The street is not very optimistic about Swiggy's upcoming initial public offering (IPO), with the company's unlisted shares trading at a grey market premium (GMP) of Rs 8, down from an earlier Rs 20. The IPO is set to launch at a time when the secondary market is experiencing significant selling pressure.
While analysts generally recommend a ‘subscription for the long term’ rating for the issue, some caution that investors may steer clear due to the company’s loss-making status in a highly competitive market.
“As of the fiscal year 2024, Swiggy Limited continues to operate at a loss, in contrast to its competitor, Zomato Limited, which has recently achieved profitability. Given Swiggy’s current financial position, competitive pressures, associated risks, and valuation, its IPO appears overvalued. Therefore, we advise investors to AVOID this IPO until the company’s financial performance and growth outlook improve,” noted SAMCO Securities in a recent statement.
Swiggy has reported losses on a consolidated basis over the past three fiscal years. In FY22, Swiggy’s total income was Rs 6,119.78 crore, with a net loss of Rs 3,628.90 crore.
The following year, FY23, saw total income rise to Rs 8,714.45 crore, but the net loss increased to Rs 4,179.31 crore. For FY24, total income further rose to Rs 11,634.35 crore, while the net loss decreased to Rs 2,350.24 crore.
Analysts at Bajaj Broking recommend subscribing to the IPO with a long-term perspective, noting that for the last three fiscal years, the company has reported an average EPS (earnings per share) of Rs -14.90 and an average RoNW (return on net worth) 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 30 June 2024 and is at 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 the 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,” they stated.
Bajaj Broking highlighted intense competition from Zomato, Zepto, and new market entrants, heavy reliance on revenue from the top 50 Indian cities, and potential challenges with changing food delivery regulations as significant risks to the business.
The IPO is set to open for subscription on Wednesday and will remain available until Friday. Swiggy is expected to achieve a post-listing valuation of Rs 87,299 crore at the upper end of the price band.
Swiggy’s IPO will be India’s sixth largest, following Hyundai Motor India, Life Insurance Corporation of India (LIC), One97 Communications (Paytm), Coal India, and Reliance Power. However, all the major issues have disappointed investors upon listing.
Shivani Nyati, Head of Wealth at Swastika Investmart, commented, “Given the current market conditions, both the subscription and listing performance could face added pressure. Investors should consider Swiggy’s long-term growth potential alongside its current profitability challenges, making this IPO more aligned with those comfortable with high-risk exposure and a longer investment horizon.”