Indian food delivery startup Swiggy’s $1.4 billion IPO soars ahead of market debut next week

In August, we covered Swiggy’s ambitious plans for an initial public offering (IPO) with a target valuation of approximately $15 billion. Now, just three months later, Swiggy’s long-awaited offering has arrived. Swiggy’s $1.4 billion IPO saw strong demand on Friday, with institutional investors piling in on the final day, making it India’s second-largest share sale this year.

By mid-afternoon, the IPO had received bids for nearly three times the shares on offer, with institutional investor interest soaring to 485% and retail investor subscriptions at 105%.

This IPO marks the second time this year a company has raised over 100 billion Indian rupees through public shares. Despite the impressive numbers, analysts anticipate a cautious stock market debut next week, influenced by broader market challenges and questions about when Swiggy might turn a profit.

India’s benchmark Nifty 50 index is down 8% from record highs in late September as foreign investors shifted capital to China after Beijing’s recent economic stimulus measures and softer earnings from Indian companies.

“Institutional over-subscription on the third day … reflects a long-term outlook, which seems promising for Swiggy given the strong market for food delivery and quick commerce in India,” said Prashanth Tapse, senior VP of research at Mehta Equities. However, he noted that gains at listing are unlikely given the current market sentiment, Reuters reported.

Founded in 2014 by Nandan Reddy, Phani Kishan Addepalli, Rahul Jaimini, and Sriharsha Majety, Swiggy has built a reputation as a leader in food delivery, connecting users to favorite local spots. Today, Swiggy operates approximately 550 grocery warehouses across 35 cities.

The startup also competes closely with Zomato in the food delivery sector, and both have been investing heavily in quick commerce — a service promising delivery of items like groceries and household goods in 10 minutes or less.

While Swiggy’s main food delivery service is profitable, Instamart, its grocery delivery arm, continues to operate at a loss. Instamart is up against established competitors such as Tata-owned BigBasket and Blinkit (previously Grofers), which counts Zomato as a stakeholder. Other rivals include Amazon Fresh and Reliance’s JioMart.

Swiggy has managed to narrow annual losses but remains unprofitable, while Zomato recently posted a profit for fiscal 2024 after recording a loss the previous year.

Earlier this week, “anchor” institutional investors, including Fidelity and Norway’s sovereign wealth fund Norges, acquired shares worth $605 million in Swiggy’s IPO.

Swiggy’s IPO follows Hyundai Motor India’s record-breaking share offering, which faced tepid interest from retail investors deterred by high pricing. Since its listing, Hyundai Motor’s stock is down 6%.

Though larger IPOs have seen mixed responses, India’s IPO market remains active, with around 290 companies raising nearly $14 billion this year — nearly double last year’s total, according to LSEG data.

Quick-Commerce Focus

Swiggy commands a 34% share of the food delivery market, compared to Zomato’s 58%. In the quick-commerce space, Zomato’s Blinkit holds an estimated 40-45%, with Swiggy’s Instamart at 20-25%, according to brokerage estimates.

Swiggy has announced plans to open more warehouses and cut delivery times as it bets on quick commerce to overtake food delivery as its main business. Around $140 million from the IPO proceeds will go toward expanding warehouse operations.

Quick-commerce sales in India have surged in recent years, expected to reach $6 billion this year, up from $100 million in 2020, according to Datum Intelligence.

Swiggy’s user-friendly app allows customers to browse menus, place orders, and track deliveries in real-time. Besides food delivery, Swiggy provides services like laundry pickup, document and parcel delivery, and options for businesses and individual users alike.