Swiggy IPO: Analysts Predict Lower Valuation Compared to Zomato as Food Delivery Giant Seeks ₹3,750 Crore

Swiggy, the food delivery giant, has filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) to raise ₹3,750 crore through an initial public offering (IPO). This IPO will include a fresh issue of shares along with an offer-for-sale (OFS) of 18.53 crore equity shares.

The company is aiming for a valuation of $15 billion, a significant increase from its previous valuation of $10.7 billion during its last funding round in 2022, which was led by asset manager Invesco.

This highly anticipated IPO comes at a time when the quick commerce sector is rapidly growing. In India, the food delivery market is mainly controlled by Swiggy and Zomato, which together hold over 90% of the industry. The market is expected to expand to ₹2 lakh crore by 2030.

As attention on the Swiggy IPO rises, analysts are comparing it to Zomato, Swiggy’s main competitor. Zomato had a successful public debut in 2021 and has provided substantial returns since then.

Many analysts predict that Swiggy will likely have a lower valuation than Zomato. This is because Zomato has been consistently outperforming Swiggy in key areas such as average order value (AOV), food delivery gross order value (GOV), revenue growth, and profitability in the food segment.

Karan Taurani, Senior VP of Elara Securities, commented, “We believe Zomato’s long-term growth prospects are strong for both food delivery and quick commerce. Zomato may continue to lead in growth and profitability by focusing on advertising revenue and platform fees.”

In the financial year 2024, Zomato achieved an adjusted EBITDA of 2.8%, while Swiggy reported a loss of 0.2%. Zomato also showed higher growth rates with a 23% annual growth rate in GOV compared to Swiggy’s 15.5%.

Zomato’s food segment is currently valued at 53 times its expected earnings for the next year, while the quick commerce segment is valued at 5.5 times its projected sales.

Analysts suggest that Swiggy might have a lower valuation due to several factors:

1. Zomato’s larger scale, with 27% higher revenue in food delivery and 109% higher in quick commerce.
2. Zomato’s stronger growth rates at 55% in FY24 and a GOV increase of 93% in quick commerce.
3. Blinkit, Zomato’s quick commerce segment, holds a leading position in the market.
4. Zomato’s higher profitability in food delivery and breakeven in quick commerce.

Taurani believes Swiggy could narrow the valuation gap with Zomato if it improves its market share and profitability in food delivery and quick commerce, although this may take time.

Akriti Mehrotra, a research analyst at StoxBox, believes that Swiggy’s IPO could increase competition in the food delivery market. However, Zomato’s established scale and profitability give it an advantage.

Mehrotra noted, “While both companies have similar take rates, Zomato’s food segment has a higher valuation. If Swiggy can effectively execute its plans after the IPO, it may close the gap, but Zomato’s strong performance will be crucial to maintain its stock value amid this new competition.”

Ultimately, Zomato’s ability to leverage its established market presence will be key to how the IPO affects its stock performance in the future.

Zomato Share Price Update

Zomato’s share price has increased by over 9% in the past month and by more than 37% in three months. Year-to-date, the stock has delivered returns of over 122% and more than 170% in the past year.

Elara Capital has given Zomato shares a ‘Buy’ rating, setting a target price of ₹320 each based on its various business valuations.

At 3:10 PM, Zomato shares were trading 1.71% lower at ₹273.50 on the BSE, with a market capitalisation exceeding ₹2.41 lakh crore.