Swiggy’s public debut will test India’s appetite for $1B+ IPOs

Swiggy’s upcoming IPO on Wednesday will finally give many analysts a public comparable for what has been long considered to be the Indian internet stock: Zomato. It will also test the nation’s appetite for IPOs that can scale past the $1 billion mark. 

For its IPO, Swiggy has already secured $1.4 billion from institutional investors including Norway’s sovereign wealth fund, BlackRock and eight of the top 10 Indian mutual funds. Still, it will enter a public market where large tech companies’ stocks have struggled historically — three years since its $2.5 billion offering, Paytm is still trading 47% below its IPO price.

More than a dozen Indian tech startups have gone public in the last four years, but the market has shown scant interest in large IPOs. Beauty and wellness e-commerce company Nykaa is still trading 53% below its debut price, and Star Health and Alliance Insurance Company remains 48% below its IPO price three years on. Startups that raised less than $500 million in India have performed incredibly well, in comparison.

India has emerged as a hotbed for tech IPOs this year even as the U.S. market remains muted. All eyes are on Swiggy’s IPO at the moment, particularly as many growth-stage startups — and their investors — are eyeing a similarly large listing over the next 24 months.

Furthermore, for many Indian startups that were based in the U.S. and Singapore, moving their official HQs back to India would let them better comply with local regulations to do such an IPO. It’s also an opportunity to reap the benefits of a market whose benchmark index had risen more than 10% in the past year. Up to three dozen startups could be shifting their domiciles back to India in the coming years, according to investors.

A slide from venture firm WEH’s Presentation Last Week showing the market’s preference for smaller IPOs. Image Credits: TechCrunch

The prospects for Swiggy’s IPO looks good — especially given that rival Zomato’s stock has surged over 100% since its $1.3 billion listing in 2021, reaching a market cap high of $29 billion this year. In comparison, Swiggy is seeking a valuation of $11.3 billion.

It helps that the Indian food delivery market has long been a duopoly between Zomato and Swiggy. And what makes the offer even more attractive to investors is that Swiggy is among the dozen firms attempting to disrupt the $1.1 billion Indian retail market that is still dominated by millions of mom-and-pop stores. 

Swiggy’s Instamart is among the top three quick-commerce businesses in the country, which promise deliveries of groceries, wellness and beauty products and much more within 10 minutes. Whether these companies will be able to revolutionize the broader retail market in India remains to be seen, but they have already captured 56% of the online grocery delivery market from e-commerce firms, according to JPMorgan. 

Quick-commerce firms such as Instamart, Zomato-owned BlinkIt, Zepto, BigBasket, and Minutes are changing consumer behavior in urban Indian cities, home to about 80 million people. Together, they are on track to record sales of more than $6 billion this year, according to TechCrunch estimates. 

“I don’t think Swiggy will just be an e-commerce company in the future, but I do think that given the growth rate of Instamart, and the total addressable market it’s going after, the percentage of e-commerce in Swiggy is going to have a dramatic change,” said Swiggy co-founder and chief executive Sriharsha Majety (pictured above at the top) in an interview with TechCrunch. 

Underpinning this business model is a unique supply chain system that involves strategically setting up hundreds of discrete warehouses, or “dark stores,” within kilometers of residential and business areas. This allows the firms to make deliveries within minutes of an order. 

This approach differs from that of e-commerce players like Amazon and Flipkart, which have fewer but much larger warehouses in areas where rent is cheaper and farther from residential areas.

Swiggy operates over 600 such facilities, while Zomato’s Blinkit ended the September quarter with 791 stores. 

Swiggy, which counts Prosus, SoftBank, Accel and Elevation among its backers, has scaled Instamart to 30 Indian cities. But many investors and analysts have expressed doubts about the viability of extending the quick-commerce model to smaller Indian cities and towns.

“Do we have an operating model for city number 500? Honestly, I don’t know,” said Majety. Asked if the model works on city number 75, Majety said: “I think that probably exists. We will see city 75 having quick commerce.” 

Swiggy’s IPO will also show how willing investors are to bet on business models that prioritize growth over profits amid challenging global conditions.

For Dutch investor Prosus, Swiggy’s listing could deliver a three-fold return. It will also be the venture firm’s biggest hit from India, where its $1 billion-plus gains from Byju’s have all but evaporated. Accel is expected to see a more than 35-fold return, one of its largest in the past five years.