Should one subscribe to the Swiggy IPO?
Rahul Jain: It would be very difficult for us to call at this point because there is very limited understanding in terms of what this company is actually going to do to change the matrix versus what the largest company is doing. At this point, it is clear that they are behind the curve in terms of improving the profitability of the business, which is an important element for valuation. And competition in this space is actually heating up. So, there is not much to talk about, not much debate on that element and thus, in that absence, it becomes a difficult call to make.
But if we go by whatever limited information we have, limited roadmap, we heard from them in their IPO interaction and the interview, for us it looks like a fairly priced IPO. Do not see much downside from here, but do not see anything great actionable upside here as well.
Could Swiggy do what Zomato did? Zomato’s numbers were not great, but they started turning it around. And when it turned, it became a force to reckon with.
Rahul Jain: Yes, the real question is the timing of it. They have been doing well and they on the food delivery side should shape up in the positive direction as we are seeing in the case of Zomato as well. The question remains a concern both, even for Zomato for that matter, that how the profitability matrix should behave in the quick commerce business because that is where there is a mega expansion plan into play and there is a lot of competition also that is heating up, so that remains a concern and could be a key driving factor for the valuation in both the companies, Zomato as well as Swiggy.
Having said that, given that a lot of the analysts seem to be giving a subscribe tag to the public issue, they are talking about strategic expansion, innovation, and how Swiggy is pretty well positioned to sustain their growth, would you have the same advice?
Rahul Jain: At this point, we have not given any formal rating as such. Purely from a relative valuation perspective, they have priced it well, so that gives an opportunity for anybody who is confident on a very long-term play in both businesses, it is a good option for somebody to pare down exposure in Zomato and have a little bit exposure in this particular name. So that way, I would say valuation has been good, looking at what Zomato is trading at versus what Swiggy is offering. But as I said, we have not released any formal view on it, so I would not say subscribe, not subscribe, but on a relative basis, it is definitely priced better versus Zomato.
What are the challenges in store when it comes to Swiggy? Do you think that beefing up their quick commerce for a lot of the players within this space, it is not just isolated to Swiggy would be something that they need to focus on? Do you see that becoming a bigger pie than even e-commerce in general?
Rahul Jain: Some of those potential in the near past has been demonstrated very well and everybody in this space is positively surprised by the way it has picked up. There is no question that the QC space is going to do well for the next couple of years. How well it will do in some of the smaller cities, is the experiment not yet understood pretty well. But in bigger cities, it is the need of the hour. So, quick commerce becoming better than food delivery is kind of an obvious thing. Swiggy being different from Zomato is basically having a common fleet and there is a certain leverage from the same consumer base and stuff like that. Is that going to change the play or unit economics favourable is something that Swiggy needs to demonstrate in the coming period and that would be the differentiating angle that they can probably bring into the space.
