Swiggy, the leading food delivery platform, is gearing up for its stock market debut around mid-2024. Touted as the most substantial initial public offering (IPO) by an internet company in the coming year, it is expected to boast an impressive issue size of $1 billion (INR 8,300 crore). Insights from various top investors and founders indicate that SoftBank, the world’s largest tech investor, may significantly reduce its 9% stake, valued at over $800 million, during the impending Swiggy IPO.
The initial public offering (IPO) could mark the exit of several investors, including SoftBank, from Swiggy, as the food delivery firm seems well positioned on its path to profitability, according to sources.
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In 2021, SoftBank made its initial foray into the Indian food delivery sector by investing $450 million in Swiggy’s Series J round, thereby valuing the company at $5.5 billion.
SoftBank stands to achieve the highest profits from the Swiggy IPO compared to all its Indian portfolio companies scheduled to go public next year. This is because the foodtech company has been reducing losses in its core business, enhancing its appeal to the public markets. Notably, Swiggy’s closest competitor, Zomato, has also reported profits in the last two consecutive quarters.
Insiders have revealed that Swiggy has joined forces with financial institutions and is presently engaging in discussions with various brand communications firms to conclude its IPO procedures ahead of its anticipated debut on the exchanges next year.
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In recent times, SoftBank has expressed a strategic emphasis on investing in globally operating AI-driven enterprises and growth-stage companies in India, as articulated in public statements by Rajeev Misra, the head of SoftBank Vision Fund business.
“If you look at India, the opportunities are in the early stages, between $1 Mn and $20 Mn. While we can make a $20 Mn investment, we won’t do anything less than that as SoftBank. So, we are waiting. You will see that in the second half of this year; there will be more investments,” Misra told ET in an earlier interview.
Significantly, SoftBank’s Vision Fund I and II recorded a combined loss of $5.2 billion in the quarter ending September 2023, marking its fourth consecutive quarter of losses. The Japanese technology conglomerate has not initiated any new investments in Indian startups this year.
The strategy is also in line with SoftBank’s recent divestments from its portfolio of publicly listed Indian startups.
“Typically, after its investments, SoftBank doesn’t wait for more than two to three years to make full exits from its portfolio companies, especially after they go public. In India, however, the Japanese tech investor made gradual divestments because the public market response to the new-age internet companies wasn’t on expected lines and after the expiration of lock-in periods,” explained Sathya Pramod, CEO and Director of Kayess Square Consulting and Co-founder of Inflection Point Ventures.
“Soon after, the companies cut back on their losses, and late stage investors like SoftBank are now looking at partial/ complete exits at substantial profits,” Pramod added.
Following its acquisition of Blinkit in 2022, SoftBank acquired a 3.35% stake in Zomato.
In August, reports indicated that SoftBank is strategizing a complete divestment of its holdings in the foodtech giant Zomato through open market transactions in the coming months. This decision follows SoftBank’s earlier move, where it garnered a profit exceeding INR 100 crore by partially divesting its stake in the company.
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Just last week, SoftBank completed a deal through open market transactions, divesting a 2.5% stake in the logistics unicorn Delhivery for INR 739 crore. Following this transaction, SoftBank’s shareholding in Delhivery decreased from 14.46% to 11.90%.
In the case of Paytm, SoftBank’s initial investment of $1.4 billion for a 20% stake prior to the IPO has gradually been reduced and currently stands at below 10%. This reduction occurred as the tech investor diluted its stakes through a series of transactions during and after Paytm’s IPO. Recent media reports suggest that SoftBank is actively considering a complete exit from its investment in Paytm.
“The SoftBank exits or major divestments in publicly listed Indian firms have come when the stock prices recovered substantially this year compared to last year when the new age firms were performing poorly on bourses. It is mainly the hedge funds, banks, pension funds, and family offices buying the shares in block/secondary share deals,” a public market analyst said.
SoftBank is considering a partial divestment from Ola Electric, where it initially invested $250 million for a 25% stake. Additionally, in the case of FirstCry, SoftBank sold a 2% stake to three family offices in August of this year and currently retains a 27% stake in the e-commerce unicorn. Notably, both Ola Electric and FirstCry are anticipated to go public on stock exchanges in 2024.
According to Sumer Juneja, the Managing Partner and Head for Europe, the Middle East, and Africa at the firm, the Japanese tech investor has realized exits exceeding $5.5 billion from its India portfolio since initiating operations in November 2018 from its Mumbai office.
He asserted that the late-stage investor achieved $1.5 billion in exits over the past 12 to 18 months. Furthermore, he noted that an additional $1.5 billion is liquid and held in tradable equities.
SoftBank’s most significant departure from the Indian market occurred with the ecommerce firm Flipkart. In 2018, it realized $4 billion by selling a 20% stake to the US retail giant Walmart.
Juneja emphasized that the firm’s primary emphasis continues to be on investing in companies valued between $1 billion to $2 billion and subsequently exiting these firms at valuations ranging from $5 billion to $6 billion.
According to market analysts, a key element to monitor is the valuation of Swiggy. The Bengaluru-based foodtech company’s valuation has experienced a sequence of markdowns, followed by upward adjustments by several investors in recent months.
Nevertheless, considering the significant manifold growth in Swiggy’s valuation over the years, some of its initial supporters, including Singapore-based Prosus (with a 32% stake) and SoftBank, are poised to be the primary beneficiaries of substantial profits.
