Swiggy India Limited: IPO Review; Should you Subscribe?

After much anticipation, Swiggy India, The Arch and Sole rival to Zomato is hitting the primary markets,  The issue is already open as of writing this review and will be open for subscription until 8th November

It is definitely a big issue, with a total size of 11327 Cr. This valuation combined with the general propensity of the new age companies has sort of left people with a very confused opinion as to whether or not they should apply for the IPO or not.

Well at this point I’m supposing you already have the entire information about the IPO Fundamentals and the numbers of the company as well.

So Let’s dig deep down to what really matters and what I think about the company and it’s Initial Public Offering.

What Really Matters! (Food Delivery and Quick Commerce)

Well I understand that for most people the valuation isn’t making proper sense considering the sort of losses they are posting currently and that makes total sense for someone seeing it purely from a fundamental base of the company.

However here is something else to consider

Let’s forget profitability for a second, Because in the concept based new age companies like this, Profitability doesn’t come in until a very later stage in the company.

There are simply 2 Companies in this category; Swiggy and Zomato, As per the latest reports, Zomato has a higher market share while Swiggy is somewhat about 15-20% behind them.

We will come into this competition as well, But if we just zoom out and have a look at the broader industry for a second, Aside from these 2 players, there isn’t any 3rd entrant in this but in fact when the food delivery concept came in India, there were many other players such as Foodpanda etc. However about 7-8 years later, No one could sustain and hence every other entrant left and even after having such big business houses in India such as Reliance, Adani, Tata etc. No one is remotely close to establishing their food delivery business in India, Although they are challenging these on a Quick commerce but we will take a look at that vertical later on.

So there is a unique MOAT built in this Food Delivery Business that no one is even willing to challenge, This is a huge positive for the company.

No if we start zooming in a little in the Zomato vs Swiggy Scenario, Zomato surely is a leader in this segment while Swiggy is currently playing follow up.

However even as per the current scenario It doesn’t seem possible for one of the companies to completely overpower the other and capture the entire market share while the other one goes bankrupt.

So consider this; The food delivery market in India is currently valued at ₹2.5-3 Lakh Crore, and consider both of the entrants at an equal market share, Each one of them gets a market share of 1.5 Lakh Crores.

The industry as well is growing at a humungous pace of 25% CAGR per annum!

By this estimation we will be looking at 8x the Industry size in the coming 8-10 Years!

Now Zomato is currently trading at a market cap of 2.25 Lakh Crores while Swiggy is coming up with a market cap of 87,000 Crores.

Hence Swiggy is looking like better option if you consider both of these.

Now the reason why I am only fixated on the Food delivery business is that although quick commerce is a huge opportunity as well and is currently changing the way we consume and is challenging the modern Departmental Stores, There are a lot of entrants in this, Blinkit, Zepto, Big Basket, Instamart etc. and everyone is trying to gather a market share of the the segment there is still a level of uncertainty and the industry itself is still at a very nascent stage so we don’t have to tap into that just yet. Besides while the quick commerce profitability is still confusing, Both Swiggy and Zomato have turned profitable in the food delivery business!

Simply the fact that the market is established in the Food Delivery Business coupled with the fact that only 2 people will be taking the market share in this segment and the industry growth rate of 24% per annum is already a one of a kind industry changing opportunity.

There is now an entire ecosystem built around the food delivery business; From Cloud Kitchens to thousands of delivery partners working to deliver the orders to restaurant tie-ups,

So the ecosystem is built up and working, Proof of concept is there as people are actively adapting this and entrants are currently fixed at 2.

All of these factors alone make it a very lucrative opportunity;

Whatever growth and profits we get from Quick Commerce are definitely a positive addition for the company but that’s just a cherry on the cake and besides that gold mine is being discovered and getting exploited by various players.

However the food delivery gold mine is already established and only 2 players are sitting on this goldmine!

So in conclusion this is a great opportunity as the entire shift in food consumption is fuelling the growth in the companies, But it is purely a long term play as the entire play at the sector might take 5-7 years or even a decade to completely play out.

These are all just my opinions based on my understanding of the businesses and the markets, Feel free to have different opinions.

Happy Investing :)