Patient investors may subscribe to Swiggy IPO

Investors eyeing Swiggy’s ₹11,327-crore IPO in Mumbai might need to exercise patience for significant profits due to the prevailing uncertain market conditions. Analysts are advising against expecting a remarkable debut but recommend retaining the stock for a more extended period to potentially secure returns of 25-30%.

The initial public offering will start on Wednesday and end on Friday, with a price set between ₹371 and ₹390 per share. As of Tuesday, the grey market premium for Swiggy stood at ₹20, representing a 5% premium over the top end of ₹390, showcasing investor interest in the shares before their official listing.

According to analysts, the subdued market environment is currently dampening investor interest. Hemang Jani, the director of Finazenn, an investment advisory firm, mentioned that Swiggy may experience minimal gains during its listing day or debut at a similar level due to the prevailing market conditions. However, he also highlighted the potential for a 10% to 15% surge in Swiggy’s listing value if there is an improvement in market conditions following the volatility surrounding the US election results.

Jani mentioned that investors have the potential to achieve a return of approximately 25% to 30% over a two to three-year period, attributing this to more favorable valuations compared to Zomato, despite trailing behind its competitor in most operational metrics.

According to analysts, Swiggy, holding a 40% market share, is being traded at six times the estimated price-to-sales ratio, whereas Zomato, with a 60% market share, is being traded at 10 times the ratio. The analysts believe that the company’s choice to lower the IPO valuation from $14 billion to $10.2 billion indicates a positive outlook for the offering.

Krishna Appala, a senior research analyst at Capitalmind, expressed optimism about Swiggy’s long-term growth potential despite the current volatile market conditions. He mentioned that although major listing gains might be limited, Swiggy appears well-positioned for significant growth over the next three to five years at its current valuations.

He mentioned that Zomato is already making a profit, while Swiggy is still striving to reach break-even.

Appala suggested that if Swiggy maintains its growth trajectory, it could follow a similar path as Zomato did, even though Zomato was also operating at a loss when it first entered the exchanges.

In the words of Karan Taurani, a senior vice president at Elara Capital, Swiggy is currently valued at a level considered to be quite fair, whereas Zomato has seen a decline of 15-20% from its peak in the near past.

Taurani pointed out that Zomato remains a more appealing option compared to Swiggy due to its impressive history, superior growth rates, larger scope, and improved profitability in contrast to Swiggy. While Swiggy’s valuations are considered reasonable and not inexpensive, they are fairly valued, and the grey market premium suggests that listing gains may not experience a significant increase.

According to analysts at Bajaj Broking, Swiggy has displayed consistent revenue growth in the recent periods despite consistently recording losses. The IPO is deemed aggressively priced due to its negative P/E ratio and other metrics. With a firm belief in their strategy, the management aims to leverage the IPO funds to expand their services and achieve profitability in the coming years.