In recent years, India’s food delivery industry has witnessed significant growth, driven by the increasing adoption of digital technologies and changing consumer lifestyles. Among the key players in this sector, Swiggy and Zomato have emerged as the frontrunners, continuously competing to dominate the market. With Zomato making headlines in 2021 with its successful Initial Public Offering (IPO), Swiggy is also preparing for its own IPO, sparking widespread interest and comparisons between the two giants. In this blog, we will dive into the details of Swiggy’s upcoming IPO, analyze the company’s growth prospects, and compare it with Zomato’s IPO to understand the similarities and differences.

1. The Background of Swiggy and Zomato

Swiggy: From a Food Delivery Platform to a Super App

Swiggy was founded in 2014 by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini. Initially focused solely on food delivery, the company has expanded its services to include Swiggy Genie (a pick-up and drop service), Instamart (grocery delivery), and other quick-commerce offerings. Over the years, Swiggy has become a household name in India, known for its user-friendly app, extensive restaurant partnerships, and aggressive promotional strategies.

With a strong market position and diverse revenue streams, Swiggy has attracted significant investment from global players, including Prosus Ventures, Accel, and SoftBank. The company achieved “decacorn” status (valued at over $10 billion) after its funding round in 2022, reflecting its rapid growth trajectory.

Zomato: Pioneering the Indian Food Delivery Space

Zomato, founded in 2008 by Deepinder Goyal and Pankaj Chaddah, started as a restaurant discovery platform before transitioning into food delivery. Over time, it grew to become one of India’s leading food-tech companies, offering food delivery, dining-out services, and a popular restaurant review platform. The company has expanded its reach beyond India, establishing a presence in multiple international markets.

In 2021, Zomato made headlines by becoming the first Indian food delivery startup to go public. The IPO was highly anticipated, and it raised approximately ₹9,375 crores ($1.3 billion) with a valuation of $12 billion. The IPO was oversubscribed nearly 40 times, reflecting the strong demand and investor confidence in the food delivery sector.

2. Swiggy’s IPO: What We Know So Far

Swiggy is reportedly planning to launch its IPO in November 2024 price band between 340-390. While the exact details are yet to be finalized, market expectations suggest that the company may target a valuation in the range of $8-10 billion. Here are some key aspects to consider:

• Use of Funds: Swiggy plans to use the IPO proceeds to expand its quick-commerce business, strengthen its logistics network, and invest in technology. A portion of the funds may also be directed towards acquisitions to consolidate its position in the market.
• Revenue and Profitability: Swiggy’s focus has not only been on growth but also on improving profitability. The company reported significant progress in reducing its cash burn and improving EBITDA margins. However, it remains to be seen whether Swiggy can achieve profitability before its IPO, a key factor that could influence investor sentiment.
• Market Position and Growth Strategy: Swiggy continues to diversify its offerings with services like Instamart and Swiggy Genie. The company’s ability to scale these businesses and compete in the quick-commerce segment will be crucial for long-term growth.

3. Zomato’s IPO: Key Highlights

Zomato’s IPO, launched in July 2021, was a landmark event for India’s stock market and the startup ecosystem. Here are some highlights:

• Valuation and Oversubscription: The IPO was priced at ₹72-76 per share, giving Zomato a valuation of approximately $12 billion. It was oversubscribed nearly 40 times, reflecting strong investor demand.
• Fund Utilization: The company planned to use the funds for organic and inorganic growth, including investments in its delivery infrastructure, technology, and potential acquisitions.
• Stock Performance: After an initial surge, Zomato’s stock faced volatility, with concerns over profitability and intense competition in the food delivery space weighing on investor sentiment. The stock’s performance has since been closely tied to the company’s ability to improve margins and reduce losses.

4. Comparing Swiggy and Zomato’s IPOs

a. Valuation and Market Sentiment

• Zomato’s Higher Initial Valuation: Zomato’s IPO came with a valuation of $12 billion, which was higher than what Swiggy is reportedly targeting ($8-10 billion). This difference may be due to market conditions, changes in the regulatory environment, and evolving investor sentiment towards tech startups.
• Timing of the IPOs: Zomato’s IPO occurred at a time when there was a high appetite for tech stocks in the Indian market. The situation may be different for Swiggy, with concerns over high inflation, regulatory changes, and market volatility potentially impacting investor sentiment.

b. Revenue and Profitability Metrics

• Zomato’s Focus on Food Delivery: Zomato’s revenue growth has primarily come from its core food delivery business. However, the company has struggled with profitability, reporting significant losses. The company’s strategy post-IPO focused on improving unit economics, reducing discounts, and enhancing delivery efficiency.
• Swiggy’s Diversified Revenue Streams: Swiggy’s IPO strategy may benefit from its diversification into quick-commerce and non-food delivery services. These additional revenue streams could help the company present a stronger case for long-term growth compared to Zomato’s initial focus solely on food delivery.

c. Competition and Market Dynamics

• Market Leadership: Zomato was a pioneer in the Indian food delivery market and had the first-mover advantage. Swiggy, while a close competitor, has had to constantly innovate and expand its services to match Zomato’s reach.
• Quick-Commerce Advantage: Swiggy’s expansion into the quick-commerce space with Instamart gives it an edge over Zomato, which has not aggressively pursued this segment. As quick-commerce continues to grow in India, Swiggy’s focus on this area could be a differentiating factor.
• Consolidation Trends: Both companies have made strategic acquisitions to expand their market presence. Zomato’s acquisition of Blinkit (formerly Grofers) aimed to bolster its quick-commerce capabilities, while Swiggy has focused on organic growth through its own services.

5. Investment Risks and Considerations

Investors should be aware of several risks associated with investing in food delivery stocks, whether it is Swiggy or Zomato:

• Path to Profitability: Both companies are yet to achieve sustainable profitability, and their business models rely heavily on scale, order frequency, and customer retention. Any changes in consumer behavior or increased competition could delay profitability.
• Regulatory Environment: The food delivery sector is subject to regulatory scrutiny, especially concerning labor laws for gig workers, data privacy, and anti-competitive practices. Any adverse changes in regulations could impact operating costs.
• Valuation Concerns: High valuations can be a double-edged sword, leading to significant price corrections if companies fail to meet growth expectations. The performance of tech IPOs globally has been mixed, with some companies struggling to maintain their listing prices.

Read Also : Anup Engineering Share Analysis: Bullish Trend, Key Levels, and Market Outlook for 2024

6. Conclusion: What Lies Ahead for Swiggy and Zomato?

Swiggy’s upcoming IPO will undoubtedly draw comparisons with Zomato’s 2021 listing, given their similar business models and market dynamics. However, Swiggy’s approach to diversification, particularly in quick-commerce, may give it an edge in positioning itself as more than just a food delivery company. Investors will likely scrutinize Swiggy’s revenue growth, margin improvements, and long-term profitability prospects as they did with Zomato.

While both companies face challenges in achieving profitability, the growing demand for convenience, online services, and digital transformation in India present significant opportunities for growth. As Swiggy prepares to go public, the stage is set for another pivotal moment in the Indian startup ecosystem, potentially reshaping the competitive landscape of the food-tech industry.

Ultimately, the choice between investing in Swiggy or Zomato will depend on individual risk appetite, valuation comfort, and confidence in each company’s growth strategy.