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Swiggy’s shares listed at a premium but closed nearly 8% lower on Thursday

Swiggy, India’s popular food delivery and quick-commerce platform, made headlines with its IPO listing on November 14, 2024. Listed at a premium on both the NSE and BSE, Swiggy’s shares captured significant attention from investors and analysts alike. The IPO, valued at ₹11,300 crore, was subscribed 3.59 times, driven primarily by strong institutional demand. Swiggy share price closed at ₹454 on NSE and ₹455.95 on BSE, marking a 17% and 16.9% premium, respectively, over the IPO price of ₹390.

However, the stock faced pressure shortly after its debut, closing nearly 8% lower on Thursday, reflecting potential concerns about profitability and high operational costs. Let’s take a closer look at Swiggy’s business model, financial performance, and competitive landscape to understand the factors influencing investor sentiment.

Swiggy’s Diverse Revenue Model

Swiggy’s revenue model is built on multiple verticals that serve different needs within India’s growing digital economy:

Food Delivery: The core of Swiggy’s business is food delivery, which has a broad customer base across India’s urban centers.

Swiggy Instamart: Launched as a quick-commerce solution, Swiggy Instamart delivers groceries and essentials within minutes, tapping into the growing demand for convenience shopping.

Swiggy Genie: This service provides parcel delivery for consumers, allowing for flexible logistics solutions outside traditional food and grocery delivery.

This diversified model has helped Swiggy establish a broad presence in the Indian market. In FY 2023, Swiggy’s revenue reached ₹5,705 crore, showing a 40% year-over-year growth. Swiggy Instamart alone contributed over ₹1,500 crore to the total revenue, underscoring the traction in the quick-commerce grocery sector. This segment has become a critical growth driver for Swiggy, as consumers increasingly embrace on-demand grocery delivery.

Financial Performance and Challenges

While Swiggy’s diversified approach has boosted revenue, it also comes with challenges. The company’s operational expenses in FY 2023 totaled ₹7,280 crore, resulting in a net loss of ₹1,575 crore. This loss, though substantial, marks an improvement from the ₹1,850 crore loss recorded in FY 2022. Despite the revenue gains, Swiggy’s business remains capital-intensive, particularly in the quick-commerce segment, which requires continuous investment in logistics, technology, and delivery infrastructure.

Swiggy’s challenge lies in balancing growth with profitability. Quick-commerce, while promising, is yet to achieve consistent profitability, given the high costs associated with rapid deliveries and inventory management. The company’s broad service offering spreads risk but also stretches resources, making it crucial to optimize operations and streamline costs.

Competitive Comparison with Zomato

Swiggy’s primary competitor, Zomato, has adopted a more focused approach. Zomato remains dedicated to food delivery and has selectively ventured into quick-commerce following its acquisition of Blinkit. This acquisition contributed to Zomato’s revenue growth, which reached ₹6,300 crore in FY 2023, marking a 68% increase from ₹3,750 crore in FY 2022.

Zomato’s net loss in FY 2023 was ₹450 crore, a significant improvement from ₹1,200 crore in the previous year. This reduction in losses reflects Zomato’s efforts to streamline operations and enhance cost efficiency. Unlike Swiggy, Zomato’s operating expenses are more concentrated in food delivery, allowing it to achieve better unit economics and a clearer path toward profitability.

The contrasting business models of Swiggy and Zomato offer unique insights for investors:

Swiggy’s Diversified Model: Swiggy’s revenue streams from multiple services, such as food delivery, Instamart, and Genie, provide a hedge against sector-specific risks. However, this model demands continuous capital investment and may delay the timeline to profitability.

Zomato’s Focused Approach: Zomato’s focus on food delivery, with limited diversification, has allowed it to control costs and reduce losses. The Blinkit acquisition adds potential growth in the quick-commerce space but requires a less resource-intensive model compared to Swiggy’s broader offerings.

Investor Sentiment and IPO Reception

Swiggy’s IPO received strong support, with institutional investors showing particular interest. The 3.59 times subscription rate reflects confidence in Swiggy’s brand, market position, and growth potential. However, the stock's post-listing decline of nearly 8% highlights market concerns over profitability and sustainability in the face of high operating expenses and intense competition.

While Swiggy’s listing day premium of 8% was a positive start, investors are cautious about the company’s ability to achieve profitability. The current environment in the food delivery and quick-commerce sectors is highly competitive, with companies vying for market share while grappling with high costs.

Future Outlook and Growth Potential

Swiggy’s future growth will depend on its ability to optimize costs and improve unit economics across its services. Here are key areas of focus for Swiggy’s growth strategy:

Enhanced Efficiency in Quick-Commerce: Swiggy Instamart has shown strong revenue growth, but its high operational costs present a challenge. Swiggy will need to enhance delivery efficiency and reduce costs in this segment to make it profitable.

Continued Expansion in Core Food Delivery: Swiggy’s food delivery service remains the cornerstone of its business. Expanding this service while reducing per-delivery costs will be crucial for long-term profitability.

Strategic Partnerships and Collaborations: Partnerships with local suppliers, retailers, and logistics providers could help Swiggy streamline operations and expand service reach without heavy capital outlay.

Potential for New Revenue Streams: As Swiggy matures, there may be opportunities to introduce new revenue streams, such as advertising on its platform or introducing subscription models, which could offset some of the operational costs.

Challenges Ahead

Swiggy faces several challenges as it navigates the complex landscape of food delivery and quick commerce in India:

High Competition: The entry of new players in quick-commerce and the established presence of Zomato in food delivery create a competitive environment. Swiggy must differentiate its services and maintain customer loyalty to stay ahead.

Cost Management: The capital-intensive nature of Swiggy’s diversified model requires effective cost management. Reducing delivery and inventory costs in quick-commerce will be essential for sustainable growth.

Regulatory Risks: India’s regulatory environment for digital services is evolving. Changes in e-commerce or labour regulations could impact Swiggy’s operations and cost structure.

Swiggy’s IPO listing and subsequent performance reflect both the potential and challenges within India’s fast-growing digital economy. Swiggy’s diversified model across food delivery, quick-commerce, and parcel services offers growth potential but requires careful cost management to achieve profitability. The strong IPO response underscores market confidence, yet the post-listing dip suggests caution among investors regarding Swiggy’s profitability path.

For long-term investors, Swiggy’s performance will hinge on its ability to enhance efficiency, streamline operations, and balance growth with profitability. The future of Swiggy lies in its capacity to innovate while managing costs, a challenge that will define its place in the competitive landscape of food delivery and quick commerce in India.