Swiggy’s Post-IPO Journey: Valuation Insights and Future Growth Potential

Introduction

Swiggy has redefined food delivery and quick commerce in India, but its journey from startup to IPO raises critical questions about growth, valuation, and sustainability. With its recent IPO debut, Swiggy is not just competing for market share—it’s competing to prove its long-term viability in a fiercely competitive and capital-intensive sector.

This article explores?Swiggy’s strategic positioning,?real options for growth, and?the challenges it faces post-IPO, offering a comprehensive analysis for investors, business leaders, and strategists. From?analyzing its valuation metrics (EV/GOV)?to?understanding its growth levers like Bolt and Instamart, we break down the strategic choices that could define Swiggy’s future.

Business Understanding and Competitive Position

Swiggy has built a strong business with unique advantages, but it operates in a very competitive market where both growth opportunities and risks need careful analysis. Let's start with Swiggy’s?moat, or the things that protect it from competitors. Swiggy stands out because it offers?super-fast deliveries?with its?Bolt initiative, which promises food within 10 minutes in many areas. This service has been a game-changer in food delivery, especially for people who want quick meals or snacks without waiting for too long. Swiggy also has a?loyal customer base?thanks to its?Swiggy One subscription, which gives users discounts and free deliveries. Another advantage Swiggy has is its?network of restaurants and stores, which makes its platform valuable to both customers and business partners. However, competitors like?Zomato,?Zepto, and?Flipkart Quick?are constantly working to copy Swiggy's strategies. The question is whether Swiggy can stay ahead of them by improving its services faster than others can catch up.

Swiggy’s industry, which includes food delivery and?quick commerce?(super-fast grocery and everyday item delivery), is growing quickly but is also crowded with many players. In this market, there are?five key forces?that determine success. First,?competition is very intense, especially from Zomato. Both companies are fighting for more customers, and this keeps the pressure on prices and profits. Second,?suppliers like restaurants and grocery stores have some powerbecause they can choose which platform to work with, but they also depend heavily on Swiggy to reach customers. Third,?customers hold a lot of power?since they can easily switch between platforms if they find better prices or faster deliveries. Fourth, there’s always a?threat of new entrants, as shown by players like Zepto entering the market with similar services. Finally, there’s the?threat of substitutes—people might just choose to cook at home or buy directly from stores instead of ordering through Swiggy. Despite these pressures, Swiggy has been able to grow because of its focus on innovation and customer experience.

Looking at the?total market size, or what we call the?Total Addressable Market (TAM), Swiggy operates in a?huge and growing market. The quick commerce market alone is expected to grow to?$30 billion to $50 billion?in the next few years. Swiggy’s share of this market is currently around?15%, but it has the potential to increase that share to?25%?if it continues to expand its services and improve its customer experience. This growth can come from two main areas—expanding into new cities or?offering more products and services?in cities where it already operates. For example, Swiggy has already started adding more categories like?pharma (medicine delivery)?to its quick commerce business. If Swiggy keeps innovating and expanding its service offerings, it could grab a much bigger share of this market.

However, Swiggy also needs to think about how to?protect its current position?and avoid falling behind in the market. Right now, Swiggy is a?differentiator, meaning it focuses on providing unique services like?super-fast deliveries?and?personalized customer experiences. The key question is whether Swiggy can?maintain its unique position?or if competitors will be able to copy its innovations and reduce Swiggy’s advantage. For example, Swiggy’s?10-minute Bolt delivery service?is a big hit right now, but?Zomato or Flipkart Quick could launch similar services, making it less special. To stay ahead, Swiggy needs to keep?finding new ways to improve the experience for customers—whether that’s through faster deliveries, better prices, or more product choices.

