems bright. Yet, online shopping currently accounts for a mere 7 percent of retail, indicating significant growth opportunities ahead.
However, expanding into new markets, particularly in smaller cities, will be costly for Swiggy and its competitors. Rising advertising costs and quality concerns among consumers regarding fresh produce have made online grocery shopping less appealing. Additionally, inflationary pressures and stricter lending regulations have dampened consumer confidence.
The interest in Swiggy shares appears to be tepid, with the IPO seen as a barometer of market sentiment. Despite a general uptick in Indian stock prices, warnings of a potential bubble have emerged, especially following a 3.5 percent decline in the Nifty 50 index in October. The muted demand for Hyundai’s recent IPO highlights the cautious attitude among investors.
According to reports, while foreign institutional investors have shown strong interest, retail investor demand for Swiggy has been lackluster. As of last Friday, bids received were only 3.6 times the number of shares available, prompting Swiggy to adjust its valuation target from $15 billion to $11.2 billion.
Proceeds from the IPO will primarily fuel the expansion of Swiggy’s warehouse network, currently exceeding 580 across India. This expansion is crucial for remaining competitive against Blinkit and Zepto in the fast-paced online retail sector. As the trend towards doorstep delivery continues to gain traction, the question remains: who will ultimately emerge victorious in this highly competitive landscape?