What Swiggy's IPO Filing Reveals About its Bid to Take on Zomato

Food delivery platform Swiggy filed its draft Initial Public Offering (IPO) papers with the Securities and Exchange Board of India (Sebi) on September 26. The company aims to raise Rs 3,750 crore through the IPO. 

The IPO is a mix of an offer for sale of 18.52 crore equity shares by existing shareholders and a fresh issue. The company is also planning to have a pre-IPO round. If the same happens, the fresh issue size will be reduced. 

The much-anticipated Swiggy IPO is arriving at a time when the quick commerce segment is booming. All eyes are on the company's performance, with ongoing comparisons to its close competitor, Zomato. But before diving into these aspects, let’s take a look at what Swiggy’s Draft Red Herring Prospectus (DRHP) reveals.

Read: Swiggy Refiles IPO Papers: Updated DRHP Eyes Rs 3,750 Crore Boost

How Swiggy Will Utilize the IPO Funds 

If Swiggy is successful in raising Rs 3,750 crore through the IPO, it plans to use Rs 586.20 crore to invest in technology and cloud infrastructure. Additionally, the company will invest in its material subsidy Scootsy, for repayment or pre-payment and also in the in the expansion of dark stores. For Scootsy, Rs 559.10 crore will be allocated to focus on dark stores and Rs 423.30 crore for license payments. 

In terms of quick commerce, the company has highlighted that the region-wise revenue of their dark stores is not disclosed.

“However, the region-wise revenue for our Quick Commerce business is business-sensitive and confidential in nature and accordingly has not been disclosed in this updated draft Red Herring Prospectus—I,” the company said in its DRHP. The number of dark stores that Swiggy has as of June 30 is 538, indicating a significant increase from that of 460 from June 30, 2023. In comparison, Zomato’s Blinkit has 639 dark stores at the end of June 2024 and the company aims to make the number 2,000 by 2026. 

In its DRHP, the company highlighted that they plan to open dark stores in existing cities such as Bengaluru, Pune, Mumbai, Kolkata and other new places as and when required. The number of dark stores of the company improved significantly from 10 in fiscal 2025 to 538 now. 

Speaking about the industry boom, the company highlighted, "Digitally native consumers are creating an internet-based ecosystem across consumption categories, leading to growth in the online market. Hyperlocal, urban convenience-driven, high-frequency commerce platforms stand out for consumers.” 

The company also plans to invest Rs 9,295 crore in brand marketing and business promotion expenses and fund growth via unidentified acquisitions and general corporate purposes. 

Swiggy Versus Zomato 

Looking at the company's financials, Swiggy's net loss grew by over 8 per cent, reaching Rs 611 crore in Q1 FY25, up from Rs 564.08 crore in the same period last year. This was mainly due to higher operating expenses. On the other hand, Zomato reported a net profit of Rs 253 crore for the April-June quarter. This was a significant increase from the Rs 2 crore reported in the same period the earlier year.

Meanwhile, Swiggy's operating revenue saw a 34 per cent rise in operating revenue in the June quarter of FY25, amounting to Rs 3,222 crore. While Zomato’s revenue from operations increased to Rs 4,206 crore in Q1 FY25 from Rs 3,562 crore that was reported in the previous quarter. 

The revenue of Swiggy's quick commerce platform, Instamart, was Rs 374.1 crore in Q1 FY25. This was a 108 percent increase from the Rs 180 crore reported in Q1 FY24. For Zomato's quick commerce platform Blinkit, it's revenue increased to Rs 942 crore in FY25, a significant increase from Rs 384 crore last year.

“Both companies dominate over 90 per cent of India's food delivery market, but right now they are at different stages in their financial journeys,” says Somdutta Singh, founder and CEO, Assiduus. 

There is no doubt that Zomato is in a better financial position compared to Swiggy at this moment. A recent report released by Elara Capital titled All is well with Zomato says, “It may continue to dominate the food delivery business in terms of growth and profitability by focusing on levers, such as advertising revenue and platform fees, to drive higher take rates vs. Swiggy.” 

In terms of growth scale and profitability, the report suggests that Swiggy needs to match Zomato's higher valuation. 

Now, if we look at the valuation of the companies, Zomato was listed at a valuation of $12 billion when it got listed in 2021. Since then, the company has grown to have a valuation of Rs 2.42 lakh crore. As of now, the exact valuation of Swiggy is not known yet, but it is estimated to be around $10 billion.

“Unlike Zomato, which has demonstrated a clear path to profitability through cost optimization and strategic pricing, Swiggy must convince investors of its long-term viability amidst rising competition and operational costs. Their ability to navigate these challenges will determine whether they can replicate Zomato's success story,” says Singh. 

Similarly, another report by Elara Capital named Long Haul says that Zomato leads Swiggy in various segments such as average order value (AOV), food delivery gross order value (GOV), adjusted revenue growth and orders, as well as profitability in the food segment. The report also highlights that Instagram lags behind Blinkit in various aspects. 

Risk factors involved 

In terms of the risk factors involved, Swiggy’s DRHP says their internal risk is the net losses they incurred consistently. The reasons behind the loss as per the company are the expenses incurred in advertising and sales promotion expenses to increase the company’s user base. 

Similarly, the company indicates that if they fail to retain their existing user base or fail to acquire new users in a cost-effective manner, their financials will suffer. As of now, the company’s annual transacting users are 46.84 million for fiscal 2024, as compared to 35.09 million and 43.34 million in 2022 and 2023. 

Other factors, such as managing dark stores and delivery partners, will be an area of concern for the food delivery platform. In terms of delivery workers, the company highlights that the fact that the gig workers are engaged on a temporary basis means they always have the scope to walk out. This in turn, might impact their finances.

“Our ability to attract new and retain existing delivery partners largely depends on the delivery fee and other incentives they can earn through our platform and other benefits,” the DRHP adds.

The average amount Swiggy paid to delivery partners per order in fiscal 2024 was Rs 56.01; this was a decrease from Rs 58.99 and Rs 59.23 paid in 2023 and 2022. It will be interesting to see how Swiggy navigates through the IPO market amid the ongoing competition.