One of the most awaited IPOs of the year – the Swiggy IPO is all set to launch on November 06. The food-delivery company is a direct competitor to the already-listed Zomato, which returned to black in Q4FY24. However, Swiggy has incurred net loss and negative cash flow since its inception. Here are key risks to watch before you subscribe to the issue:
1. Net loss since incorporation: The food-delivery company has incurred net losses in each year since incorporation. It has negative cash flows from operations. “If we are unable to generate adequate revenue growth and manage our expenses and cash flows, we may continue to incur significant losses,” said the company in its RHP filed with the markets’ watchdog. Swiggy started its operations in 2014.
2. Customer retention a key factor: If Swiggy fails to retain its existing user base or fails to acquire new users in a cost-effective manner, the company’s business, financial condition, and results of operations could be adversely affected. The company’s business growth depends on its ability to grow its offerings continuously by cost-effectively retaining and acquiring users.
3. Highly competitive industry: Swiggy operates in a highly competitive hyperlocal industry. The increase in household income and purchasing power of Indians along with rapid digitisation has led to the proliferation of the hyperlocal commerce ecosystem in India with multiple players entering this market, according to a report by RedSeer. For instance, between 2018 and 2023, the online Food Delivery and Quick Commerce markets grew at CAGRs of approximately 42% and 148-169% respectively, and the online dining out segment is expected to grow at 46% to 53% between 2023 and 2028.
4. Delivery partners are on contract basis: The company does not have exclusive arrangements with delivery partners, merchant partners, brand partners, and almost all our restaurant partners. This may lead all of them to prioritize the services of the company’s competitors. Also, they might not renew their contracts with Swiggy which could have an impact on its operations. “…(they) could use multiple third-party platforms concurrently as they attempt to maximise earnings. Restaurant partners and merchant partners may not renew contracts with us; enhance their presence on other platforms; launch or focus on their own delivery services; or shut their online delivery model, among others,” said the company.
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