Macquarie initiates coverage on Swiggy with 'underperform' rating ahead of its listing today

Swiggy just ahead of its much awaited debut on the Street after an over three times subscription attracted brokerages attention with Macquarie initiating an 'underperform' call on the stock. The target has been pegged at Rs 325, a potential downside of 17 per cent from the previous close.

The brokerage said Swiggy has emerged as the number 2 consumer app with focus on primarily all verticals like food delivery, quick commerce and ou-of-home segment), and has a clear path to catch up with leader Zomato.

As per the brokerage, the company's QC is more complex, with no sustainable economic profits. Expects the group's EBIT breakeven in FY28E even with 23 per cent core revenue CAGR. The brokerage added that the path to profitability is bump but with a long runway.

Swiggy's contribution margin is almost at par with the leader Zomato, it added.

On adjusted EBITDA margin level, the gap is wider due to a smaller gross order value (GOV) base to absorb higher central branding and employee costs.

See Swiggy bridging this profitability gap with ~30 per cent higher transacting users.

Swiggy's IPO

The Rs 11,327.4 crore by the food delivery major was subscribed 3.6 times the shares on offer.  The company floated the issue for catering to the below objectives:

-Investment in the material subsidiary, Scootsy, for repayment or pre-payment, in full or in part, of certain or all of its borrowings.

- Investment in the material subsidiary, Scootsy, for, expansion of their dark store network for their quick commerce segment through setting up of dark stores and making lease/license payments for dark stores.
- Investment in technology and cloud infrastructure.
- Brand marketing and business promotion expenses for enhancing the brand awareness and visibility of their platform, across its segments.
- Funding inorganic growth through unidentified acquisitions and general corporate purposes.

Zee Business Managing Editor Anil Singh recommended three strategies for the IPO with a 'Avoid' call primarily. For the second take he advised only high-risk investors can subscribe for longer. Also, the third way out will be buy shares of Swiggy after listing as you will be then able to secure a good valuation.