In today’s Finshots, we take a closer look at Swiggy's much anticipated IPO and what it means for the food and grocery delivery giant.

But then, Swiggy’s IPO may still be a while away, and you’ve probably seen influencers buzzing about grabbing its unlisted shares lately. But should you even consider buying them? Find out in this video of Finshots TV!

The Story

A few years ago, if you wanted groceries delivered, you had to wait for hours, maybe even days. And if you ran out of batteries for your remote, the only solution was rushing to the nearest store. That was just how things worked.

But then quick commerce swooped in and changed the game. The idea was simple — deliver anything from groceries to snacks in under 10 to 15 minutes. And today, platforms like Swiggy Instamart, Blinkit (Zomato’s quick commerce arm) and Zepto have revolutionised the delivery landscape. So it’s no wonder that consumers now expect everything delivered right at their doorstep, and they expect it fast.

And one company making waves in this space is Swiggy, and it’s gearing up for something big — an IPO. It’s eyeing ₹50 billion in fresh equity from its IPO, out of a total offer of over ₹116 billion.

But wait… why are we talking about Swiggy in the quick commerce game? Isn’t it primarily a food delivery company?

Well, not anymore. Swiggy’s future is also heavily tied to its quick commerce arm, Instamart, which accounts for over 9% of its total revenues in just about 3 years. And although that may not seem like much, it’s actually Swiggy’s third largest revenue stream and it’s eager to double down and grow it even further.

But here’s the thing. Quick commerce isn’t just about speed. To truly win in this space, companies have to keep their eyes on three key areas — market share, customer acquisition costs (CAC) and average order value (AOV).

The reasons are pretty simple.

Quick commerce runs on razor-thin margins, and it’s incredibly capital-intensive. Companies have to build an entire logistics network with dark stores — those small, strategically located warehouses that make ultra-fast deliveries possible.

It doesn’t stop there. They also have to keep bringing in new customers while encouraging them to order more frequently. But there’s a catch. If their CAC (the cost of acquiring each new customer) keeps climbing and the AOV (how much customers spend) stays low, they’re in trouble.

That’s why managing cash flow efficiently is vital. With ballooning costs, creating a sustainable business model boils down to finding the right balance between growth and profitability.

And that’s what Swiggy, Blinkit and Zepto are trying to do. They’re all battling for dominance in this space.

But Swiggy didn’t always bank on quick commerce. When it launched in 2014, it was all about food delivery. It dominated the space, going neck to neck with Zomato.

But by 2022, Swiggy’s leadership noticed something. Food delivery had plateaued, growth was slowing and margins were thinning even further. So, they pivoted to focus on a new segment.

Enter Instamart, Swiggy’s quick commerce arm.

And the pivot has paid off — at least in terms of scale. Instamart’s revenue shot up by 100% to nearly ₹10.8 billion in FY24, far outpacing the 17% growth in Swiggy’s food delivery vertical. In terms of gross order value (GOV), Instamart surged by 58% in FY24, compared to just 15% for food delivery.

But here’s the thing again. Success in quick commerce doesn’t come cheap.

Running a successful quick commerce operation requires a network of dark stores, a vast logistics team and hefty marketing budgets. Swiggy has expanded its dark store network to over 550 locations today. But this expansion, along with rising CAC, which jumped to ₹5,300 in FY24 — a whopping 75% increase over the previous year, caused Swiggy’s expenses to surge!¹

And while Instamart’s contribution to Swiggy’s top line has been rising, it’s also become Swiggy’s Achilles heel. Because for the first three months of FY25, Instamart accounted for around 90% of Swiggy’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) losses. Its operating losses increased to ₹3.2 billion, which is a huge chunk of Swiggy’s total operating loss of ₹3.5 billion. These numbers paint a stark picture of the cash-burning nature of the quick commerce business.

Also, you can’t forget the fierce competition in this space.

In just two years, quick commerce in India has exploded, with GMV (Gross Merchandise Value) surging from $0.5 billion in FY22 to $3.3 billion in FY24 — a staggering 280% growth.² And Blinkit, now owned by Zomato, has outperformed Instamart, even though Swiggy was the first major player to dive into quick commerce in India. In FY24 Blinkit’s AOV was 35% higher than Instamart’s. It stood at around ₹610 compared to Instamart’s ₹460. Plus, Blinkit’s customer retention rates are better. It also holds a 40% market share, while Instamart trails with 32%.³ And then there’s Zepto, which has quickly grabbed 28% of the market by offering aggressive pricing and launching private labels.

And that’s exactly why Swiggy’s core food delivery business remains a crucial pillar of its financial stability as it accounts for about 50% of its total revenues with a ₹247 billion GOV.

In FY24, Swiggy reported an operating revenue of ₹112.5 billion, a 36% jump from the previous year, while reducing its net losses by 44% to ₹23.5 billion.⁴ These are promising signs that Swiggy's food delivery vertical is edging closer to sustained profitability, offering a buffer as the company bears the high costs of expanding quick commerce.

So yeah, Swiggy’s upcoming IPO is a critical moment for the company as it mainly wants to use the funds to expand its dark store network and optimise delivery infrastructure. And this investment is essential if Swiggy wants to lower its unit costs and make Instamart profitable in the long run.

But there’s a twist. A significant chunk of the IPO — over ₹66 billion — is an Offer for Sale (OFS), meaning it’s structured to give an exit to existing investors. While the fresh equity will provide Swiggy with much-needed capital, potential investors might wonder if enough of the funds will be used for future growth.

And Swiggy’s road ahead is not without challenges. Zomato has outperformed Swiggy in food delivery in FY24.⁵ It has delivered more food with a gross order value of ₹320 billion compared to ₹247 billion of Swiggy’s. It has a higher contribution margin of about 7% compared to 5.5% for Swiggy’s. Plus, it’s profitable with an EBITDA of ₹9 billion versus Swiggy’s loss of ₹472 million, and it has more transacting users on its platform (18 million vs 13 million).

In the quick-commerce space, Blinkit is nearing breakeven and Zepto is scaling rapidly. You can’t say the same for Instamart just yet, as it reported operating losses of ₹13 billion in FY24, compared to Blinkit’s smaller loss of ₹3.8 billion.

On top of that, regulatory scrutiny around the environmental impact of rapid 10-minute deliveries could pose risks to the entire quick commerce model, particularly as sustainability concerns rise.

And finally, you can’t ignore the deep-pocketed retail giants like Reliance, Tata and Walmart, who are eyeing the quick commerce space. These conglomerates have extensive supply chains and resources that could easily outmuscle Swiggy if they decide to ramp up operations.

So to stay in the game for now, Swiggy is relying on its tried and tested strengths ― its tech infra, logistics, brand recognition and large customer base to navigate this landscape. It has a decade of experience under its belt, and it has built an extensive logistics framework that it can leverage to expand Instamart further.

For investors eyeing Swiggy’s IPO, the message is clear: this is a long-term play. Swiggy’s IPO is undoubtedly a big step for the company, especially as it looks to expand its dark store network and improve its delivery systems. But with strong competition and rising expenses, the road ahead won’t be easy.

The company is also counting on its core food delivery business to provide stability as it dives deeper into quick commerce. With the IPO on the horizon, Swiggy is banking on a solid financial boost to help it stay competitive and keep growing.

But whether it can balance its rapid growth with sustainable profitability remains to be seen. And we’ll only know more about the company’s valuations when the IPO price band is announced soon.

So, will the Swiggy IPO pop the markets? You tell us.

Until next time…

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Story Sources: The Morning Context [1], Economic Times [2] [3], Zerodha [4], Bastion Research [5]

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