Food delivery giant Swiggy is all set to list on the stock exchanges, likely in mid-2024, in what is being called the biggest IPO by an internet company next year, with an issue size of $1 Bn (INR 8,300 Cr). According to several top investors and founders that Inc42 spoke with, the Swiggy IPO may result in the world’s largest tech investor, SoftBank, substantially reducing its 9% stake worth over $800 Mn in the upcoming IPO.
The IPO could potentially mark the exit of several investors like SoftBank from Swiggy, as the food delivery firm seems well positioned on its path to profitability, they added.
Swiggy was SoftBank’s first bet in the Indian food delivery space when it invested $450 Mn in Swiggy’s Series J round in 2021, valuing the firm at $5.5 Bn.
SoftBank could also garner maximum profits from the Swiggy IPO out of all its Indian portfolio companies slated to go public next year. This is considering that the foodtech firm has been cutting down its losses in its core business, making it more attractive to public markets. Swiggy’s closest rival Zomato has also posted profits in the last two consecutive quarters.
Sources informed that Swiggy has partnered with bankers and is currently in talks with several brand communications firms to finalise its IPO process before it debuts on the exchanges next year.
Lately, SoftBank’s focus has been on investing in AI-led businesses worldwide and growth stage companies in India, per public statements by SoftBank Vision fund business head Rajeev Misra.
“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.
Notably, SoftBank’s Vision Fund I and II posted a cumulative loss of $5.2 Bn in the quarter ending September 2023, its fourth straight quarter of consecutive losses. The Japanese tech conglomerate has yet to make any fresh investments in Indian startups this year.
The strategy also aligns with SoftBank’s recent exits from the Indian publicly listed startup portfolio companies.
“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,” Sathya Pramod, CEO and director Kayess Square Consulting and cofounder Inflection Point Ventures told Inc42.
“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.
SoftBank also got a 3.35% stake in Zomato after its Blinkit acquisition in 2022.
It was reported in August that SoftBank is planning to completely divest its holdings in foodtech giant Zomato through open market transactions over the next few months. This comes after SoftBank gained a profit exceeding INR 100 Cr by divesting a portion of its stake in the company earlier.
Just last week, SoftBank divested a 2.5% stake in logistics unicorn Delhivery in an INR 739 Cr deal through open market transactions. Post the transaction, SoftBank’s shareholding in Delhivery reduced to 11.90% from 14.46%.
In Paytm, too, SoftBank’s investment of $1.4 Bn for a 20% stake before the IPO has slowly been divested and now stands at less than 10% after the tech investor diluted its stakes in a series of transactions during and post-Paytm’s IPO. Media reports indicate that SoftBank is also looking to exit Paytm completely.
“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 also looking at a partial exit from Ola Electric (where it invested $250 Mn for a 25% stake) and FirstCry (where SoftBank sold a 2% stake to three family offices in August this year and is now left with a 27% stake in the ecommerce unicorn). Both Ola Electric and FirstCry will also likely be listed on public exchanges in 2024.
As per Sumer Juneja, the firm’s managing partner and head for Europe, the Middle East and Africa, the Japanese tech investor has netted more than $5.5 Bn in exits from its India portfolio since it began operations in November 2018 from its Mumbai office.
He claimed that the late stage investor realised $1.5 Bn from exits in the past 12 to 18 months. Additionally, he mentioned that another $1.5 Bn is liquid and held in tradable equities.
SoftBank’s biggest exit in India was from ecommerce firm Flipkart, where it garnered $4 Bn after selling a 20% stake to US retail giant Walmart in 2018.
Juneja also reiterated that its focus remains on investing in companies at $1 Bn to $2 Bn valuation and subsequently exiting these firms at $5 Bn – $6 Bn valuation.
Swiggy’s Valuation Conundrum
As per market analysts, one of the major things to watch out for is Swiggy’s valuation. The Bengaluru-headquartered foodtech company’s valuation witnessed a series of markdowns followed by markup by several investors over the past few months.
However, looking at how Swiggy’s valuation has grown multifold over the years, some of its early backers, such as Singapore-based Prosus (which owns a 32% stake) and SoftBank will be the biggest profit garners.
