Foodtech giant Swiggy faces potential goods and services tax (GST) liabilities totaling INR 326.7 crore, as indicated in its recently submitted updated draft red herring prospectus (DRHP).
Tax͏͏ Compliance͏͏ Concerns:
In͏͏ December͏͏ 2023,͏͏ the͏͏ Pune͏͏ zonal͏͏ unit͏͏ of͏͏ the͏͏ Directorate͏͏ General͏͏ of͏͏ GST͏͏ Intelligence͏͏ (DGGI)͏͏ issued͏͏ a͏͏ demand͏͏ notice͏͏ to͏͏ the͏͏ foodtech͏͏ giant͏͏ for͏͏ allegedly͏͏ failing͏͏ to͏͏ pay͏͏ tax͏͏ on͏͏ the͏͏ delivery͏͏ fees͏͏ collected͏͏ from͏͏ customers.͏͏ This͏͏ case͏͏ relates͏͏ to͏͏ the͏͏ period͏͏ between͏͏ July͏͏ 2020͏͏ and͏͏ March͏͏ 2022.
The͏͏ DRHP͏͏ stated,͏͏ “In͏͏ December͏͏ 2023,͏͏ our͏͏ Company͏͏ received͏͏ show͏͏ cause͏͏ notices͏͏ from͏͏ the͏͏ GST͏͏ authorities,͏͏ asking͏͏ us͏͏ to͏͏ explain͏͏ why͏͏ a͏͏ tax͏͏ liability͏͏ of͏͏ INR͏͏ 326.7͏͏ crore,͏͏ along͏͏ with͏͏ interest͏͏ and͏͏ penalties͏͏ for͏͏ the͏͏ period͏͏ from͏͏ July͏͏ 2020͏͏ to͏͏ March͏͏ 31,͏͏ 2022,͏͏ should͏͏ not͏͏ be͏͏ demanded͏͏ and͏͏ recovered.͏͏ The͏͏ alleged͏͏ amount͏͏ is͏͏ based͏͏ on͏͏ the͏͏ delivery͏͏ charges͏͏ collected͏͏ by͏͏ our͏͏ Company͏͏ from͏͏ the͏͏ end͏͏ user͏͏ on͏͏ behalf͏͏ of͏͏ the͏͏ delivery͏͏ partners.”
In͏͏ its͏͏ IPO͏͏ documents,͏͏ the͏͏ foodtech͏͏ giant͏͏ stated͏͏ that͏͏ it͏͏ will͏͏ keep͏͏ an͏͏ eye͏͏ on͏͏ developments͏͏ in͏͏ the͏͏ case͏͏ and͏͏ “take͏͏ appropriate͏͏ action͏͏ regarding͏͏ any͏͏ further͏͏ proceedings͏͏ as͏͏ necessary.”
However,͏͏ Swiggy͏͏ cautioned,͏͏ “We͏͏ cannot͏͏ guarantee͏͏ that͏͏ an͏͏ unfavorable͏͏ decision͏͏ regarding͏͏ this͏͏ matter͏͏ will͏͏ not͏͏ occur,͏͏ nor͏͏ that͏͏ such͏͏ a͏͏ decision͏͏ will͏͏ not͏͏ adversely͏͏ affect͏͏ our͏͏ financial͏͏ condition͏͏ and͏͏ operations.”
It͏͏ is͏͏ worth͏͏ mentioning͏͏ that͏͏ Swiggy’s͏͏ publicly͏͏ listed͏͏ competitor,͏͏ Zomato,͏͏ is͏͏ also͏͏ facing͏͏ multiple͏͏ demand͏͏ notices͏͏ from͏͏ GST͏͏ authorities͏͏ across͏͏ various͏͏ states.
Just͏͏ a͏͏ week͏͏ ago,͏͏ Zomato͏͏ received͏͏ a͏͏ new͏͏ GST͏͏ penalty͏͏ notice͏͏ of͏͏ INR͏͏ 18͏͏ crore͏͏ from͏͏ West͏͏ Bengal͏͏ authorities,͏͏ following͏͏ similar͏͏ notices͏͏ from͏͏ GST͏͏ officials͏͏ in͏͏ Delhi,͏͏ Tamil͏͏ Nadu,͏͏ Karnataka,͏͏ and͏͏ other͏͏ states.
Ongoing͏͏ Legal͏͏ Issues:
In͏͏ addition͏͏ to͏͏ the͏͏ GST͏͏ notices,͏͏ Swiggy͏͏ is͏͏ facing͏͏ multiple͏͏ legal͏͏ challenges,͏͏ as͏͏ outlined͏͏ in͏͏ the͏͏ DRHP.͏͏ Cofounder͏͏ and͏͏ CEO͏͏ Sriharsha͏͏ Majety͏͏ received͏͏ a͏͏ notice͏͏ last͏͏ year͏͏ from͏͏ the͏͏ Deputy͏͏ Labour͏͏ Commissioner͏͏ in͏͏ Lucknow͏͏ over͏͏ allegations͏͏ of͏͏ employing͏͏ child͏͏ laborers.͏͏ Furthermore,͏͏ a͏͏ criminal͏͏ complaint͏͏ has͏͏ been͏͏ filed͏͏ by͏͏ a͏͏ DGGI͏͏ official͏͏ in͏͏ Hyderabad͏͏ against͏͏ Swiggy’s͏͏ top͏͏ executives͏͏ and͏͏ directors͏͏ for͏͏ claiming͏͏ input͏͏ tax͏͏ credit͏͏ without͏͏ corresponding͏͏ service͏͏ supply,͏͏ falsifying͏͏ records,͏͏ producing͏͏ fake͏͏ accounts,͏͏ and͏͏ providing͏͏ false͏͏ information;͏͏ this͏͏ matter͏͏ is͏͏ currently͏͏ pending͏͏ before͏͏ a͏͏ trial͏͏ court.͏͏ Additionally,͏͏ the͏͏ National͏͏ Restaurant͏͏ Association͏͏ of͏͏ India͏͏ (NRAI)͏͏ has͏͏ lodged͏͏ a͏͏ case͏͏ against͏͏ Swiggy͏͏ for͏͏ alleged͏͏ violations͏͏ of͏͏ competition͏͏ laws͏͏ before͏͏ the͏͏ Competition͏͏ Commission͏͏ of͏͏ India͏͏ (CCI).
