India’s largest online food-ordering service, Swiggy, has raised a mammoth $1 billion in fresh funding led by South African internet and media conglomerate Naspers, pulling its valuation up to $3.3 billion. This represents a fivefold increase in the company’s valuation since the start of 2018.
The latest round is also the single-largest investment in India’s fast-growing food-tech sector, where Swiggy is engaged in an intense battle with rivals such as Zomato, FoodPanda and UberEats. Apart from Naspers, the round also saw participation from Tencent, and hedge funds Hillhouse Capital and Wellington Management Company.
According to sources, about $200 million of the $1-billion investment in Swiggy will go towards buying shares from existing investors. Business Standard was not able to ascertain the names of investors involved in the secondary share, but no investor is understood to have fully exited its investment in Swiggy yet.
“We first partnered Swiggy in April 2017 because we recognised the Swiggy team had built a sustainable, long-term business, that stood out amongst others in India,” said Larry Illg, chief executive officer (CEO) at the food and ventures division at Naspers. “Now, nearly two years later, we have even more confidence (that) Swiggy has the winning formula.”
Naspers, one of the leading tech investors in the world, has been active in India over the past couple of years. The company has sunk millions of dollars into Flipkart, PayU, and ibibo Group, among others. The Cape Town-headquartered firm also led a $540 million investment round in education firm Byju’s earlier this month.
Swiggy has shown phenomenal growth since launching the service in Bengaluru in August 2014.
The company is present in over 50 Indian cities and towns with a network of 50,000 restaurants seeded on its platform. The company says it has signed up 35,000 of these only in the last six months. As of November, the company had witnessed 25 million monthly transactions on its platforms which is expected to have gone up further now.
“As we add more firepower to our vision of elevating quality of life for urban consumers by offering unparalleled convenience, we’re pleased that visionary global investors share our purpose and have made such a significant investment in our future,” Swiggy’s CEO Sriharsha Majety said in a statement.
Swiggy plans to use the capital to grow its supply chain, apart from investing in new initiatives such as setting up of cloud kitchens.
Even though India’s food-tech space is seeing significant traction from global investors, almost all players operating in this space, including Zomato, Foodpanda and UnderEats, continue to burn huge amounts of fund in wooing new customers.
For example, even though Swiggy had more than tripled its revenue to Rs 4.4 billion in FY18, the company’s losses also mounted to Rs 3.9 billion from Rs 2.05 in the previous fiscal year. Zomato, its closest rival, saw its revenue growing by 40 per cent during the same period to Rs 4.66 billion though it managed to cut losses by nearly 80 per cent to Rs 1.06 billion. The losses are only expected to go up further as since March this year all the big players in this space have gone on a spending spree to acquire new customers, expand their reach to newer cities while also offering huge discounts to customers and cutting commissions earned from restaurants.
Experts say India’s food-tech sector, like online retail, will see just two or three large players surviving at the end. Already, there are just four large players in the market, with Swiggy and Zomato leading the pack. One wave consolidation happened back in 2016 when a number of food-tech firms such as Tinyowl and Holachef had to wind up their operations, another such consolidation is expected to come in the next couple of years.
“Food services is one of the biggest categories in the market. You are looking at over 100,000 organised restaurants and underlying market of at least around $30 billion,” said Karan Sharma, executive director and co-head of at digital & technology investment banking at Avendus which advised Swiggy in this transaction.