JM Financial Initiates ‘Buy’ On Swiggy; Shares Jump Over 14%

Brokerage firm JM Financial has recently initiated coverage on Swiggy giving the first ‘buy’ recommendation for the foodtech major. 

The brokerage firm described Swiggy as India’s fastest-growing consumer player and has set a price target of INR 470. This marks a potential upside of 20% from its IPO’s upper price band of INR 390. 

It is pertinent to note that Swiggy made its entry in the bourses today (November 13) at an 8% premium above its listing at INR 420 on the NSE. 

On the BSE, Swiggy shares started trading at INR 412, a premium of almost 6% to its IPO issue price and were trading 14% higher at INR 445.20 from issue price at 1:35 PM. 

The brokerage firm underlined that Swiggy’s food delivery duopoly structure should ensure steady growth and profits.

“While India’s online food delivery market is likely to grow at a healthy CAGR of ~20% in the foreseeable future, the odds of disruption by new competition appear miniscule today,” JM financial added.

The firm pointed out the immense growth potential in Instamart given QC is essentially a play on the broader retail market, which was sized at ~$ 1 Tn in CY22.

In QC GOV terms, it added  “We estimate Instamart was only behind Blinkit as of FY24, with a market share of ~28%. Moreover, the QC channel penetration within the broader retail market even today is barely ~0.35%, compared to ~5-6% e-retail penetration. Even assuming the QC channel penetration will reach only 1.5-2% over the next 5 years, the market can expand at >50% CAGR. This will ensure exponential GOV/Revenue growth for Instamart over the medium term.”

This comes amid reports that Swiggy is piloting a new services marketplace called ‘Yello’ targeting professional services for consumers.

Further, as reported by Inc42, the company is also launching Rare Life, a concierge service geared towards the growing class of high-net-worth individuals.

Notably, the initial public offering (IPO) of the foodtech major was oversubscribed 3.59X on the final day of subscription, receiving bids for 57.53 Cr shares as against 16.01 Cr shares on offer. 

Qualified institutional buyers portion attracted 6.02 times subscription, while the category for retail individual investors was subscribed 114% and that for non institutional investors 41%.

The initial share sale had a price range of INR 371 to INR 390 per share. The total size of the IPO was INR 11,324 Cr. The offer comprised a fresh issue of INR 4,999 Cr and an offer for sale (OFS) of 17.5 Cr shares. 

Tencent, Alpha Wave, Goldman Sachs Asia, Norwest Venture Partners, Times Internet, among others, divested their stakes under the OFS. Swiggy’s early backers Accel India and Elevation Capital will pocket more than 34X returns by partially existing their stakes in the company.