Swiggy packs an IPO lunch for Instamart

Mumbai: Food delivery firm Swiggy will spend most of the money from its upcoming initial public offering (IPO) to expand Instamart, a person aware of the plans said, at a time when challengers BlinkIt, Zepto and BigBasket are turning up the heat in quick commerce.

While Prosus Ventures, Norwest Venture Partners and Goldman Sachs may sell some of their Swiggy shares in the $1.25 billion IPO, SoftBank, which had booked profits in recent IPOs of Ola Electric, Firstcry and Unicommerce, is expected to stay put, the person said on the condition of anonymity. The IPO, one of the most anticipated this year, is expected to open in November.

Norwest and Prosus are among the early investors in Swiggy. Goldman Sachs came on board in 2021, when Swiggy was valued at around $5 billion. Softbank followed the next year.

Prosus declined to offer a comment, while queries emailed to Swiggy and the other investors remained unanswered.

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Prosus is booking a profit from Swiggy at a time when it has written off over $500 million in Byju's, potentially redeeming itself as a technology investor in India. Prosus CEO Fabricio Bloisi was CEO of Latin American food tech company iFood till last quarter.

Apart from the share sale by existing investors, Swiggy also plans to raise primary capital at a valuation of around $15 billion in the IPO, though a final valuation will become clearer as the road shows get under way.

Swiggy will use most of the fresh funds to double its network of dark stores serving groceries and home essentials to more than 1,000 over the next four years as it deepens presence in several cities. "These dark stores are also likely to be larger in size, with the ability to hold a lot more stock-keeping units," the person said.

Swiggy's IPO plans come at a time its closest peer Zomato has rapidly integrated BlinkIt, its quick commerce acquisition. In March 2024, Zomato said it achieved adjusted Ebitda profitability in quick commerce. The company defines adjusted Ebitda for its quick-commerce business as Ebitda along with expenses on account of share-based payments, and excluding rental payouts on certain leases.

The Bengaluru-based startup, which began as a restaurant aggregator in 2014, has turned its focus to cutting flab and improving margins over the last 18 months. According to co-founder and chief executive Sriharsha Majety, its food delivery unit turned profitable in March 2023.

But quick commerce has been a relatively new venture. Swiggy launched Instamart largely focussed on fast-moving groceries in 2020. Compared with Blinkit, this business is yet new and has seen a fair bit of churn in leadership. It was initially led by Karthik Gurumurthy, who left in 2023. At that point, Swiggy put its co-founder Phani Kishan Adepalli to lead the role.

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“Within Swiggy, there is a realization that quick commerce needs sharper focus, even as it improves its unit economics. The company is taking steps to prepare for a quick commerce battleground," a second person familiar with the business said, noting the appointment of Amitesh Jha as new chief of Instamart on 29 August. Jha comes to Swiggy from Flipkart, where he worked across categories such as smartphones, general merchandise, fashion and large appliances, as well as managing their logistics arm, something quick commerce businesses are also now stocking up on.

FY24 performance

Swiggy trimmed its losses by 43% to ₹2,350 crore in FY24, buoyed by rapid growth in its food delivery and quick commerce. Revenue from operations rose 36% to ₹11,247 crore. The consumer-facing business comprising food delivery, Instamart and dining recorded a total gross order value (GOV) of ₹35,000 crore ($3.5 billion) driven by its 14.3 million monthly transacting users.

“The company performed better than expectations in FY24. It has come close to Zomato’s growth rate, which means they are neck-to-neck with one another," said Karan Taurani, analyst at Elara Capital. However, Swiggy’s quick commerce business trails Blinkit.

Also read: In runup to Swiggy’s IPO, Baron marks up food-delivery firm’s valuation to $15.1 bn

Swiggy Instamart's gross revenue in FY24 stood at ₹1,100 crore, against BlinkIt's ₹2,301 crore. Instamart's GOV, an indication of all transacted orders on the platform, for the year was ₹8,100 crore, while BlinkIt’s stood at ₹12,469 crore.

Blinkit holds pole position in the quick commerce segment thanks to its ability to cut losses and hit breakeven quickly, according to Taurani. He estimated that Blinkit and Zepto together hold 60-65% of the quick commerce market, meaning Instamart will have to work harder to grab market share.

“It’s not so much about what Instamart hasn’t been able to do. The fact is that Blinkit has raced its way to the market leader position by prioritizing user experience and figuring out a strong ad monetization channel, which means Instamart has tough competition," Taurani added.

Quick commerce has grown tremendously over the last year, touching a gross merchandise value (GMV) of $2.8 billion in 2023, according to estimates by Redseer.

Several players including Blinkit, Nexus Venture Partners-backed Zepto and Tata’s BigBasket are rushing to cash in on this growing opportunity, raising capital and aggressively expanding. Large e-commerce players such as Flipkart are also looking to invest in quick commerce as consumers get hooked to instant deliveries of both small grocery items and big-ticket goods like appliances and electronics.

Mint reported on Thursday that India's quick commerce startups are now muscling into the annual festival season, posing a stiff challenge to stalwarts such as Amazon and Flipkart that have kept physical retailers on their toes for years, after chipping away at corner shops and forcing a pivot by established online grocers.

Also read: Swiggy makes confidential filing for IPO