SBI Securities recommends 'Subscribe' with a long-term investment view on Swiggy IPO, citing 5 risk factors

Domestic brokerage SBI Securities has advised a 'Subscribe' rating with a long-term investment perspective for the much-awaited public issue by food delivery major Swiggy that will remain open for subscription between November 6 and November 8.

The Rs 11,327.43 crores is a combination of fresh issue of 11.54 crore shares aggregating to Rs 4,499.00 crores and an offer for sale  (OFS) of 17.51 crore shares worth Rs 6,828.43 crores.

The brokerage believes in comparison to its competitor Zomato, the issue appears to be fairly priced on all parameters including Price/Sales, EV/Sales and P/BV. At the upper price band of Rs 390, the stock is valued at Price/Sales, EV/Sales and P/BV multiple of 7.8x/7.3x/7.1x, respectively of its FY24 financials on post-issue capital. 

Here are the key highlights pointed out by the brokerage::

Pioneers in high-frequency hyperlocal commerce segment

The company being among the first in the segment is well recognized as a leader in hyperlocal commerce innovation.Furthermore, it capitalises on its network of users and partners to assess market attractiveness and demand for new offerings.

Consistently growing network of users

Amid enhanced user experience, the company has witnessed a consistent growth in Monthly Transacting Users, both in the Food Delivery and Quick Commerce segments. As of Jun’24, the company has achieved a milestone of 112.7 million users transacted on the platform. 

The customer-focused approach of developing the platform across offerings, seamless user experience and increasing propensity of users to pay for convenience continues to drive higher engagement and user stickiness on the platform, added the brokerage report.

Strong brand recall:

The company is the most valuable brand in the Consumer Technology & Services Platforms category and is among the top 25 most valuable brands in India overall (Source: Kantar BrandZ Most Valuable Indian Brands Report 2024). 

Swiggy captures the largest share of consumer wallet in terms of Monthly GOV per MTU in the hyperlocal commerce use-cases as of Jun’24.

An experienced professional management team

The team has demonstrated the leadership skills in innovation and execution prowess in shaping the evolution of the online Food Delivery and Quick Commerce industries in India.

Despite remaining optimistic on the company, the brokerage also has taken note of 5 key risks for the company namely, user base risk, delivery partner retention risk, Dark store network risk, risk of retaining restaurant, merchant, brand partners and technology risk.

Dark stores are small warehouses that are used to meet and fulfill online orders.