Swiggy IPO: Muted listing expected, analysts cautious

Foodtech unicorn Swiggy, which raised ₹11,327 crore in India's second-biggest IPO this year after Hyundai Motor India, is set to make its debut on the stock market on Wednesday.  Despite being the second-largest e-commerce and food delivery player, it received a sluggish response for its public issue, which was offered at a price band of ₹371-390 per share between November 6-8. If the grey market trends and analysts prediction are to be believed, there is a very high possibility of flat to negative listing of the stock on the domestic bourses.

The grey market premium (GMP) of Swiggy shares have dropped significantly in recent days, from ₹9.50 on the day of opening of the IPO to ₹2 today, albeit it is higher than Monday’s GMP of ₹1 apiece. With this GMP, the shares of Swiggy are expected to list around ₹392, a tad higher than issue price of ₹390.

Averting a scare, the highly anticipated IPO of Swiggy sailed through on the last day of the bidding process, receiving 3.59 times subscription on the final day. The issue was subscribed just 0.12 times on Day 1, followed by 0.35% times on Day 2. On the final day, the IPO managed to fully subscribe as retail investors and qualified institutions buyers (QIB) lined up to subscribe the issue. The public issue was subscribed 1.14 times in the retail category, 6.02 times in QIB, and 0.41 times in the non-institutional investor (NII) segment. The portion reserved for employees was booked 1.65 times.

Analyst at Mehta Equities believes that the majority of the investors, especially non-institutional and retail, stayed back for a few reasons like negative cash flow business model followed by concern on high competition and ongoing negative market mood. 

“Considering low subscription demand from NII’s & Retail investors followed by market sentiments, there is a very high possibility of flat to negative listing in the range of +or - 5-10% on its issue price,” says Prashanth Tapse, Senior VP (Research), Mehta Equities.

For allotted investors, Tapse advised that one should not expect any kind of listing gains. “Hence, only risky investors should consider the company to HOLD FOR LONG TREM despite knowing short term volatility and competitive pressures in the sector. For non-allottees, we advise to wait and watch for the price to settle and revisit the space with better discounted opportunity.”

Shivani Nyati, Head of Wealth at Swastika Investmart, also suggested investors to exercise caution. She said that though the IPO received a decent subscription of 3.59 times, the current GMP indicates a muted investor response. This subdued sentiment is likely influenced by the company's continued losses, despite steady revenue growth.

“The IPO's valuation, while appearing reasonable based on certain metrics, presents a challenge due to negative earnings. Additionally, the current volatile market conditions may further impact the listing performance.”

“Given these factors, a cautious approach is recommended. Investors with a high-risk tolerance and a long-term perspective may consider the IPO, but it's essential to acknowledge the potential risks associated with the company's current financial position and the broader market uncertainties,” she adds.

The IPO of Swiggy had garnered mixed response from brokerages, with most recommending investors to subscribe only for the long-term, citing its negative bottomline and cash flows; and intense competition from fierce rival Zomato as well as Zepto and other new players in the quick commerce space.

Swiggy has been reporting consistent net losses since its establishment in 2014, primarily due to high operational costs. In contrast, its listed competitor, Zomato, has recently achieved profitability in the food delivery segment and break-even in the quick commerce business. It is notable that Deepinder Goyal-led Zomato’s business is bigger than that of Swiggy, commanding around 58% market share in the food delivery business and 40-45% in quick commerce.

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