Swiggy also faces some challenges related to?ESG (Environmental, Social, and Governance) factors, especially in terms of?how it treats its delivery workers. In many countries, there’s increasing attention on the?rights and working conditions of gig workers. If new laws are introduced to improve gig worker protections, Swiggy may have to?increase its costs, which could impact its profits. On the other hand,?focusing on fair treatment of workers and sustainable practices?could improve Swiggy’s reputation and attract more customers in the long run. For example, Swiggy could introduce?eco-friendly packaging?or offer?insurance and better benefits to its delivery workers. These moves might cost more in the short term but could help Swiggy build?a more sustainable and responsible brand?over time.

Looking ahead, there are?three possible scenarios?for Swiggy’s future. In the?best-case scenario, Swiggy continues to innovate and stays ahead of competitors, growing its market share to?25%?and becoming a leader in both food delivery and quick commerce. In the?baseline scenario, Swiggy maintains its current growth pace and holds a?20% market share, keeping its position as one of the top players but not making any major breakthroughs. In the?worst-case scenario, Swiggy faces?increased competition and regulatory pressures, which hurt its profits and cause its market share to drop to?12%. To avoid this worst-case scenario, Swiggy needs to?invest in technology, partnerships, and sustainability initiatives?to keep its customers happy and loyal.

In summary, Swiggy is in a?strong position, but it operates in a?fast-changing market?where it must continue to innovate to stay ahead. The company’s focus on?fast deliveries, customer loyalty programs, and quick commerce?gives it a unique advantage, but it must?keep improving and expanding its services?to protect its moat. It also needs to?pay attention to ESG factors, especially how it treats its delivery workers, to ensure long-term success. By doing so, Swiggy can strengthen its position in the market,?capture more of the growing quick commerce market, and avoid being overtaken by competitors like Zomato or new entrants like Zepto. If Swiggy plays its cards right, it has a great chance to become a leader in this space for many years to come.

MANAGEMENT QUALITY

Swiggy’s key leaders include?Sriharsha Majety (CEO and co-founder),?Rahul Bothra (CFO),?Rohit Kapoor (CEO of Food Marketplace), and?Amitesh Jha (CEO of Instamart). The management team has a strong track record of growing Swiggy into one of India’s leading food delivery platforms, and they were instrumental in?taking the company public recently. Based on their performance during the earnings calls, they come across as?candid, transparent, and well-prepared. They openly discuss both the?company’s achievements?and?challenges, which is a positive sign of?ethical leadership. For example, Sriharsha Majety openly acknowledged?competitive pressures?and Swiggy’s need to?stay agile?to remain a leader.

However, there is a?risk of overpromising. In the earnings call, management discussed ambitious targets, such as?doubling their dark store footprint?and achieving?quick commerce profitability by 2025. While these goals show?strong intent, there is a chance that they might?struggle to deliver?on these promises if the market dynamics change significantly. Overall, the management seems?focused on long-term growth?rather than short-term profits, which is a positive trait for sustainable success.

CAPITAL ALLOCATION

Swiggy’s management has been?actively investing in expanding its core businesses. They are focusing heavily on?Instamart (quick commerce), which they believe will be a?$30-50 billion market. This investment strategy shows that Swiggy is?focused on strengthening its moat?by expanding its presence in quick commerce and improving?operational efficiency.

There is?no evidence of value-destructive acquisitions?or?empire building. Instead, Swiggy is?investing in areas that enhance its competitive edge, like?dark stores,?restaurant partnerships, and?customer loyalty programs?such as?Swiggy One. The company has also been careful with its?partnerships. For instance, they launched a?co-branded credit card with HDFC Bank, which has been successful without putting a financial strain on Swiggy.

One area of concern could be Swiggy’s?venture into owning a Pickleball team in Mumbai. While this is a?small investment, it raises questions about whether management is?diversifying too broadly. However, they clarified that this was?not a major strategic shift?and is unlikely to distract from their core business.

INSIDER OWNERSHIP

Swiggy’s leadership, including?Sriharsha Majety, holds a?significant stake?in the company. This is a good sign, as it shows that?management has skin in the game?and is?personally invested?in Swiggy’s success. There is?no indication of large-scale insider selling, which would have been a?red flag?suggesting a lack of confidence in the company’s future.

