Swiggy IPO serves next dish in Indian food wars

App-eat-app. The war for Indian diners is escalating. Food delivery startup Swiggy has confidentially filed for a $1.3 billion initial public offering, months after backer Invesco hiked up its valuation to $12.7 billion. The extra firepower should help it nip at its larger rival's market share.

Just two players, Prosus-backed Swiggy and Zomato, are left battling it out in India's fast-growing $33 billion food delivery market. The $20 billion Zomato, which went public three years ago, currently leads with a 54% share as of the first half of 2023, according to Bernstein. The rivalry has also spilled into groceries.

Of the two, Zomato is financially stronger. In the nine months to end-December, it squeezed out a net profit of $21 million, versus a $200 million loss at Swiggy in the same period. Despite having a smaller geographic reach - 650 cities versus Zomato's 750 - the unprofitable challenger operates a larger delivery fleet than its rival. Swiggy is also building out a grocery delivery arm from scratch, whereas Zomato acquired one. Those costs are adding up: losses before interest, tax, depreciation and amortisation ballooned by a third, to $404 million, in the fiscal year ended March 2023.

Tapping public markets now looks smart. Shares of Zomato are up 195% over the past year; the company is among the few Indian consumer internet firms trading above their IPO price. And despite being in the red, Swiggy's private-market price tag has increased from a 2022 funding round that valued it at $10.7 billion.

Assume Swiggy maintains the 30% revenue growth from 2023 for the next two fiscal years. Its latest $12.7 billion valuation would imply a forward enterprise value to sales multiple of 13.5 times, far higher than Zomato's 9.3 times.

Swiggy's public market debut will be key for Prosus, which has seen its bet on Indian education-tech firm Byju's go awry. New funding will fuel Swiggy's expansion, but that also puts the unsavoury prospect of a price war on the table. Zomato has already admitted to offering memberships to its food delivery service more cheaply than it would have liked. With an already rich valuation, Swiggy's investors will be hungry for results.