Is Swiggy’s Revenue Model Prepared for the IPO Challenge?

“Swiggy’s Revenue Model and Its Readiness for the IPO Challenge”

Table of Content

• Swiggy IPO: Key Details and Investor Insights
• Swiggy’s Core Food Delivery Business: Growth and Profitability
• Swiggy’s Financial Outlook: Revenue, Losses, and Growth Plans
• Risks and Future Outlook for Swiggy’s Expansion

Swiggy is finally gearing up for a Initial Public Offering (IPO), all eyes are on how the food delivery and quick commerce giant stacks up againts its rival,Zomato.

Swiggy and Zomato are the two dominant food delivery apps in India, but their business models are quite similar. So it’s no surprise that people are eager to see even if swiggy can replicate Zomato’s success, especially after Zomato’s stock price soared over 3X in the past year.

As Swiggy continue to expands its presence in the quick commerce and food delivery, investors are closely watching how the company will manage its growth amidst intensifying competition and mounting operational challenges.

Swiggy’s IPO: Key Details and What Investors Need to Know

The Swiggy IPO is consists of a fresh issue of equity shares worth ₹3,750 crore, along with an offer-for-sale of 185,286,265 equity shares by existing shareholders. The IPO is structured to include segments for qualified institutional buyers (QIBs), anchor investors, and mutual funds.

Non-institutional buyers will also have a chance to participate, with one-third of the allocation reserved for bidders applying between ₹2 to ₹10 lakh, and the remaining portion for those applying for more than ₹10 lakh. Additionally, there will be a dedicated retail portion for smaller investors.

Zomato was listed in 2021 as a loss-making company, but it has since shown consistent profit growth,particularly after reaching profitability in the April-June quarter of last year. The company’s financial performance has steadily improved over the past five quarters.

Swiggy has yet to match zomato in terms of profitability, despite being close to Zomato’s total revenue in FY24. While Gurugram-based Zomato posted a revenue of INR 12,114 Cr in FY24, as Swiggy’s revenue stood at INR 11,247 Cr. However, Zomato achieved a profit of INR 351 crore, whereas Swiggy reported a loss of INR 2,350 Crore.

A Closer Look at Swiggy’s Investment Plans

Swiggy plans to allocate ₹982 crore, roughly around 27% of the proceeds from its IPO, towards expanding its dark store network through its subsidiary, Scootsy Logistics Private Ltd. This investment will fuel the growth of Swiggy’s Instamart, the company’s quick commerce division, which has become a key focus as Swiggy scales up to meet the growing demands of the industry.

As of June 30, Swiggy has been operated 581 dark stores, ranging in size from 1,400 sq ft to 10,000 sq ft. This stores offer an impressive average delivery time of 12.6 minutes across various cities, enhancing the efficiency of its quick commerce services.

Additionally, swiggy plans to allocate ₹929 crore towards branding and promotional activities, focusing on boosting performance marketing and digital media efforts. In FY24, Swiggy spent ₹558 crore on marketing, a slight decrease from the previous year. The remaining funds will be used for technology upgrades, cloud infrastructure, potential acquisitions, and general corporate purposes.

Exploring Swiggy’s Core Food Delivery Business

In FY24, Swiggy saw its food delivery business grow significantly as it continued to onboard restaurant partners and customers.

In FY24, Swiggy witnessed for its significant growth in its food delivery business, driven by the continued onboarding of new restaurant partners and customers. This growth reflects the company’s strong position in the competitive food delivery market.

The food delivery business is the core vertical for Swiggy, but it’s also betting big on the quick commerce play which has the bigger revenue upside, as per analysts.

Swiggy’s food delivery business is seeing strong growth, with double-digit increases in most key areas. However, the bigger question is whether this growth is translating into solid profitability on a per-order basis. How well is swiggy manage its costs and revenue to ensure its overall financial health?

One important metric here to watch the average order value, which has steadily increased. It went up from INR 416 in FY23 to INR 428 in FY24, and further grown to INR 436 in Q1 FY25. This upward trend has been showing that customers are spending more per order, over time.

With the rise in average order value, Swiggyhas been able to make a minimal tweaks to its discounts and cost structures, which has helped to boost its contribution margin. Additionally, the introduction of platform fees has strenthened Swiggy’s take rates, further improving its profitability.

As a result, Swiggy’s contribution margin per average food delivery order has seen a nearly fourfold increase,rising from INR 6.4 in FY22 to INR 24.4 in FY24. This significant improvement plays the key role in Swiggy’s drive towards profitability.

Swiggy’s Financial Outlook

Swiggy cut its losses by 43% in FY24, bringing them down to ₹2,350 crore, largely due to strong growth in both its food delivery and quick commerce businesses. Over the last 18 months, the Bengaluru-based startup has focused on optimizing operations andboosting margins. Operational revenue surged by 36%, reaching ₹11,247 crore in the last fiscal year. Swiggy’s consumer-facing business—which includes food delivery, Instamart, and dining—reported a gross order value (GOV) of ₹35,000 crore, fueld by 14.3 million monthly transacting users.

In the June quarter of FY25, Swiggy’s revenue grew to ₹3,222 crore, up from ₹2,389 crore during the same period last year. However, expenses also increased, rising to ₹3,908 crore from ₹3,073 crore, which resulted in wider losses of ₹611 crore, compared to ₹564 crore the previous year. Despite strong revenue growth, rising costs continue to challenge the company’s profitability.

While the rise in avarage order value (AOV) over the past two years has certainly helped improve Swiggy’s contribution margin, other factors have also contributed.The commision Swiggy earns from restaurent partners, are improving the startup’s contribution margin. Additionally, there has been a notable rise in advertising fees collected from the partners, further boosting the company’s revenue streams.

Quick Commerce: A Fast-Paced Growth Engine with Challenges Ahead

Swiggy’s signifivant investment in its quick commerce segment has proven successful, with revenue from this unit skyrocketing by 108% to ₹374 crore in the June quarter. This growth was driven by higher commissions from merchant partners, increased advertising revenue, and fees from users and delivery partners. The gross order value (GOV) in quick commerce also surged to ₹2,724 crore, while the average order value rose climbed to ₹487 from ₹441, highlighting growing demand across Swiggy’s diffrent verticals.

In FY24, Swiggy Instamart generated ₹1,100 crore in gross revenue, while its key competitor, BlinkIt, reported ₹2,301 crore. Instamart’s gross order value (GOV) for the year stood at ₹8,100 crore, compared to BlinkIt’s ₹12,469 crore. Within BlinkIt and Zepto jointly holding 60-65% of the quick commerce market, Instamart faces intense competition. This makes Swiggy’s planned investments in the unit critical as it seeks to expand its market share and stay competitive.

Risk to watch out for

Swiggy, with its gross order value spread across various regions, plans to keep investing heavily in scaling its operations. However, there’s a risk that increased investment across its diffrent verticals may not results in proportional revenue growth. If Swiggy is unable to drive significant growt, it may struggle to face challenges in reaching profitability and could continue to incur losses.