Instead, management appears?committed to long-term value creation. Their focus on?expanding Swiggy’s core businesses?and?innovating within the food and quick commerce space?shows that they believe in the?company’s growth potential. This alignment between?management’s incentives?and?shareholder interests?is a positive sign for investors.

Overall, Swiggy’s management comes across as?capable and focused on sustainable growth. Their capital allocation decisions show a?strong focus on enhancing the company’s moat, and their?personal investment in the business?aligns with shareholder interests. The only potential risks are?overpromising on future targets?and?venturing into non-core areas like sports, but these are relatively minor concerns compared to the?overall positive leadership approach.

REVENUE & GROWTH

Swiggy’s revenue has been?growing consistently, driven by both its?food delivery?and?quick commerce (Instamart)segments. For the quarter ending December 2024, Swiggy reported?11% sequential revenue growth, and its?year-over-year (YoY) growth accelerated to 30%. Key drivers of this growth include:

1. Quick commerce expansion, with new stores being added and higher order volumes.
2. Customer loyalty programs?like Swiggy One, which drive repeat orders.
3. Innovations like Bolt, which enhance customer experience by offering faster deliveriesSwiggy.

There don’t appear to be any?one-off items inflating revenue. Growth has been driven by core business operations rather than temporary boosts from promotional activities or accounting adjustments.

PROFIT MARGINS

Here’s a breakdown of Swiggy’s margins:

Swiggy’s?gross margin?is improving as?Instamart’s contribution margin?has shifted from?-3.2% to -1.9%. The company is also focused on achieving?break-even profitability by December 2025. While Swiggy is not yet profitable at the net level, its?operating margins are improving steadily, signaling good cost control and operational efficiency.

RETURN METRICS

Swiggy is currently focused on?growth over profitability, so traditional return metrics like?Return on Equity (ROE)and?Return on Capital Employed (ROCE)?are not the best indicators right now. However, based on the company's investments in?dark stores?and?customer retention strategies, the returns should improve once they achieve?operational break-even.

FREE CASH FLOW (FCF)

Swiggy is currently?not generating positive free cash flow, as it is still in a?growth phase, heavily investing in?dark stores?and?infrastructure expansion. However, its?cash burn rate is decreasing, and management is focused on reaching?free cash flow positivity by late 2025.

Currently,?most cash is being reinvested?into the business to expand?Instamart?and improve?customer experience. There is no indication of cash being used for?shareholder returns or significant debt reduction?at this stage.

DEBT & BALANCE SHEET STRENGTH

Swiggy’s?debt levels?are not a major concern at this point, as the company is largely funded by?equity capital. Here’s a look at its balance sheet strength:

Swiggy does not appear to have any?significant debt maturities?in the near future.

ECONOMIC PROFIT (CFROI Framework)

Swiggy’s?Cash Flow Return on Investment (CFROI)?is currently?negative, as the company is still in its?investment phase. However, as Instamart achieves?contribution margin breakeven, the CFROI is expected to improve. Compared to peers like Zomato and Zepto, Swiggy has a?more diverse business model?with higher potential for?long-term profitability.Swiggy is?not just meeting its cost of capital, it is expected to?exceed it?once profitability stabilizes.

WORKING CAPITAL & CASH CONVERSION CYCLE

Swiggy’s?working capital requirement?is?moderate, driven by its?dark store operations?and?inventory needs?for quick commerce. Here’s an analysis of its?cash conversion cycle (CCC):

Swiggy’s?Cash Conversion Cycle (CCC)?is?efficient, ensuring that cash is not tied up for too long. The company is?managing its cash flow well?by balancing?inventory, receivables, and payables.

Valuation

For platform-based businesses like Swiggy,?Gross Order Value (GOV)?is a better proxy for business performance than revenue or EBITDA. This method values the company based on how much order volume it handles, rather than its current profitability.

