The highly anticipated Swiggy IPO is set to launch on 6 November, aiming to raise ₹11,327.43 crore. This marks an exciting moment for Swiggy as it prepares to hit the public market. However, it also raises an important question: Should investors consider investing in Swiggy’s IPO, or is it wiser to buy shares in its established competitor, Zomato? Experts have shared insights to help potential investors make a more informed decision.
With a price band of ₹371 to ₹390 per share, Swiggy is valued at $11.3 billion. For comparison, when Zomato launched its IPO, it had a market cap of around $13 billion, which has since grown to around $25 billion. Both companies dominate the Indian food delivery space, but they differ significantly in size, profitability, and growth trajectory. Here’s a breakdown of what experts believe could be the best choice for investors.
Why Some Analysts Prefer Zomato
Many analysts, including Aakriti Mehrotra, Research Analyst at StoxBox, are leaning towards Zomato as the stronger investment choice. Mehrotra explains that Zomato currently has a larger market cap, a stable profit stream, and stronger growth metrics, making it a safer option for investors.
Here are some factors that contribute to Zomato’s lead:
- Higher Growth Rate: Zomato’s gross order value (GOV) has a compound annual growth rate (CAGR) of 23%, compared to Swiggy’s 15.5%. This indicates a faster expansion and higher revenue generation.
- Operational Efficiency: Zomato’s average order value is higher than Swiggy’s, which highlights its efficiency and appeal in the market. This operational advantage could help Zomato sustain profitability in the long term.
- Profitability: Zomato has recently reached profitability, which sets it apart from Swiggy, which is currently operating at a loss. With consistent profits, Zomato becomes an attractive option for investors who prefer stability and long-term growth.
Swiggy’s Potential with IPO Funding – But There Are Risks
While Zomato appears to be the favored choice, Swiggy’s IPO does offer opportunities. According to experts, the IPO could provide Swiggy with the funds needed to grow its business, particularly in its instant commerce segment, which includes groceries and essentials delivered through its “Instamart” service.
Anshul Jain, Head of Research at Lakshmisree Investment and Securities, advises caution with Swiggy’s IPO. He views the IPO as an exit opportunity for pre-IPO investors through the Offer for Sale (OFS) mechanism. This indicates that a significant portion of the IPO may not be aimed at raising capital for expansion but rather allowing existing investors to cash out.
Jain highlights the challenges Swiggy faces, noting that the company is currently experiencing financial losses. The uncertainty surrounding its profitability raises concerns for potential investors. In contrast, Zomato has managed to achieve profitability while maintaining a similar revenue scale. Jain has set a target price of ₹550 per share for Zomato over the next two years, further establishing Zomato as an appealing option.
Market Dynamics: Swiggy vs. Zomato
Jatin Kaithavalappil, Assistant Vice President at Choice Broking, describes the current market situation. He believes that while Swiggy’s IPO has a fair valuation, its ongoing losses and tight cash flow make it a riskier investment. Swiggy holds about 45% market share in food delivery but only 25% in instant commerce, where competition is intense.
Zomato, with its more stable and profitable business model, is better positioned to weather market fluctuations and maintain its growth trajectory. Analysts recommend focusing investments on Zomato while being cautious with the Swiggy IPO, given the current financial landscape.
Zomato’s Recent Performance
Despite recent pressure, Zomato shares have shown resilience. Since its initial public offering, Zomato has provided good returns, even though its shares dropped by 11% in the last month. Over the past six months, Zomato’s shares have risen by 23%, reflecting a positive trend. This year, Zomato has reported an impressive growth of over 95%, and its one-year return stands at over 109%. This consistent performance makes Zomato an attractive option for investors looking for reliable growth.
Conclusion
As Swiggy prepares for its IPO, investors must weigh the potential for growth against the inherent risks of investing in a company that is currently unprofitable. In contrast, Zomato’s established position in the market, coupled with its profitability and robust growth metrics, presents a more secure investment opportunity. For those considering their next move in the food delivery sector, Zomato appears to be the safer bet, while Swiggy’s IPO could be a more speculative play.
The stocks mentioned here are for informational purposes only. If you want to invest money in any of these, then first consult a certified investment advisor. TheFinQ is not responsible for any profit or loss you may incur. will be.)
