Why has Swiggy GMP seen a sharp fall ahead of IPO allotment?

Swiggy IPO is likely to list on November 13, but the company’s grey market premium has been on a downward spiral and is now barely a rupee higher than the issue price. On October 29, Swiggy was commanding a premium of Rs 25, or 6.4%, to the issue price.

The drop in GMP can be attributed to a lower interest and subscription from the investors. This can be understood from the fact that on day 01, Swiggy’s IPO was subscribed 12%. In this, the retail participants booked the issue 56% and NIIs a mere 6%. While on the second day of the subscription, the IPO was booked to a total of 35%. On day 02, the NII segment was booked 14% and retail 84%. Overall the issue has been subscribed 3.59 times with the retail portion being subscribed 1.14 times.

The issue was primarily driven by the QIBs, who subscribed to the issue a bit more than 6 times, a similar case to that of the Hyundai IPO.

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Negative cash flow a worry?

One of the concerns about the declining GMP can be attributed to the net loss incurred by the company thus far and the negative cash flow from operations. 

“While Swiggy’s decision to lower its valuation leaves some upside room for the investors, we still recommend an “Avoid” to this issue due to the “reported negative” cash flows and ongoing losses, alongside a slightly high valuation of 7.7x FY24 price-to-sales,” said Aditya Birla Money in an IPO note. 

The issue is priced at a price-to-book value of 11.60 based on its NAV of Rs 33.61 as of June 30, 2024, and is at a P/BV of 7.31 based on its post-IPO NAV of Rs 53.36 per share (at upper cap)

Swiggy IPO: Top 3 risks 

1. 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,

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