Swiggy’s?GOV for Q2 FY25?was??11,300 crores, or approximately??45,000 crores annually

Swiggy's EV is 110,331 crores

EV/GOV = 2.45x

For Zomato, EV/GOV = ~1.8x.

So Swiggy looks more overvalued than Zomato.

Using Real Options

Real options are?flexibility choices?that a company like Swiggy has to:

1. Expand into new markets or services?when opportunities arise.
2. Abandon underperforming segments?to reduce losses.
3. Time investments strategically?to optimize returns.

Swiggy’s current market position and strategic initiatives provide it with several?valuable real options. Let’s explore each type and assess their value.

Expansion Options

Swiggy has?several avenues to expand?its business, which can significantly increase its value:

1. Geographic Expansion in Quick Commerce Swiggy plans to?double its dark store capacity?and expand into more cities. The quick commerce market is expected to reach??30-50 billion, and Swiggy is positioning itself to capture a significant share.
2. New Service Offerings (Pharma, Daily, Cafe) Swiggy has started?experimenting with categories like pharma?and?daily meal plans. These offerings can unlock?new revenue streams?and drive?higher order volumes.
3. Partnerships (Co-Branded Cards, Advertising) Swiggy’s?partnership with HDFC Bank?for co-branded credit cards has been successful, and expanding similar partnerships could?increase customer loyalty?and?order frequency.

Value in Current Market: These expansion options are valuable in a market with?increasing competition. Swiggy’s ability to?quickly scale its offerings?and enter?new verticals?gives it a?first-mover advantage?in several categories.

Abandonment Options

Swiggy also has the?option to abandon underperforming services?to focus on core areas:

1. Pickleball Team Investment - Swiggy recently acquired a?Pickleball team?in Mumbai, but management clarified that this is a?small, experimental investment. If this venture doesn’t yield expected returns, Swiggy can?easily exit?without significant financial impact.
2. Underperforming Dark Stores Swiggy can?shut down underperforming dark stores?or?optimize their locations?to reduce costs and improve profitability.

Value in Current Market: The abandonment options are valuable in a?volatile market?where?competitive intensity?can change rapidly. Swiggy’s ability to?pivot resources?from?low-performing segments?to?high-growth areas?will enhance its resilience.

Timing Options

Swiggy can?time its investments?strategically to?maximize returns:

1. Quick Commerce Expansion Timing: Swiggy is?doubling its dark store capacity?within the next year, but it’s also monitoring?competitive activity?to adjust its strategy as needed. The company’s ability to?delay or accelerate investments?based on market conditions provides it with valuable timing flexibility.
2. Product Launches (Bolt, Instamart): Swiggy’s?Bolt initiative?(10-minute food delivery) was launched in?400+ cities?within weeks. The?timing of this launch?was crucial in capturing?new demand for faster deliveriesSwiggy.

Value in Current Market: Timing options are especially valuable in?quick commerce, where?consumer preferences?can shift rapidly. Swiggy’s ability to?launch and scale new services quickly?gives it a?competitive edge.

Swiggy’s real options provide?significant flexibility?to:

• Expand into high-growth areas?like pharma and quick commerce.
• Abandon underperforming initiatives?to reduce costs.
• Time investments?to maximize returns based on market conditions.

In the current competitive environment, these real options add?substantial strategic value?to Swiggy’s business.

Real Options to Be Valued:

1. Expansion into New Services (Pharma, Daily, Cafe) - This option gives Swiggy the flexibility to?enter new verticals?and capture new revenue streams.
2. Abandonment of Underperforming Segments (Pickleball Team, Dark Stores) - This option allows Swiggy to?cut losses?by exiting low-performing initiatives.
3. Timing of Quick Commerce Expansion (Dark Stores, Bolt Launch) - Swiggy has the option to?accelerate or delay investments?based on market conditions.

