The trend of valuation reductions persists for Swiggy, a prominent player in the foodtech industry, as the company finds itself facing its third devaluation within the last seven months.
According to reports, Baron Capital, an asset management company (AMC) based in the United States, has recently reduced the valuation of the Bengaluru-based decacorn by 34%, setting it at $7.3 billion. This markdown comes after the company had raised $700 million in funding in January 2022, valuing it at $10.7 billion.
Based on the information obtained from filings submitted to the US Securities and Exchange Commission (SEC) and reported by Moneycontrol, Baron Capital has assessed the fair value of its Swiggy shares at $50.9 million as of the conclusion of December 2022. With Baron holding a 0.7% stake in the foodtech giant, this implies a valuation of $7.3 billion for Swiggy.
As per available information, Baron Capital purchased 11,578 shares of Swiggy in January 2022 for a total of $76.8 million. However, the recent development reveals that Baron Capital has significantly devalued its stake by more than 30%.
Swiggy has experienced previous instances of markdowns from investors, and the most recent markdown occurred just a week after Invesco reduced the valuation of its portfolio startup, Swiggy, for the second time, bringing it down to 5.5 billion. In January 2023, Invesco internally marked down the valuation of the foodtech major.
The recent markdowns are part of an emerging pattern where international investors have reduced the valuations of their Indian unicorn portfolios. In the last week, Vanguard Group, a US-based investment firm, internally devalued the ride-hailing startup Ola by 35%, bringing its valuation down to $4.8 billion. Similarly, Neuberger Berman marked down the value of its holdings in two prominent startups, Pine Labs and epharmacy PharmEasy, by 38% and 21% respectively.
Over the past few months, BlackRock has significantly reduced the value of its ownership in the edtech company BYJU’S, marking it down by nearly 50%. Additionally, in November of last year, Prosus internally devalued the edtech decacorn by a substantial 73%.
The significant decrease in internal valuation has drawn attention to the inflated valuations of numerous Indian unicorns. Despite accumulating substantial losses, lacking a clear path to profitability, and experiencing a decline in pandemic-driven growth, these unicorns still maintain high valuations. This situation has raised concerns among multiple investors, leading them to implement multiple internal markdowns in an effort to advocate for corrections in the broader market.
According to angel investor Gaurav VK Singhvi, he anticipates ongoing valuation reductions for a minimum of six months, and he believes that there is a high likelihood of this trend extending to the growth-stage startup ecosystem as well.
Interestingly, on Baron Capital’s records, Swiggy’s latest valuation is slightly higher than the current market capitalization of its listed competitor, Zomato. As of May 15, Zomato’s market cap stood at approximately INR 54,474.61 crore ($6.6 billion), despite holding a 55% market share compared to Swiggy’s 45%.
The markdowns in valuation coincide with reports suggesting that the prominent food delivery company was considering a listing on the stock exchange. However, there is no clear indication yet regarding the timing of its planned IPO. The situation has been further complicated for Swiggy with the emergence of state-backed initiatives like ONDC (Open Network for Digital Commerce).
Swiggy has been grappling with increasing losses and the need to downsize its workforce due to a challenging market landscape that has limited funding opportunities for many Indian startups. With these circumstances predicted to persist throughout 2023, Swiggy has initiated an intensified cost-cutting drive. This includes the closure of unprofitable business verticals and a heightened emphasis on quick commerce to enhance operational efficiency.
However, as Swiggy bears the impact of the current wave of valuation cuts, the question arises as to whether these internal markdowns will ultimately affect the actual valuations of the broader unicorn ecosystem. It remains to be seen how far-reaching these adjustments will be and what consequences they may have on the overall valuation landscape.