Swiggy, the food delivery giant, plans to raise $800 million through a public offering as soon as next year. In addition, the Bengaluru-based food aggregator is more than likely to register as a logistics startup rather than a food delivery service.
According to Nikkei Asia, it has started the process of becoming a public company and has begun to appoint independent directors to its board of directors. The appointment of independent directors is one of the most telling signs that a company is on the verge of going public. We’ve seen it with ixigo, OYO, and Snapdeal, among others.
Swiggy will use the proceeds from the IPO to expand its market share, according to the report. The news comes after Swiggy announced a $700 million funding round led by Invesco Group a few months ago. The round, which included several new investors as well as existing investors, helped it join the decacorn club. The status (decacorn) is reserved for startups with a valuation of $10 billion or more.
Swiggy’s IPO plans arrive on the heels of one of the company’s largest acquisitions, which has yet to be revealed. Swiggy is in the final stages of acquiring Times Internet-backed online restaurant table booking service platform Dineout, which is worth noting for the uninitiated.
Inc42 stated in a report dated February 15, 2022, that this deal will cost between $150 million and $200 million. Swiggy will benefit from the deal because it will allow it to enter the dine-in market, which it has lacked so far and which its competitor Zomato has dominated.Swiggy will be able to expand into outdoor event management as a result of the agreement.
In the wake of the pandemic, the Bengaluru-based startup has doubled down on its Instamart quick commerce service. It has already committed $700 million in funding to expand its quick commerce operations. The startup’s quick commerce business competes with Dunzo, a Reliance-backed hyperlocal delivery startup, Blinkit, a Zomato-backed startup, and Zepto, a newcomer to the market.
Swiggy’s competitor Zomato was one of the first new-age startups to go public, raising INR 9,375 crore in the process. Zomato, like other tech startups, is feeling the heat of market volatility, with its stock trading at an all-time low. On the NSE, Zomato’s shares were trading at INR 79.85 at the time of filing this story.
Swiggy’s IPO preparations come as India’s benchmark stock index is trending lower after a sharp rise in 2021, owing to signs of potential Fed rate hikes, a slowing global economic recovery, and geopolitical tensions. Since mid-October, the index has dropped 6.5 percent, and foreign investors have been net sellers of Indian stocks since then.
Indian startups such as Paytm, Zomato, Policybazaar, and Nykaa, which went public last year to much fanfare, have since seen their stock prices plummet. Zomato’s stock has dropped 41% since October 1, while Paytm’s stock is trading at less than half its initial public offering price of 1,950 rupees per share. Nykaa’s stock has dropped 33% from its listing price, while Policybazaar’s has dropped 36%.
Swiggy will be under pressure to tell an equity story that will entice investors in this environment. Swiggy will position itself as a logistics company, not just a food delivery company, according to a second person familiar with the company’s IPO plans, adding that its success will hinge on the valuation it seeks, market share, and path to profitability.
“Swiggy is a good story,” the individual stated. “Their value proposition to investors will be strengthened by the integration of quick commerce under one roof. To woo the public markets and expand market share, they will need to demonstrate a clear path to profitability.”
After a period of intense land grabs that sapped most startups’ cash as they splurged on customer acquisition, India’s food delivery sector has been reduced to a two-horse race between Swiggy and Zomato. Several food delivery companies, including Swiggy, TinyOwl, Dazo, Yumist, and Spoonjoy, among others, received their first investments from the likes of Accel Partners, Saif Partners, Sequoia Capital, and Nexus Venture Partners during the funding boom of 2014 and 2015. Around the same time, Zomato shifted its focus from restaurant listings to food delivery.
The majority of the startups failed after investors tightened their purse strings a few years later, perplexed by the cash burn and lack of profitability. In terms of sales, Swiggy and Zomato are neck and neck. Swiggy reported monthly food delivery sales of $250 million in December, while Zomato reported sales of $733 million in the October-December quarter.
Swiggy has also branched out into fast commerce, promising delivery of groceries and other daily necessities in less than 30 minutes. The instant delivery service Instamart, which will launch in August 2020, will consume the majority of the $700 million Swiggy raised in January. Swiggy expects Instamart gross sales to reach $100 million per month by September. Swiggy also offers a pick-up and delivery service.