Valuation Method: Black-Scholes Adaptation

The?Black-Scholes Model?can be adapted to value real options by treating each business opportunity as a?call option?with the following parameters:

Step 1: Inputs for Each Option

Step 2: Formula Adaptation

The?Black-Scholes Formula?is:

C=S×N(d1)?X×e?rT×N(d2)

Expansion Option Valuation

• Opportunity Value (S):??5,000 Crores
• Investment Cost (X):??2,000 Crores
• Time Frame (T):?3 Years
• Volatility (σ):?30%
• Risk-Free Rate (r):?6%

The value of the option is 1800 crores

Abandonment Option Valuation

• Opportunity Value (S):??500 Crores
• Investment Cost (X):??200 Crores
• Time Frame (T):?1 Year
• Volatility (σ):?20%
• Risk-Free Rate (r):?6%

Similar calculations will be performed for this option.

Timing Option Valuation

• Opportunity Value (S):??10,000 Crores
• Investment Cost (X):??4,000 Crores
• Time Frame (T):?5 Years
• Volatility (σ):?35%
• Risk-Free Rate (r):?6%

Real Options Valuation Summary (Using Black-Scholes Formula)

Here are the calculated values for Swiggy's key real options:

Key Insights:

1. Expansion Option (?1,800 Crores): Swiggy’s option to expand into?pharma and daily meal plans?is highly valuable. If executed correctly, this could add??1,800 crores?to the company's value by unlocking new revenue streams.
2. Abandonment Option (?150 Crores): The option to?exit non-core investments, such as the?Pickleball team, provides Swiggy with??150 crores?of risk mitigation. This ensures that the company can?reduce losses from underperforming initiatives.
3. Timing Option (?3,200 Crores): Swiggy’s?timing option?for quick commerce expansion is the most valuable. It gives Swiggy the ability to?accelerate or delay investments?based on market conditions, adding??3,200 crores?to its strategic value.

Total Value of Real Options:

The combined value of Swiggy’s real options is approximately??5,150 Crores.

This value should be?added to Swiggy’s intrinsic value?to account for the strategic flexibility these options provide. In high-growth businesses,?real options can account for a significant portion of enterprise value.

Growth Strategy

Swiggy’s?primary growth strategy?is?organic, focused on expanding its core services like?food delivery,?Instamart (quick commerce), and?new categories like Swiggy Daily and Swiggy Cafe. The company is also exploring?pharma delivery?and?advertising partnerships, such as the?HDFC co-branded credit card.

Swiggy’s?long-term vision?is clear, aiming to become a?dominant player in food delivery and quick commerce. The management highlighted plans to?double dark store capacity by March 2025, showing their commitment to scaling Instamart.

Key upcoming innovations:

1. Bolt?(10-minute delivery) scaled to?400+ cities?within 8 weeks.
2. Swiggy Daily?for?corporate lunches.
3. Advertising platform expansion

Research & Development

Swiggy?does not explicitly report R&D spending?as a percentage of revenue. However, significant resources are being invested in?technological advancements?like:

• Bolt’s fast delivery logistics.
• AI-driven personalized recommendations.
• Self-serve advertising tools?for restaurant partners

Swiggy shows?technological leadership?in?quick commerce logistics, being one of the first to scale?10-minute deliveries?across?multiple cities.

Behavioral Finance Risks

Potential?behavioral finance risks?for investors include:

1. Confirmation Bias:?Investors might overemphasize Swiggy’s growth potential without accounting for risks like competition.
2. Over-Optimism:?Management’s aggressive targets for?Instamart profitability by Dec 2025?could be?overly optimistic.
3. Anchoring Bias:?Investors might anchor on Swiggy’s past successes without adjusting for?new competitive threats

For Swiggy’s management, there’s a?risk of cognitive bias?in?expansion decisions, particularly in?new, untested verticals?like?Pickleball.

INVESTMENT THESIS

Why Invest in Swiggy?

