Swiggy IPO Goldmine or Disaster? Detailed Case study

Summary

This video discusses Swiggy's upcoming IPO, valued at ₹11,664 crore, and how it differs from competitors like Zomato and Blinkit. The video explains Swiggy's super app model, which integrates multiple services like food delivery and groceries, offering advantages in customer acquisition and cost efficiency. However, it also highlights challenges, including Swiggy's leadership changes, ongoing losses, and market share decline. The video explores the company's revenue growth, potential risks, and opportunities while comparing it to Zomato's more aggressive expansion and acquisition strategy. Leadership stability is emphasized as a key factor for Swiggy's future success.

Takeaways

• 📈 Swiggy is set to launch a massive IPO valued at ₹11,664 crore, which is seen as a historic event in the Indian stock market.
• 🍽️ Swiggy operates a super app model, providing multiple services like food delivery, Instamart, and Genie within one app, unlike Zomato, which uses standalone apps for Blinkit and other services.
• 📉 Swiggy’s customer acquisition cost is lower than Zomato's, with Swiggy at ₹400-500 and Zomato at ₹500-600, partially due to the multi-service super app model.
• 🚚 Swiggy's hub-and-spoke delivery model optimizes efficiency, potentially lowering delivery costs by up to 20%, saving the company significant amounts annually.
• 🛒 The super app model allows Swiggy to cross-sell and upsell services within the same app, increasing user engagement and retention.
• 🛠️ Swiggy's innovation-driven approach contrasts with Zomato's acquisition strategy, but Zomato has expanded faster, particularly in Tier 2 and 3 cities.
• 💼 Despite Swiggy’s strengths, it has been losing market share since 2018 and is yet to become profitable, unlike Zomato, which recently turned profitable.
• 🚨 Swiggy has faced significant executive turnover, with many top leaders departing, which could hinder its decision-making and operations.
• 📊 Swiggy’s revenue grew by 36% year-over-year, while losses decreased by 44%, showing positive financial improvements despite ongoing challenges.
• 🔍 Investors are concerned about leadership stability at Swiggy, which is seen as crucial for the company's continued growth and execution of its vision.

Q & A

What is the size of Swiggy's IPO, and why is it significant?

Swiggy's IPO is set to be 11,664 crore rupees. It is significant because it indicates Swiggy's growth ambitions and highlights its efforts to compete with other players in the Indian food delivery market, like Zomato, which has already shown impressive stock price growth.

How does Swiggy's business model differ from Zomato's?

Swiggy operates as a super app, offering multiple services like food delivery, grocery delivery (Instamart), and other services (Genie) under one platform using a shared infrastructure. In contrast, Zomato and its subsidiaries like Blinkit operate as standalone apps, each with its own user base and systems.

What advantage does Swiggy's super app model provide?

Swiggy's super app model reduces customer acquisition costs by cross-selling services within the same platform. It also enhances user engagement and retention by providing multiple services in one place, leading to increased app interaction and efficiency.

What is the 'Hub and Spoke' delivery model, and how does it benefit Swiggy?

Swiggy's 'Hub and Spoke' delivery model allows delivery partners to pick up and deliver multiple orders in one trip, whether from restaurants or dark stores. This system increases efficiency and can reduce delivery costs by as much as 20%, which could save Swiggy significant operational expenses.

Why has Swiggy been losing market share despite these advantages?

Despite its super app model and delivery efficiencies, Swiggy has been losing market share since 2018. This is attributed to India's preference for specialized apps over super apps, Swiggy’s slower expansion into tier 2 and tier 3 cities compared to Zomato, and leadership changes that may have affected its strategy.

How has Swiggy’s revenue and profitability changed over the years?

Swiggy's revenue grew by 36% from 8,265 crore rupees in FY23 to 11,247 crore rupees in FY24. Although it is still in losses, the company reduced its losses by 44% from 4,179 crore rupees in FY23 to 2,350 crore rupees in FY24, showing improvements in operational efficiency.

What challenges does Swiggy face with its super app model in the Indian market?

Swiggy faces challenges in the Indian market because consumers tend to prefer specialized apps for different services rather than a consolidated super app. Additionally, delays in delivery times due to the consolidation of services can also reduce user satisfaction, posing a risk to its Instamart business.

How does Swiggy plan to use the funds raised through the IPO?

Swiggy plans to allocate 6,664 crore rupees from the IPO for offering an exit to existing investors and the remaining 5,000 crore rupees for marketing, strategic acquisitions, technology development, cloud infrastructure, and expanding its dark store network through its subsidiary, Scooty.

What impact has Swiggy’s leadership changes had on the company?

Swiggy has seen a wave of key executive departures since April 2023, which could lead to leadership gaps, slow decision-making, and operational disruptions. This is concerning as Swiggy needs strong leadership to navigate profitability challenges and stay competitive against Zomato.

What are the financial prospects of Swiggy compared to Zomato?

While Zomato has become profitable with a positive EBITDA and a return on net worth of 1.72%, Swiggy still remains in losses with a return on net worth of -3.16%. However, Swiggy's revenue growth and reduced losses indicate that it is working aggressively to improve its financial performance.