Shares of Swiggy Ltd pulled off a surprise at its Dalal Street debut on Wednesday as the stock listed at a mild premium at the bourses. Interestingly, the stock saw some follow-up buying interest at the bourses, pushing the gains higher amid the fresh interest from the brokerage firms, which remain divided on the stock.
Bucking the signals from grey market, shares of Swiggy was listed at Rs 420 on NSE, a premium of 7.69 per cent over the issue price of Rs 390 apiece, while the food-tech delivery major kicked-off its maiden trading session with a premium of 5.64 per cent at Rs 412 on BSE over the given issue price.
Following the debut, shares of Swiggy rose another 9 per cent to Rs 448.65 during the session, taking the overall gains to 15 per cent over the issue price. The total market capitalization of the latest debutant of Dalal Street hit Rs 1 lakh crore mark on the maiden trading session.
Swiggy has played a pivotal role in the rapid expansion of India’s hyper local on-demand market. It pioneered the full-stack food delivery model in 2014 and later in the midst of a pandemic introduced the dark store-led quick commerce model. It continues to be one of the leading hyperlocal delivery platforms in the country, bettered only by Zomato, said JM Financial.
The brokerage noted that food delivery business in India is a duopoly structure, which should ensure steady growth and profit. Swiggy's Instamart essentially a play on broader retail and it has immense potential to grow. It believes that Instamart should see exponential expansion in the medium term, despite execution challenges in the past.
"A successful IPO and leadership revamp at Instamart could just be the catalyst Swiggy needs for a successful turnaround in its fortunes. Despite having ceded some space to competition, it is one of the fastest growing consumption plays with multiple levers to move towards sustainable margins," JM added while initiating coverage on Swiggy with a ‘buy’ rating and target price of Rs 470.
Swiggy made a decent debut on the stock market. This performance is better than expected, considering the moderate subscription of 3.59 times and the initial muted investor response reflected in the low grey market premium, said Shivani Nyati, Head of Wealth at Swastika Investmart.
However, the company's continued losses and the challenging market conditions may temper investor enthusiasm in the long term, she added. "Investors should approach Swiggy with a balanced perspective, considering the potential for future growth and the associated risks. Those who are holding it may keep a stop at around the issue price."
Macquaries said that Swiggy's contribution margin is almost at par with Zomato. On adjusted Ebitda margin level, the gap is wider due to a smaller GoV base to absorb higher central branding and employees' cost. It sees Swiggy bridging this profitability gap with nearly 30 per cent higher transaction users. It initiated with an 'underperform' rating with a target price of 325.
On the other hand, overseas brokerage firm Macquarie said that Swiggy has a long runway but its path to profit is winding one. Swiggy, being the number two consumer app, has a clear path to catch up with the market leader Zomato. The brokerage said that quick commerce is more complex with no sustainable economic profits.
Investors with higher risk appetite should consider the company to hold for long term despite knowing short term volatility and competitive pressures in the sector, said Prashanth Tapse, Senior VP (Research), Mehta Equities. "For non-allottees, we advise to wait and watch for the price to settle and revisit the space with better discounted opportunity," he said.