Swiggy is Bringing an IPO: To Bet Or Not To Bet?

A popular online food order and delivery platform, Swiggy, is gearing up for a stock market debut later this year. Swiggy has announced raising funds via an Initial Public Offering (IPO) worth $1.5 billion or ₹10,482 crore. Swiggy aims to raise ₹3,750 crore in new capital and ₹6,664 crore through an offer-for-sale. The date for the IPO hasn't been confirmed yet, but sources believe it could be some time at the end of 2024.

Along with several new players in the market, like Ola Electric, FirstCry, and Awfis, Swiggy also filed its IPO draft papers in 2023. Now, the food delivery giant is speeding up the transformation process by shedding the old private company status and converting it into a public firm.

And so, Swiggy's official company name has been changed from "Bundl Technologies" to the familiar "Swiggy Pvt. Ltd."

In my opinion, the name change is a great idea as it reflects their brand identity. After all, not many people knew about the name Bundl Technologies. If you did, then proudly brag about it in the comments. 👇

Swiggy's IPO Objective

Swiggy's Story: How It Started

It all started with a vision of two BITS Pilani grads, Sriharsha Majety and Nandan Reddy. Hoping to start a courier service that delivers items quickly, two partners designed a website named "Bundl" and began operations. Unfortunately, Bundl had to shut down its courier service in 2014 after three years in operation. However, the founders reformed the company and entered the food delivery sector.

Both the founders partnered with Rahul Jaimini, who was formerly with Myntra, to form Swiggy in August 2014. They started small in Bangalore with just a handful of restaurants to get food to customers in under 40 minutes. By 2015, Swiggy had spread to 8 different Tier 1 cities nationwide.

Today, Swiggy has a valuation of $9.6 billion, which is about ₹80,000 crore, with over 86 million customers.

Swiggy's Business Model:

Swiggy's journey from one Tier city to millions of customers makes one wonder how it achieved profound success in such a short period. The answer lies in its business model:

First Step: Recognising the Target

Swiggy doesn't own any restaurants or prepare the food themselves. It acts as the middleman, the hero who connects hungry customers with various restaurants. That's its target audience, aka customer segmentation.
Here's how it works:

a. Partnerships: Swiggy signs up restaurants, big and small, adding them to its app.

b. You Order, It Delivers: You (customers) browse the app, pick your favourite restaurant, order food, and pay conveniently. Swiggy then sends a delivery person to collect your order.

c. Delivery Magic: The delivery person picks up your food, ensuring it arrives hot and fresh. You track the journey on the app, and voila! Dinner is served without any hassle that comes with cooking food and washing numerous dishes.

This makes one wonder: How does Swiggy make money?

Swiggy allows its customers flexibility in placing as many orders as they want. Plus, it provides multiple payment options like debit or credit cards, Cash-On-Delivery, or payment apps like PhonePe, Paytm, etc. Amidst this, here's what goes to Swiggy's funds:

1. Commission on Orders:

Swiggy charges restaurants a commission on every order placed through their platform. This commission is calculated to be 15% to 25% of the total bill, including GST (kind of like a service charge). But the exact percentage depends on a few things:

• Order Volume: Restaurants with more orders through Swiggy might get a sweeter deal (lower commission).
• Location, Location, Location: Just like real estate, a restaurant's address can play a role. Swiggy might adjust commission based on factors like competition in the area.

2. Delivery Fees:

Sometimes, a delivery fee is added to the order to cover the cost of getting it to a customer’s doorstep. This fee can be removed with a set order amount (usually over ₹200-250).

3. Advertising & Marketing:

Ever scrolled through the Swiggy app and seen eye-catching restaurant ads? Those are Banner Promotions! Restaurants pay Swiggy to display these prime spots, hoping to grab attention.

Swiggy also offers Priority Restaurant Listing. For a premium, restaurants can climb the ranks and appear at the top of search results, increasing their chances of being picked.

4. Cashback & Offers:

Swiggy teams up with big banks like American Express and Citibank to offer credit card deals. When you sign up for a deal through Swiggy, they get a little bonus – affiliate income! It's a win-win for everyone: you get credit card rewards, Swiggy gets a cut, and the banks get new customers.

Swiggy offers a service called Swiggy Access, which helps restaurants expand their reach by setting up kitchens in new locations. Another Swiggy feature is Swiggy One, a membership program for loyal customers. By paying a subscription fee, you unlock free delivery for most orders.

Industry Overview & Peer Comparison

The food delivery sector is relatively new compared to the other industries in the market, and yet there has been unprecedented growth. The Indian online food delivery industry is expected to grow to $29.33 billion, around ₹2.43 lakh crore. As of 2024, the industry market size is $5.3 billion, which is about ₹43,990 crore.

Through the online food delivery market, only two players outshine all others. You guessed it right: Zomato and Swiggy. If you look at the distribution, then Zomato and Swiggy together make up over 80% of the market.

It isn't too far-fetched to say that these two leaders laid the groundwork for the food delivery industry. But Swiggy always lags behind Zomato in the overall fight. Zomato came first, got publicly listed first, and even has more market share than Swiggy.

If you want to read about Zomato IPO, then click on the link.

There is always a very tight competition between the two. So the question arises: will Swiggy finally be able to defeat Zomato? Let’s look at the company’s fundamentals to find the answer.

Swiggy's Financials

If you look at Bundl Technologies Pvt. Ltd. (now Swiggy Ptv. Ltd.) 's profit and loss statement, you will see a significant rise in revenue. However, expenses and other liabilities make a huge dent in the company’s financials, as the Net Profit/Loss is negative.

Net loss rose 15% in FY23 compared to FY22, even though operating revenue increased significantly by 45%. This has been a major concern for the company, as the net loss crossed the ₹4,000 crore mark in the financial year ended 31 March 2023.

The Bottom Line

The food delivery industry is going to keep growing as urbanisation spreads. As players like Swiggy adapt and innovate, they'll likely expand their services, add features, and fight for dominance in this ever-evolving industry.

At such a time, Swggy’s decision to raise funds via an IPO seems like a good opportunity for the company. But, analysing whether it’s a good enough bet for investors is another matter entirely. At present, not much details regarding the upcoming IPO is available, but we will keep on updating the article as we go ahead.

Until then, I would advise you to research the company's fundamentals and future prospects and monitor ongoing developments. Make any decision after careful consideration.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.

Also Read:

• Best Upcoming IPOs in 2023-24.
• India's Food Industry: Challenges, Scandals, and Growth Potential
• The State of Quick Service Restaurants in India
• Will ONDC kill Zomato and Amazon?