Rising Market Volatility Drives Major IPO Valuation Cut in India’s Food-Tech Space

Swiggy, one of India’s leading food delivery platforms, has finally confirmed a massive cut in its valuation ahead of its much-awaited initial public offering, or IPO. This move is seen on the back of ongoing market volatility with the objective of positioning favourably before investors. The reasoning behind this step allows us to understand the current state of the IPO market and the strategic planning being done by Swiggy.

Swiggy IPO

The company has been rampantly expanding its presence in the food delivery and quick commerce sectors which are witnessing high competition and operational challenges. The IPO is a fresh issue of equity shares worth ₹3,750 crore alongside an offer for sale of 185,286,265 equity shares by current shareholders. It is open to all kinds of investor segments such as QIBs, anchor investors, mutual funds, and retail buyers with specific allocations based on their bidding amount.

Catalyst for Market Volatility

The Indian stock market has witnessed marked volatility, as the Nifty 50 index fell by more than 8% from its all-time high on some grounds. Heavy capital outflows from foreign investors have weighed significantly on market sentiments, courtesy of foreign portfolio investors withdrawing funds to cheaper Chinese markets. Weak Q2 earnings across sectors and apprehension about stretched valuations also add to the concerns.

Geopolitical tensions and uncertainty surrounding the upcoming US election further flare up the market volatility. This makes all the difference for the IPOs, creating uncertainty in the investor psyche and appetite for new listings.

Swiggy is taking advantage of Indian stock market volatility and correction in the stock markets. It is strategically looking at a valuation for its upcoming IPO that will be relatively low. Hence, the food delivery giant will look to present an attractive offer by structuring the deals such that as much value as possible is left on the table for investors who are participating in the bidding.

This is also an opportunity to increase investor confidence in the market due to price changes. Simultaneously, it positions Swiggy in a better position while cutting through the challenging food delivery and quick commerce landscape.

Recent IPO Performance

Swiggy to create a buzz with this IPO as the company sharply hikes its plans. Initially, the company sought to raise ₹66.6 billion through an offer for sale and ₹37.5 billion from fresh share issues. However, on September 10, Swiggy said it was going to raise ₹50 billion through fresh issues of shares, and the net proceeds were raised by ₹12.5 billion from the initial target.

This will raise the total IPO value to about $1.4 billion instead of an estimated $1.3 billion, besides new-issuance value amounting to about $150 million. The board intends to ratify these changes over an extraordinary general meeting on October 3rd. Swiggy’s IPO is therefore bound to be one of the biggest public market debuts in recent memory.

Strategic Importance to Swiggy

Finally, the Swiggy IPO is an exciting opportunity for investors to back one of India’s premier tech unicorns. The firm has a sound growth trajectory and an excellent market presence, making it an attractive proposition to both institutional and retail investors.

This IPO makes Swiggy more visible in the markets while strategically placing it for further growth and expansion. Thus, it stands as an attractive bet for those looking to tap into this fast-growing food tech sector.

Iconic names on the capitalization table include the chairman of Motilal Oswal Financial Services and Hindustan Composites, major automobile materials manufacturer Raamdeo Agrawal.

Its existing global investors include major players such as Prosus, Accel, SoftBank, and Invesco which strengthen its valuation. Prosus holds 33% of Swiggy and is expected to sell a major portion during the offer-for-sale phase of the IPO.

Competitive Landscape

Two leaders stand tall in the food delivery and quick commerce spaces in India, Swiggy and Zomato, both vying for market share and customer love. While head-to-head on the food delivery front, the firm’s Instamart quick commerce business squares off against other quick-commerce players like Blinkit, Zepto, Flipkart Minutes, and BigBasket of Tata Digital.

In fact, according to a report released in July, Zomato is at 29%, leaving Swiggy well behind at around 11%. It, therefore, reflects a more significant footing that Zomato has in the food delivery space.

Meanwhile, the financial performance of the two giants speaks volumes. Zomato, in fact, has recorded exceptional financial muscle, with a net profit of Rs 2.5 billion in Q1 FY25.

Comparing it to Rs 20 million in the same quarter last year, the difference is stark. Revenue jumped to Rs 42.1 billion, more than double that of Rs 14.2 billion reported last year, and Zomato’s operational efficiency as well as scale work more than well in favour of the competitive landscape.

However, Swiggy’s financials are much more complex. Now in FY24, though Swiggy was at Rs 112.5 billion, a little below Zomato’s Rs 121.1 billion, what was added was a significant net loss of Swiggy at Rs 23.5 billion. The good news is that Swiggy has been able to reduce its loss by almost 44 per cent compared to the previous year with which Instamart was a big success.

Since the financials depict a consistent profitability storyline, Swiggy shows a pattern of revival and growth specifically through the quick commerce wing. Since it is ready for its IPO, it aims at capitalizing upon this momentum further strengthening its position in the shifting market landscape.

Conclusion

Swiggy deciding to drop its valuation target before its IPO showcases a strategic play at the face level as it is looking to pad up against the turbulence of the present markets while also looking to pacify investors. By focusing on the attractive offering, Swiggy is well placed to give investors that needed degree of confidence in that volatile market environment.

Significant growth in the food delivery and quick commerce sectors combined with support from high-profile investors only present Swiggy very well to notch upcoming wins. As Swiggy is reaching its IPO, it raises more market visibility together with creating an appropriate stage for sustainable growth, thus becoming the next suitable investment entity in the food-tech revolution of India.