Swiggy IPO risk factors investors should know

Food delivery startup Swiggy filed a draft red herring prospectus for its initial public offering that is expected to be worth ₹10,000 crore. The company is looking to raise ₹3,750 crore through fresh issue of shares while the remaining amount is expected to come from an offer-for-sale of up to 18.5 crore shares by existing investors.

Swiggy’s investors including Accel, Alpha Wave Ventures, Coatue, DST, Elevation Capital, Norwest Venture Partners and Tencent among others are looking to offload some of their shares.

Swiggy started its operations in 2014 as a food delivery service and has since launched multiple services on its platform, such as quick commerce business Instamart in 2020, Dineout in 2022, pick-up and drop-off service Genie in 2020. It also engages in other hyperlocal commerce through Swiggy Minis.

In its DRHP, the food ordering firm shares risks relating to its business and the industry. “We have incurred net losses in each year since incorporation and have negative cash flows from operations. If we are unable to generate adequate revenue growth and manage our expenses and cash flows, we may continue to incur significant losses,” the company says.

Swiggy’s revenue from operations stood at ₹3,222 crore for the quarter ended June 20, 2024, compared with ₹2,389 crore during the corresponding quarter period last year. Its net loss widened to ₹611 crore during the June quarter as against a loss of ₹564 crore a year ago. In the financial year 2023-24, Swiggy's net losss narrowed to ₹2,350 crore from ₹4,179 crore in FY23.

“We have incurred significant expenses to support our growth, including advertising and sales promotions expenses to increase our user base and enhance our brand; delivery and related costs to support our delivery facilitation services; and employee benefit expenses to support our operations, among others,” the startup says.

According to its DRHP, Swiggy says the growth of its business depends on the company’s ability to grow offerings continuously by cost-effectively retaining and acquiring users. “If we fail to retain our existing user base or fail to acquire new users in a cost-effective manner, our business, financial condition and results of operations could be adversely affected,” it says.

“We incur expenses to attract and retain users on our platform, such as discounts and promotions, including through our membership programme, “Swiggy One” where members benefit from, free delivery for certain select orders and additional promotions and discounts,” it says.

Swiggy has cut down on its advertising expenses. The company spent ₹1,850 crore on ads and promotion in FY24 compared to ₹2,501 crore in FY23.

Average delivery charges paid per order to delivery Partners fell to ₹56.01 in FY24 from ₹58.99 in FY23 and ₹59.23 in FY22.

The food delivery firm says its delivery partners engage with the company’s platform on a gig basis, and therefore have the freedom to work for any number of days and hours, as per their preference. “This results in them simultaneously working at different places or only working for a few hours a day or only a few days in a month or year at their discretion,” it says.

“We do not have exclusive arrangement with delivery partners. Our ability to attract new and retain existing delivery partners largely depends on the delivery fee and other incentives they can earn through our platform and other benefits that we offer including accident and medical coverage, an income protection cover plan, smart gears, road safety awareness workshops, resting spots and maternity benefits. Further retention of delivery partners on our platform also depends on the efficient allocation of orders to delivery partners, such that they have opportunities to earn through our platform. While we continue to improve the efficiency and sophistication of our technology, including enhancing demand prediction, estimating food preparation times and optimising our routing and batching algorithms, there can be no assurance that such efforts will be successful,” it says.

On quick commerce, Swiggy says the success of a business depends in part on the location, size and density of its dark stores.