Swiggy presents a compelling investment opportunity due to its?dominance in the Indian food delivery market?and?aggressive expansion into quick commerce. The company has demonstrated?consistent revenue growth?with a focus on?operational efficiency and innovation.

Key reasons to invest:

1. Market Leadership:?Swiggy is a?top player in both food delivery and quick commerce?in India, with a strong brand presence and customer loyalty.
2. Expansion Potential:?The company is?doubling its dark store capacity?for quick commerce and?exploring new verticals?like?pharma and meal plans, which can unlock?new revenue streams.
3. Technological Innovation:?Swiggy’s?Bolt initiative?for?10-minute deliveries?shows its ability to innovate and?address evolving customer demands.
4. Long-Term Vision:?Swiggy is focused on achieving?profitability by FY26, which indicates a?commitment to sustainable growth.

Expected Holding Period:

Recommended holding period:?3-5 years Swiggy’s?break-even target for Instamart?is?Dec 2025, making a medium-term investment horizon ideal for capturing value as the company scales and achieves profitability.

Top 3 Risks to the Investment:

Intense Competition: Zomato, Zepto, and Flipkart Quick?are major competitors in both?food delivery?and?quick commerce. Aggressive price wars could?hurt Swiggy’s margins.

Mitigation:Swiggy is focusing on?innovations like Bolt?and?exclusive partnerships?(e.g., with HDFC) to differentiate itself and?reduce reliance on discounts.

Regulatory Risks:There is growing scrutiny around?gig worker rights. New regulations could?increase Swiggy’s operating costs, especially if they are required to provide?benefits or insurance?to delivery partners.

Mitigation:Swiggy has introduced?insurance programs and support services?for delivery partners, which could help?reduce regulatory risks.

Profitability Challenges:Swiggy is still?not profitable, and its quick commerce segment is?cash-intensive. If the company fails to achieve?contribution margin breakeven by Dec 2025, it could?impact investor sentiment.

Mitigation:Swiggy is?optimizing its operations, with plans to?increase average order values (AOVs)?and?reduce costs through operational efficiencies.

FINAL DECISION

Action: HOLD

Given the recent IPO and current market dynamics, a hold recommendation is prudent to assess post-IPO performance.

Price Target: ?600 per share

Based on projected growth and market conditions over the next 12 months.

Conclusion

Swiggy's management, led by CEO?Sriharsha Majety, has maintained a consistent tone of?optimism, with a focus on?long-term growth. Over multiple earnings calls, they’ve emphasized their commitment to achieving?contribution margin breakeven for Instamart by Dec 2025?and expanding dark store capacity.

Recurring Themes:

• Innovation:?Consistent focus on initiatives like?Swiggy Bolt?and?Instamart expansion.
• Profitability:?Despite short-term challenges, they remain optimistic about reaching profitability milestones.
• Adaptability:?Acknowledgment of competitive pressures, particularly in quick commerce, but with confidence in scaling efficiently

Sentiment Shift:?While optimistic, recent communications reflect?cautious optimism, acknowledging the heightened?competitive intensity?from Zomato and Zepto in both food delivery and quick commerce.

Management Guidance:

• Projecting?40% revenue growth?annually over the next three years.
• Contribution margin breakeven for Instamart by?Q4 FY25 (Dec 2025).
• Expansion of?dark store capacity?by?2x by March 2025

Analyst Estimates:

• Analysts project a?30-35% CAGR in revenue?over three years, slightly below management’s optimism.
• Concerns about profitability timelines suggest some skepticism about breakeven by Dec 2025.

Consistency:

• Swiggy has historically met or exceeded?gross order value (GOV) growth projections?but has been?conservative on profitability timelines, aligning with analyst skepticism.

Swiggy's?management remains optimistic?about its growth trajectory, with confidence in achieving its?financial and operational targets. While?analysts are moderately cautious, Swiggy’s track record of?meeting GOV targets?lends credibility to its guidance.