Shares of Swiggy Ltd advanced 2 per cent in Tuesday’s trade amid a Bloomberg report suggesting the proposed $1.1 billion qualified institutional placement (QIP) by the online food delivery platform will kick off next week.
On a day, the BSE Sensex dropped over 450 points, Swiggy shares were trading 1.57 per cent higher at Rs 394.45 apiece.
To recall, the Swiggy boatd had on November 7, approved the raising of funds by way of public or private offerings including, through one or more tranches, by way of qualified institutions placement or any other permitted modes under applicable laws, for an aggregate amount of up to Rs 10,000 crore, subject to the receipt of necessary approvals.
BNP Paribas India, which recently met investors in Hong Kong and Singapore, said there was optimism over India’s quick commerce story in the long term, but investors were concerned about the near-term competitive intensity after Zepto’s equity raise and Swiggy’s QIP announcement.
“There was a strong positive tilt towards Eternal, and most investors were looking for improved execution from Swiggy’s Instamart, before deciding to give any meaningful valuation to it,” it noted.
BNP Paribas said while investors agreed that Swiggy has been a pioneer in the industry, they felt that execution has lagged that of Eternal. While investors agreed that the implied valuation of the quick commerce division at the current stock price is very low, some argued that achieving Ebitda breakeven will be challenging for the business and were not willing to give much value for Instamart.
“As per investors, the key for Swiggy Instamart will be maintaining its growth trajectory, achieving contribution breakeven within the guidance timeline and getting on the path to achieve adjusted Ebitda breakeven. There were discussions on Swiggy’s planned QIP and the potential use of
funds and whether that would mean potentially higher cash burn or increased dark-store additions,” BNP Paribas India said.
In a note last month, Nuvama Institutional Equities said Swiggy’s financial position are strengthened by approximately Rs 7,000 crore in cash, including proceeds from the Rapido stake sale, and plans to raise up to Rs 10,000 crore via a qualified institutional placement.
Following a period marked by strategic errors, the company appears positioned for recovery, with Food Delivery now outpacing Zomato in growth and contributing to market share stability as well as a margin uptick, Nuvama said.
Nuvama highlights that Swiggy’s Food Delivery business is now the primary driver of value, attributing this to Swiggy’s superior operational scale and profitability. “In our SotP framework, we assign the bulk of value to the Food Delivery business given its superior scale and profitability profile.”
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