Swiggy IPO GMP stays positive ahead of launch: Should you subscribe?

Swiggy IPO: The unlisted shares of Softbank-backed online food delivery giant Swiggy are trading at a premium in the grey market ahead of the launch of its initial public offering (IPO), scheduled to open tomorrow, November 6, 2024. Grey market sources report that Swiggy’s shares were commanding a premium of Rs 20, which translates into a GMP of 5.13 per cent against the upper price band of Rs 390.

 

With the public offering, the company seeks to raise Rs 11,327.43 crore by offering a fresh issue of 115,358,974 shares and an offer for sale of 175,087,863 shares with a face value of Re 1 apiece.

 

 

Swiggy’s IPO will be available at a price band of Rs 371-390 per share, with a lot size of 38 shares. Accordingly, investors can bid for a minimum of 38 shares and in multiples thereof. Retail investors will require Rs 14,820 to apply for one lot of 38 shares. The IPO also includes a reservation for up to 750,000 shares for employees, offered at a Rs 25 discount to the issue price.

 

The subscription window for Swiggy’s IPO is slated to conclude on Friday, November 8, 2024. Following that, the basis of allotment of Swiggy IPO shares is likely to be finalised on November 11, 2024, with shares likely to be credited to investors’ demat accounts by November 12, 2024.

 

Shares of Swiggy are expected to make their market debut on the BSE and NSE on November 13, 2024.

 

JP Morgan India, BofA Securities India, Jefferies India, Kotak Mahindra Capital Company, Citigroup Global Markets India, Avendus Capital, and ICICI Securities are the book-running lead managers for Swiggy’s IPO.

 

Swiggy intends to utilize the proceeds from the public issue to invest in its subsidiary Scootsy for purposes including repayment of borrowings, expansion of its Dark Store network for Quick Commerce, technology and cloud infrastructure upgrades, brand marketing, and potential acquisitions.

 

Swiggy IPO review

Brokerages remain optimistic about Swiggy's public offering and have broadly recommended the investors to subscribe to the issue for the long-term perspective.

 

Should You Subscribe to the Swiggy IPO?

 

SBI Securities - Subscribe for long-term

Analysts at SBI Securities have recommended that investors subscribe to the issue for a long-term investment perspective, citing fair valuations. Swiggy, at the upper price band of Rs 390, is valued at a Price/Sales, EV/Sales, and P/BV multiple of 7.8x/7.3x/7.1x, respectively, based on its FY24 financials on post-issue capital. "Compared with Zomato, the issue appears fairly priced on all these parameters," wrote analysts in a research note.

 

Arihant Capital - Subscribe for aggressive investors

Brokerage firm Arihant Capital, in a research note, has recommended a ‘Subscribe’ for aggressive investors for Swiggy’s public issue. According to the brokerage, the company’s growth strategy faces notable challenges. While it aims to expand services and partnerships, reducing discounts may impact customer loyalty, and relying heavily on advertising and premium offerings might not be sufficient to drive profitability. Despite efforts to improve operational efficiency, intense competition and current negative financial metrics raise concerns about long-term viability.

 

"At the upper band of Rs 390, the issue is valued at a negative P/E of (37.40) based on FY24 EPS of INR -10.5. We recommend 'Subscribe for aggressive investors' to this issue," said the brokerage.

 

Deven Choksey Research - Subscribe

Analysts at Deven Choksey Research remain bullish on Swiggy and have assigned a ‘Subscribe’ rating to the public issue. According to them, Swiggy's strategic focus on hyperlocal commerce positions it as a key player in the sector, driven by an innovation-led culture. With a consistent rise in Average Order Value (AOV) and a growing network of Dark Stores, from 301 in FY22 to 523 in FY24, the company is well-equipped to enhance user engagement and operational efficiency. As of June 30, 2024, Swiggy reached 112.73 million users, demonstrating robust growth supported by a unified app experience that simplifies diverse service offerings.

 

The expansion of Dark Stores coupled with the introduction of non-grocery categories aims to boost basket sizes and fulfil increasing consumer demand. Given these strengths and the projected growth of the online food delivery and Quick Commerce markets, analysts believe Swiggy is poised for sustained growth. "At the upper price band, the company is valued at 8x Price to Sales, offering a 76 per cent discount to its competition. Hence, we assign a ‘Subscribe’ rating," wrote the analysts in a research report.

 

Bajaj Broking - Subscribe for long-term

Analysts at Bajaj Broking have recommended that investors subscribe to the IPO with a long-term perspective. Over the past three fiscal years, the company has consistently reported losses on a consolidated basis, highlighted the analysts in a research note, adding, "For the last three fiscals, the company has reported an average EPS of Rs (14.90) and an average RoNW of - (35.39) per cent. The issue is priced at a P/BV of 11.60 based on its NAV of Rs 33.61 as of June 30, 2024, and a P/BV of 7.31 based on its post-IPO NAV of Rs 53.36 per share (at the upper cap)."

 

"If we attribute annualised FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a negative P/E, and based on FY24 earnings it is also at a negative P/E, as the company has posted losses for the reported periods. On other parameters, the issue appears aggressively priced," said the analysts.

 

About Swiggy

Swiggy is a technology company that provides users with a platform to browse, order, and pay for food, groceries, and household essentials through its app, with delivery to their doorstep. Swiggy was among the first companies in India to launch food delivery services in 2014 and expanded into quick commerce in 2020. Backed by prominent investors like SoftBank, Prosus, and Accel Partners, the company has established itself as a pioneer in the food delivery space, connecting customers with local restaurants and stores.