According to a report by the Arc, Prosus is considering further reduction of its shareholding in Swiggy through a secondary share sale before the IPO. Nevertheless, Swiggy’s valuation is anticipated to be a significant point of consideration.
Significantly, Swiggy secured $450 million in a Series J round in 2021, valuing the startup at $5.5 billion. Subsequently, in 2022, Swiggy raised $700 million in a Series K round led by Inveso, experiencing a twofold increase in its valuation to $10.7 billion.
In the current year, the food tech company underwent a sequence of valuation adjustments, including both markdowns and markups by investors Invesco and Baron Capital. In the September quarter, Invesco raised Swiggy’s valuation by 47% to $7.85 billion, while Baron Capital valued the startup at $8.54 billion.
“In terms of valuation, the public markets have been acutely aware of how startups are performing, especially after a few new-age internet companies made their public debut in 2021. The overly valued companies have not been received well by retail investors in particular, resulting in value erosion of their stock prices and valuations tumbling. Swiggy will have to take a lesson or two out of those IPOs and their bankers are now tasked with setting up a realistic figure on valuation,” an analyst with a Bengaluru-based brokerage firm said.
He further mentioned that the valuation markdowns do not necessarily imply that the company will not achieve profitability.
“The financials for FY24 also could be a key here since the company invested heavily in its quick commerce business Instamart during FY23,” the analyst said.
Pramod from Kayess Square Consulting expressed the view that Swiggy could secure a valuation more in line with Zomato’s current market capitalization, given that both are perceived as players of similar standing in the industry.
“How Zomato stock performs will also be a key indicator of Swiggy’s valuation in times to come,” he added.
The current market capitalization of Gurugram-based Zomato is almost $12 billion, surpassing Swiggy’s last funding round valuation of $10.7 billion. During its IPO in July 2021, Zomato was valued at INR 60,000 crore, approximately $7.8 billion. While the foodtech company incurred losses last year following its Blinkit acquisition, it has since regained momentum and recorded two consecutive quarters of profit.
On the contrary, Swiggy has not submitted its FY23 financial statements to the MCA. Nonetheless, according to Prosus, one of Swiggy’s investors, in its annual report, the food delivery firm witnessed an 80% increase in losses in 2022. The investor’s share of losses rose from $100 million in 2022 to $180 million in 2021, primarily attributed to investments in the quick commerce business, Instamart.
During FY22, Swiggy experienced a 2.2X surge in net loss, escalating from INR 1,616.9 crore in FY21 to INR 3,628.9 crore, primarily driven by a more than twofold increase in expenses. The SoftBank-backed decacorn achieved a 2.2X growth in total revenue, reaching INR 6,119.8 crore in FY22 compared to INR 2,675.9 crore in FY21. Revenue from operations saw a notable 124% increase, rising to INR 5,704.9 crore from INR 2,546.9 crore in the previous year.
In contrast, Zomato, Swiggy’s competitor, increased its loss in FY22 to INR 1,222.5 crore from INR 816.4 crore in FY21.
Under the leadership of Deepinder Goyal, the foodtech unicorn’s revenue from operations witnessed a more than twofold increase, reaching INR 4,192.4 crore from INR 1,993.8 crore in FY21. Simultaneously, total expenses surged to INR 6,205.5 crore from INR 2,608.8 crore in the preceding year. It is noteworthy that Zomato recently achieved profitability on a quarterly basis, maintaining this positive performance for two consecutive quarters.
During the September quarter of the financial year 2023-24 (FY24), it recorded a profit after tax that surged to INR 36 crore. This marked an impressive 18-fold increase from the PAT of INR 2 crore in the previous quarter.
“Our share of Swiggy’s revenue grew 40% to $297 Mn, reflecting higher average order values and increased revenue from delivery fees and advertising sales. The core restaurant food-delivery business recorded GMV growth of 26%, while Instamart grew GMV by 459%. In the last two reporting periods, Swiggy has concentrated on reactivating users, increasing monthly frequency and improving user conversion. The benefits are reflected in its results for FY23, with over 272,000 enabled restaurants on its platform, 155% of pre-pandemic levels, with GMV at $2.6 Bn,” Prosus said in its annual report.
“In FY23, Swiggy also redoubled its focus on the profitability of its core restaurant food-delivery business, which its CEO recently announced had turned profitable in March 2023 (after factoring all corporate costs excluding share-based costs) following an investment phase,” it added in its report.
Swiggy’s CEO, Sriharsha Majety, previously stated that the food delivery business achieved profitability as of March 2023, excluding ESOP costs. Nonetheless, Swiggy ventured into other business segments, notably injecting $700 million into its quick commerce business, Instamart, in a strategic move to compete with Zepto, Zomato’s Blinkit, Reliance-backed Dunzo, and other players in the market.
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Furthermore, Swiggy invested an additional $200 million in acquiring the online table booking service platform Dineout, aiming to rival Zomato’s dine-out business.
The foodtech company also features a hyperlocal delivery product, Swiggy Genie, and provides subscription services like Swiggy One and its more economical version, Swiggy One Lite, to enhance its avenues for monetization.
Nevertheless, in its pursuit of profitability leading up to the highly anticipated IPO, Swiggy has shuttered some of its operations. It divested its kitchen infrastructure business, Swiggy Access, to Kitchens@ and consolidated the meat and fish category, incorporating it into Instamart with a reduced range of offerings.
Established in 2014 by Sriharsha Majety, Nandan Reddy, Phani Kishan Addepalli, and Rahul Jaimini, Swiggy has secured $3.6 billion in funding thus far.