The͏͏ DRHP͏͏ also͏͏ highlighted͏͏ significant͏͏ attrition͏͏ levels͏͏ at͏͏ the͏͏ foodtech͏͏ giant.͏͏ According͏͏ to͏͏ the͏͏ draft͏͏ IPO͏͏ papers,͏͏ employee͏͏ attrition͏͏ reached͏͏ 53.74%͏͏ in͏͏ the͏͏ financial͏͏ year͏͏ 2023-24͏͏ (FY24),͏͏ an͏͏ increase͏͏ from͏͏ 50.49%͏͏ in͏͏ FY23͏͏ and͏͏ 37.1%͏͏ in͏͏ FY22.͏͏ For͏͏ the͏͏ fiscal͏͏ year͏͏ ending͏͏ March͏͏ 2024,͏͏ Swiggy’s͏͏ voluntary͏͏ attrition͏͏ rate͏͏ was͏͏ 34.56%,͏͏ while͏͏ the͏͏ involuntary͏͏ attrition͏͏ rate͏͏ was͏͏ 19.18%.
Swiggy͏͏ submitted͏͏ its͏͏ updated͏͏ DRHP͏͏ to͏͏ the͏͏ markets͏͏ regulator͏͏ on͏͏ Thursday,͏͏ September͏͏ 26.͏͏ The͏͏ public͏͏ issue͏͏ will͏͏ consist͏͏ of͏͏ a͏͏ fresh͏͏ issuance͏͏ of͏͏ shares͏͏ valued͏͏ at͏͏ up͏͏ to͏͏ INR͏͏ 3,750͏͏ crore,͏͏ along͏͏ with͏͏ an͏͏ offer͏͏ for͏͏ sale͏͏ (OFS)͏͏ of͏͏ up͏͏ to͏͏ 18.53͏͏ crore͏͏ shares.
Continue͏͏ Exploring:͏͏ Swiggy files͏͏ updated͏͏ DRHP͏͏ with͏͏ SEBI͏͏ for͏͏ INR͏͏ 3,750͏͏ Cr͏͏ IPO
The͏͏ company,͏͏ which͏͏ will͏͏ be͏͏ listed͏͏ on͏͏ the͏͏ BSE͏͏ and͏͏ NSE,͏͏ intends͏͏ to͏͏ use͏͏ the͏͏ fresh͏͏ proceeds͏͏ to͏͏ support͏͏ its͏͏ subsidiary͏͏ Scootsy,͏͏ fund͏͏ marketing͏͏ activities,͏͏ invest͏͏ in͏͏ technology,͏͏ finance͏͏ inorganic͏͏ growth͏͏ through͏͏ acquisitions,͏͏ and͏͏ cover͏͏ general͏͏ corporate͏͏ purposes.
The͏͏ IPO-bound͏͏ startup͏͏ reduced͏͏ its͏͏ loss͏͏ by͏͏ 44%,͏͏ bringing͏͏ it͏͏ down͏͏ to͏͏ INR͏͏ 2,350͏͏ crore͏͏ in͏͏ FY24,͏͏ compared͏͏ to͏͏ a͏͏ loss͏͏ of͏͏ INR͏͏ 4,179.3͏͏ crore͏͏ in͏͏ FY23.͏͏ Operating͏͏ revenue͏͏ increased͏͏ by͏͏ 36%,͏͏ rising͏͏ to͏͏ INR͏͏ 11,247.3͏͏ crore͏͏ during͏͏ the͏͏ year͏͏ under͏͏ review,͏͏ up͏͏ from͏͏ INR͏͏ 8,264.5͏͏ crore͏͏ in͏͏ the͏͏ previous͏͏ year.
However,͏͏ the͏͏ startup’s͏͏ net͏͏ loss͏͏ increased͏͏ by͏͏ 8%͏͏ in͏͏ Q1͏͏ FY25,͏͏ rising͏͏ to͏͏ INR͏͏ 611͏͏ crore͏͏ from͏͏ INR͏͏ 564.08͏͏ crore͏͏ in͏͏ the͏͏ same͏͏ period͏͏ last͏͏ year.͏͏ On͏͏ a͏͏ positive͏͏ note,͏͏ the͏͏ foodtech͏͏ giant͏͏ successfully͏͏ narrowed͏͏ its͏͏ adjusted͏͏ EBITDA͏͏ loss͏͏ to͏͏ INR͏͏ 347.8͏͏ crore͏͏ in͏͏ Q1͏͏ FY25,͏͏ down͏͏ from͏͏ INR͏͏ 486.8͏͏ crore͏͏ in͏͏ the͏͏ previous͏͏ year’s͏͏ quarter.͏͏ Revenue͏͏ from͏͏ operations͏͏ surged͏͏ 35%͏͏ year-on-year,͏͏ reaching͏͏ INR͏͏ 3,222.2͏͏ crore͏͏ during͏͏ the͏͏ quarter.
