Swiggy IPO: Should you subscribe or buy Zomato stock?

As the initial public offering (IPO) of Swiggy opens for public subscription on Wednesday (November 6), investors are weighing their options: should they subscribe to the issue or invest in the Zomato stock?
The question arises due to Zomato’s strong performance this year, reflected by the healthy rise in its stock price. Though Zomato’s share price has tumbled 9% in a month, it has delivered a whopping 95% return on a year-to-date (YTD) basis.
Zomato’s quick commerce business, Blinkit, has also been in the spotlight due to its strong growth. Most brokerage firms have highlighted this growth behind their bullish view on Zomato’s stock. On the other hand, Swiggy has found itself trailing its rival in terms of market share and operational efficiency.
Krishna Patwari, Founder and Managing Director of Wealth Wisdom India Pvt Ltd, has offered valuable insights into the competitive landscape between the two food delivery giants.
He highlighted that Swiggy trails Zomato by 4 to 6 quarters in both Food Delivery and Quick Commerce, indicating Zomato’s superior operational efficiency. “Swiggy’s Gross Order Value (GOV) for FY25 is projected at $3.3 billion, about 25% lower than Zomato’s,” he said.
Patwari pointed out that Swiggy has 14 million monthly transacting users compared to Zomato’s 20 million, although their order frequency is similar. However, he noted that Swiggy’s average order value is slightly higher, suggesting potential for increased revenue per transaction.
However, he warned that the real challenge lies in Swiggy’s path to profitability. “While Swiggy’s IPO could unlock new growth potential, especially through its basket size expansion and increased dark store footprint, questions remain about its path to profitability,” he added.
Investors might be intrigued by the IPO’s attractive pricing, but Patwari advised caution. “The IPO’s valuation appears reasonable, yet the company’s recent losses raise concerns about its long-term sustainability,” he said.
Therefore, in a market where Zomato has established a stronger foothold, Swiggy faces some challenges ahead. “The competitive stance post-IPO will hinge on how effectively Swiggy leverages its resources to close the gap with Zomato,” Patwari said.
“Hence, investors looking for listing gains should avoid the Swiggy IPO,” he added.
Gaurav Garg, research analyst at Lemonn Markets Desk, also highlighted that Swiggy has some catch up to do in terms of competing with Zomato.
“Almost 50% valuation compared to Zomato gives some comfort although it should not be considered as an arbitrage in valuation,” Garg said.
“If Swiggy’s EBITDA catches up to 3-4% in the food delivery business, which is currently at 1% and Average Order Value (AOV) improves to Rs. 550-600 levels in quick commerce with higher non-grocery share, we can see bridging in the valuation gap. Although, this should not be expected in near term,” he added.
Swiggy’s IPO is set to open for subscription on November 6, 2024, and will remain available until November 8. The total issue size is Rs 11,327 crore, with a price band fixed at Rs 371-390. Investors can bid for a minimum of 38 shares in a single lot.
As the IPO date approaches, potential investors must carefully consider these insights and the competitive landscape before making their investment decisions.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)