SWIGGY Limited (Neutral)

Highlights

SWIGGY Limited (SWIGGY) incorporated on 2013, is a new-age, consumer-first technology company offering users an easy-to-use convenience platform, accessible through a unified app – to browse, select, order and pay for food (Food Delivery), grocery and household items (Instamart), and have their orders delivered to their doorstep through on-demand delivery partner network.

Their platform can be used to make restaurant reservations (Dineout) and for events bookings (SteppinOut), avail product pick-up/ dropoff services (Genie) and engage in other hyperlocal commerce (Swiggy Minis, among others) activities.

Being among the first hyperlocal commerce platforms, Swiggy has successfully pioneered the industry in India, launching Food Delivery in 2014 and Quick Commerce in 2020, and due to the pioneering status of Swiggy, it is well-recognised as a leader in innovation in hyperlocal commerce and as a brand synonymous with the categories it is present in.

As of September, Instamart operated a network of 605 Active Dark Stores across 43 cities in India. These Dark Stores have been strategically set up in various localities in identified catchment areas across the cities in which SWIGGY operate their Quick Commerce business. This enables them to provide seamless and quick availability and supply of grocery and household items in the area, with an average delivery time across cities of ~12.6 minutes.

Out of the total proceeds of Rs. 113,274 mn, Rs. 1,648 mn would use for investment in their material subsidiary, Scootsy, for repayment certain or all of its borrowings, Rs. 7,554 mn would go towards expansion of their dark store network for their quick commerce segment through setting up of dark stores, Rs. 4,233 mn would go towards making lease / license payments for dark stores, Rs. 7,034 mn would go towards investment in technology and cloud infrastructure, Rs. 11,153 would utilize towards brand marketing and business promotion expenses, ~Rs. 13,368 mn would go towards funding inorganic growth through unidentified acquisitions & general corporate purpose and Rs. 68,284 mn would go towards existing selling shareholders of the company. 

Key Highlights

• The Quick Commerce segment is expected to see the fastest growth among all retail channels in India with a CAGR of 60-80 pct to reach Rs. 2.3 – 4.2 trillion by 2028 from Rs. 224 bn in 2023. The near-term growth rate is expected to be even higher at 80-100 pct annually for the next 2 years driven by higher user adoption, geographic expansion, expanding AOVs, basket size and category expansion.
• As on Q1FY25, their platform listed a selection of approximately over 19,000 SKUs within grocery and household items. These products include (i) utility-driven, daily purchases such as eggs, bread, fruits and vegetables, (ii) impulse purchases of snacks and quick-eats, (iii) recurring purchases made typically on a monthly or weekly basis, such as home supplies, including shampoo, soap, among others, (iv) need-driven purchases made on ad-hoc basis, such as feminine hygiene, basic pharmaceutical and personal care items and stationery, and (v) events- and festivities-related purchases that include sweets, festival supplies and team merchandise during sport events.
• SWIGGY offer comprehensive supply chain services to wholesalers and retailers. By leveraging their warehousing capabilities, they streamline the value-chain to provide reliable, fast, and cost-effective order fulfilment for wholesalers and retailers. They managed 2.66 mn sq. ft. of warehousing space across 13 cities and had approximately 680 authorized brand distribution partnerships and served ~87,000 retailers and wholesalers.
• The company operate businesses primarily through arrangements with their restaurant partners, merchant partners, brand partners and delivery partners, and other intermediaries such as call centre operators who assist in user service operations and payments, and 231 payment gateway operators to facilitate payment on their platform.
• SWIGGY’s key growth strategies include (i) Retain and grow user base by expanding offerings and growing partner network (ii) Expand Dark Store footprint and basket-sizes for Quick Commerce (iii) Improve contribution margin by scaling operations, and expanding high margin offerings and revenue streams (iv) Invest in technology backbone and optimise last-mile network to enable efficient scaling of operations to service more users (v) Invest to enhance brand recall, improve traffic on app, and increase engagement across businesses.
• Sales of the company has grown by 40.41 pct CAGR during the period FY22-24 while SWIGGY is able to lower down EBITDA loss of Rs. 42,758 in FY23 to EBITDA loss of Rs. 22, 080 and Loss of Rs. 41,793 mn in FY23 to Loss of Rs. 23,502 mn. During FY24, company reported sales of Rs. 112,474 mn which grew by 36.09 pct YoY. AS of Q1FY25 company registered sales/EBITDA loss/loss of Rs. 32,222 mn/ (Rs. 4,563) mn/ (Rs. 6,110 mn).

Key Risk

• Managing Dark Stores is critical to SWIGGY’s Quick Commerce business and failure to do so in a cost-effective way may have an adverse effect on their business.
• The wide variety of payment methods that the company accept subjects them to third-party payment processing-related risks. In addition, SWIGGY allow users to pay for deliveries or services through their platform using cash, which raises operational concerns.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Swiggy has successfully pioneered the industry in India, launching Food Delivery in 2014 and Quick Commerce in 2020, and due to the pioneering status of Swiggy, it is well-recognised as a leader in innovation in hyperlocal. At the upper end of the price band of Rs. 390 the issue is priced at an EV/Sales of ~7.3 its FY24 post issue capital. The issue looks fully priced.

Also read: Why Is Financial Advisory Important?

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