As Swiggy gears up for its much-awaited IPO on November 6, investors face a crucial question: should they apply for Swiggy’s IPO or consider investing in its rival, Zomato? Swiggy, one of India’s top online food and grocery delivery platforms, aims to raise around ₹11,327 crore from the primary market. The IPO’s price band is set between ₹371 and ₹390 per share, valuing Swiggy at approximately $11.3 billion, slightly above its last funding round valuation in 2022. This IPO is particularly anticipated, considering Swiggy’s growth story and its fierce competition with Zomato, which went public in 2021. Analysts are now weighing in on where investors should place their bets in this evolving food delivery landscape.
Swiggy IPO: Structure and Valuation
Swiggy’s IPO consists of two primary components: a fresh issue of 11.54 crore equity shares, amounting to ₹4,499 crore, and an offer-for-sale (OFS) of 17.51 crore shares, valued at ₹6,828 crore. This OFS allows early investors to exit at high prices, drawing some concerns about the company’s immediate profitability prospects. Swiggy has incurred losses for three consecutive financial years, sparking questions about its path to profitability compared to Zomato, which turned profitable shortly after its listing.
At the upper limit of ₹390 per share, Swiggy’s valuation of $11.3 billion puts it in close competition with Zomato’s market cap of over $25 billion as of November 2024. This comparison is especially relevant since Zomato’s revenue and profitability metrics have shown steady growth, while Swiggy is still working to establish itself as a profit-making entity.
Zomato’s Growth and Profitability Advantage
Zomato entered the stock market in July 2021 with a market cap near ₹1.07 lakh crore. Since then, its valuation has doubled, reflecting its market dominance and its established profitability. Zomato’s key performance indicators, including average order value (AOV) and gross order value (GOV), have remained strong, showing solid operational efficiency in the food delivery segment. Notably, Zomato’s gross order value has grown at a compound annual growth rate (CAGR) of 23%, outpacing Swiggy’s growth rate of around 15.5%. This trend has underscored Zomato’s ability to capitalize on market demand more effectively.
Analyst Opinions: Swiggy vs Zomato
Analysts generally lean towards Zomato as the safer investment. Akriti Mehrotra, Research Analyst at StoxBox, believes that Zomato holds a significant advantage due to its established profitability, larger market traction, and superior growth metrics. According to Mehrotra, Zomato’s scale and consistent revenue growth position it as a more favorable option for medium-term investments. She points out that while Swiggy’s IPO presents a growth opportunity, its ability to close the gap with Zomato hinges on strategic expansions in high-growth areas like quick commerce and its network of dark stores.
Anshul Jain, Head of Research at Lakshmisgree Investment and Securities, echoes this sentiment. He advises investors to prioritize Zomato shares over Swiggy’s IPO, citing Zomato’s profitable status and stable revenue. Jain notes that Swiggy’s IPO has a significant OFS component, which he interprets as an exit strategy for early investors rather than a sign of growth-driven capital raising. Jain also highlights the gap in profitability between Swiggy and Zomato, stating that Zomato’s higher revenue generation and profit margin make it a more attractive choice for those seeking long-term returns. He has set a target price of ₹550 for Zomato shares within the next two years, a substantial premium over its current levels.
Swiggy’s Challenges: Profitability and Market Share
Swiggy’s recent financial track record reflects a company in growth mode, but not yet profitable. In addition to its food delivery segment, Swiggy has ventured into quick commerce, where it commands about 25% market share. While its 45% share in food delivery is notable, this segment remains fiercely competitive, requiring Swiggy to strategize its path to profitability. Analysts like Jathin Kaithavalappil, Assistant Vice President at Choice Broking, point out that Swiggy’s negative cash flows and stiff competition from Zomato create uncertainties about its valuation.
Kaithavalappil emphasizes that while Swiggy’s IPO valuation may be well-priced, Zomato’s metrics in terms of GOV and AOV make it a more stable option. He suggests a balanced approach for investors: overweight on Zomato for stability, while cautiously allocating a smaller portion of capital to Swiggy for potential growth if the company can solidify its expansion plans post-IPO.
Zomato Stock Performance and Future Outlook
Since its listing, Zomato’s stock has provided substantial returns, despite recent price pressures. Over the past year, Zomato shares have gained approximately 109%, offering multibagger returns of over 285% since listing. However, the stock has experienced some volatility, including an 11% decline over the past month. Still, Zomato’s ability to scale and deliver consistent revenue growth has made it a reliable choice for investors.
Summary: Where Should Investors Put Their Money?
When weighing Swiggy’s IPO against Zomato shares, analysts largely favor Zomato due to its profitability, established growth trajectory, and market position. Swiggy’s IPO may appeal to investors with a higher risk tolerance who believe in its potential to leverage the capital raised for expansion. However, the uncertainty around Swiggy’s path to profitability remains a cautionary factor.
For investors seeking stable returns, Zomato emerges as the preferred option. Its proven financial performance, market share, and efficiency metrics underscore its resilience in a competitive market. Swiggy’s IPO offers a growth story with potential, but until it can achieve profitability and show consistent growth, Zomato remains the safer bet for those looking to invest in the food delivery sector.