As per a report by the Arc, Prosus is looking to dilute its shareholding in Swiggy further, before IPO, through a secondary share sale. However, Swiggy’s valuation could be a key concern.
Notably, Swiggy raised $450 Mn in a Series J round in Swiggy in 2021 when the startup was valued at $5.5 Bn. In 2022, Swiggy raised $700 Mn in a Series K round led by Inveso, witnessing a 2X rise in its valuation to $10.7 Bn.
This year, the food tech firm witnessed a series of valuation markdowns followed by markups by its investors Invesco and Baron Capital. While Invesco has marked up the valuation of Swiggy by 47% in the September quarter to $7.85 Bn, Swiggy’s other investor Baron Capital valued the startup at $8.54 Bn.
“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 added that the valuation markdowns somehow do not mean that the company will not be making profits. “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 of Kayees Square Consulting opined that Swiggy may command a valuation closer to Zomato’s current market capitalisation since both are considered equal-level players in the industry.
“How Zomato stock performs will also be a key indicator of Swiggy’s valuation in times to come,” he added.
Gurugram-based Zomato’s current market capitalisation is nearly $12 Bn, much higher than the $10.7 Bn valuation of Swiggy that it commanded in its last funding round. At the time of its IPO in July 2021, Zomato was valued at INR 60,000 Cr (nearly $7.8 Bn). The foodtech was bleeding losses last year after its Blinkit acquisition but has now regained momentum and has posted two consecutive quarters of profit.
Swiggy, on the other hand, has yet to file its FY23 financial statements with the MCA. However, Swiggy’s investor Prosus, in its annual report, noted that the food delivery firm’s losses widened by 80% in 2022 and that the investor’s share of losses has increased to $180 Mn in 2021 from $100 Mn in 2022 mainly due to investments in quick commerce business, Instamart.
In FY22, Swiggy’s net loss jumped 2.2X to INR 3,628.9 Cr in FY22 from INR 1,616.9 Cr in FY21 as its expenses more than doubled. The SoftBank-backed decacorn’s total revenue grew 2.2X to INR 6,119.8 Cr in FY22 from INR 2,675.9 Cr in FY21. Revenue from operations rose 124% to INR 5,704.9 Cr from INR 2,546.9 Cr in the previous year.
Whereas its rival Zomato widened its loss in FY22 to INR 1,222.5 Cr from 816.4 Cr in FY21.
The revenue from operations of the Deepinder Goyal-led foodtech unicorn more than doubled to INR 4,192.4 Cr from 1,993.8 Cr in FY21, while total expenses soared to INR 6,205.5 Cr from INR 2,608.8 Cr in the previous year. It must be noted that Zomato recently turned profitable on a quarterly basis and has been able to sustain that for two consecutive quarters.
It posted a profit after tax surging to INR 36 Cr during the September quarter of the financial year 2023-24 (FY24). This was an 18X jump from PAT of INR 2 Cr in the preceding 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 CEO, Sriharsha Majety had earlier said that the food delivery business has achieved profitability as of March 2023 excluding ESOP costs. However, Swiggy did experiment with other businesses, especially a $700 Mn infusion into its quick commerce business Instamart to take on Zepto, Zomato’s Blinkit, Reliance-backed Dunzo and others.
Additionally, Swiggy spent another $200 Mn to acquire the online table booking service platform Dineout to compete with Zomato’s dine-out business.
The foodtech firm also has a hyperlocal delivery product Swiggy Genie and offers subscription services Swiggy One and Swiggy One lite (cheaper version) for better monetisation avenues.
However, in its push to profitability ahead of the much-talked-about IPO, Swiggy has closed a few businesses. It sold its kitchen infrastructure business Swiggy Access to Kitchens@ and also shuttered the meat & fish category and brought it under Instamart with curtailed offerings.
Founded in 2014 by Sriharsha Majety, Nandan Reddy, Phani Kishan Addepalli, Rahul Jaimini, Swiggy has raised $3.6 Bn funding to date.
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