India’s Swiggy tries enticing IPO bargain hunters

Hunger for more. A food delivery company is about to test the appetite of India's roaring stock market. SoftBank Group and Prosus-backed startup Swiggy may target a valuation of up to $15 billion in its Mumbai initial public offering, Reuters reported last week, citing an unnamed source. It's losing money and is also smaller than its profitable, faster-growing rival, Zomato , per the prospectus that was made public on Thursday. But the bet is that it's improving enough to catch up.

The $29 billion Zomato has a larger user base and higher sales. It grew revenue from operations at nearly twice the rate Swiggy did during the 12 months to the end of March, which was also its first full year of profit.

Swiggy does at least seem to be pricing its stock-market debut accordingly. Its target valuation implies a multiple of 10 times forward sales, based on annualising first-quarter revenue. That’s a discount to Zomato ’s 14 times multiple, using the same calculation.

Even so, the price of Swiggy shares in the private market has jumped 40% in the past two months. That's because local sports stars and Bollywood celebrities have piled in ahead of the initial public offer, website ETOnline reported on Thursday.

The upstart's financials are improving, though. Its food delivery segment generated earnings on an adjusted EBITDA basis during the three months to June, compared with a loss in the same period last year. Contribution margins are improving, too, in its quick commerce business, where Zomato got ahead via M&A. Swiggy does a better job of retaining app users than its rival, per a Bernstein analysis, even though Zomato’s larger user base dulls that edge.

Top shareholder Prosus, which wrote off its stake in what was once India's most valued startup, Byju’s, in June, is only selling a chunk of its affiliate's 31% position in the float. SoftBank, meanwhile, is keeping hold of its shares, having watched Zomato stock more than double since it sold its holdings in December.

Recent blockbuster IPOs have performed well, too. E-bike maker Ola Electric and retailer Brainbees are both trading around a third above their offer price, even after losing some steam of late.

That, combined with a lower multiple than Zomato , makes Swiggy 's IPO a decent bet for bargain hunters. The big question is whether India's booming market can stomach another big deal, or will get indigestion.

Context News

Food and grocery delivery startup Swiggy on Sept. 26 filed updated papers for a Mumbai initial public offering. The company plans to raise up to $1.25 billion at a valuation of $15 billion, Reuters reported the same day, citing an unnamed source. The offer will comprise fresh shares worth up to 37.5 billion rupees ($448 million) and the sale of up to 185.3 million existing shares, per the draft prospectus. Prosus, Accel India, Yuri Milner-backed Apoletto Asia and a Tencent fund are among the sellers. Kotak Mahindra Capital, Citi, Jefferies, Avendus, JPMorgan, Bank of America and ICICI Securities are advising Swiggy on the deal.