The Battle on D-Street: Is Swiggy’s IPO a Real Threat to Zomato?

Did you hear the news on Swiggy’s IPO? Yeah! Swiggy is about to make a huge move—it’s planning a massive Rs.10,000 crore ($1.2 billion) IPO… And, as you might expect, this isn’t just any IPO, it’s set to stir up a serious rivalry with Zomato on Dalal Street, the heart of India’s financial markets. Both companies have been fierce competitors in the food delivery space for years, but now the battle is headed for the stock market. 

But here’s the big question- Is Swiggy’s upcoming IPO going to challenge Zomato’s position, or will Zomato keep ruling the roost? 

Let’s go through this head-to-head battle in the food delivery market, and I’ll walk you through everything in detail.

Stay tuned!

Swiggy vs Zomato: Financial Aspects

Before moving further, we need to see how Swiggy and Zomato stand in front of each other in financial aspects–

Note: We have already compared both of these food delivery giants in detail. For more information visit the article- Swiggy vs Zomato- Which One is Doing Better Business?

In the next sections, we will look at them in detail.

Zomato: The Current Leader

Zomato, the king of food delivery in India, has been doing exceptionally well. With a market share of around 58% in the food delivery space and 40-45% in the growing quick commerce market (think grocery deliveries), Zomato’s numbers look pretty strong. But it wasn’t always this way. 

People thought Zomato was overvalued for a while, mostly because it was losing money. However, in the past year, Zomato turned things around big time.

Now, Zomato has recorded four profitable quarters in a row, meaning it’s making more money than it spends. 

Plus, its earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quick commerce sector have turned positive—a key financial indicator that shows a company’s financial health. 

Impressive, right? Because of all these good signs, Zomato’s stock has surged by 120% this year.

Swiggy: The Runner Up

On the flip side, Swiggy is still struggling financially, with a loss of Rs.2,350 crore in FY24. While it’s a serious player in the food delivery market, its growth metrics haven’t been as strong as Zomato’s. For instance, between FY22 and FY24, Zomato’s food delivery business grew at a rate of 23% (measured by gross order value or GOV), while Swiggy grew by only 15.5%. 

Zomato has also managed to outpace Swiggy in terms of average order value (AOV) and the value of orders processed by its grocery delivery arm, Blinkit, which beat Swiggy’s Instamart by 54%.

But here’s a mindblowing twist- Swiggy’s IPO might just shake things up. The moment Swiggy enters the public market, it will face more scrutiny, and that could push the company to improve its financial performance, just like Zomato did after its IPO.

The Growing Market Opportunity

Now, you might wonder, why is there such intense competition between these two giants. Well, the food delivery market is expected to grow rapidly, with projections showing a 20% growth rate from 2023 to 2028. 

That’s pretty massive! 

More people are getting used to ordering food online, and this growing user base is driving the market.

Quick commerce is also on the rise, particularly grocery deliveries. While it’s still a small part of India’s retail market (currently only 0.3%), it could grow to make up 2-3% of the market soon, thanks to projected growth rates of 60-80%. So, the potential is huge, and both Swiggy and Zomato are hungry for more market share.

What will Swiggy do post-IPO?

When Swiggy goes public, analysts expect the company to focus heavily on profitability. They believe Swiggy will reduce its promotional spending and advertising to cut costs and move toward profitability, just like Zomato did after its IPO. And if Swiggy succeeds, it could become a stronger competitor.

But here’s something interesting- Swiggy might not be valued as highly as Zomato right after its IPO. Zomato’s market cap stands at Rs.2.42 lakh crore (about $29 billion), while Swiggy was recently valued at $10.2 billion in a small investment round and $13 billion in the unlisted market. 

That’s quite a gap! 

Swiggy has a lot of catching up to do in terms of market share and profitability to match Zomato’s valuation.

Swiggy’s Game Plan

Swiggy has been improving its financials bit by bit. Its adjusted EBITDA margin (a key profitability measure) was -0.2% in FY24, better than the -4.8% and -7.6% it recorded in the previous two years. 

Still, Zomato’s food delivery business is performing much better, with a positive EBITDA margin of 2.8%. So, Swiggy has some heavy lifting to do to get closer to Zomato’s level.

What’s Swiggy planning to do with the money it raises from the IPO? You ask.

The company has already laid out some plans: it wants to invest in technology, cloud infrastructure, brand marketing, and its subsidiary, Scootsy. So, if Swiggy plays its cards right, it could use this new capital to innovate and grow, which might just make Zomato nervous!

What Does This Mean for Investors?

Now, let’s talk about what this rivalry could mean for you as an investor. Some experts believe that Swiggy’s IPO could actually be good news for Zomato in the short term. 

How? 

Well, since Zomato is already profitable and has a solid market position, it might benefit from Swiggy’s entry into the stock market. Investors might look at Zomato as the more stable, proven choice.

On the other hand, if Swiggy’s IPO is valued higher than expected, it could boost investor confidence in the entire food delivery sector. This could lead to a rise in Zomato’s stock price too. But over the long term, Zomato will need to keep delivering strong results to maintain its edge.

What Analysts Are Saying?

Many analysts believe Zomato is better positioned right now to capture growth in both the food delivery and quick commerce markets. Several top brokerages, like Bernstein and UBS, have given Zomato ‘Buy’ ratings, with target prices around Rs. 320-330. They are optimistic about Zomato’s ability to lead the charge in transforming retail consumer behavior with its convenience and variety-focused offerings.

However, they aren’t writing off Swiggy. If Swiggy successfully narrows the valuation gap and improves its profitability, Zomato will have to work even harder to maintain its position. Investors will likely monitor both companies closely once Swiggy goes public, comparing their quarterly performance, guidance, and execution.

The Road Ahead for Swiggy vs Zomato: Who Will Win?

So, who’s going to come out on top? Well, it’s too early to tell. Right now, Zomato has the upper hand with its strong market position and profitability. But if Swiggy uses its IPO proceeds wisely, it could become a serious contender, especially in the quick commerce sector.

Both companies have a lot riding on the outcome, and as an investor, it’s going to be exciting to watch how this rivalry unfolds on Dalal Street. One thing’s for sure: Swiggy’s IPO will keep Zomato on its toes, and we’ll have to wait and see which company truly dominates the food delivery and quick commerce markets in the long run.

In the end, Zomato’s ability to leverage its market leadership will be crucial in determining how Swiggy’s IPO impacts its stock performance and future valuations. 

Whether you’re a Zomato fan or rooting for Swiggy, this is one competition that’s far from over!