Pre-IPO shareholders’ lock-in expiry to weigh on stock performance
Swiggy’s stock is likely to be volatile in the near term on account of market speculation around possible exits by some pre-IPO shareholders whose lock-in is set to expire on 12th May’25. While we cannot accurately predict when these shareholders will exit, or whether they will even exit, it is pertinent to note that several of them are already sitting on significant unrealised gains. While a few had partly liquidated their positions pre-IPO as well as during the IPO, we believe at least some investors will be eager to liquidate their holding despite the fact that the stock is trading below its IPO price. So, a sizeable proportion of Swiggy’s shares can get traded in the near term. In fact, the total stock that is currently locked in is ~83%, which at CMP is valued at ~INR 660bn (USD 7.7bn). Even if one were to assume that only 15% of company’s stake will be available for trade immediately post expiry, the total outflows could be ~INR 120bn (USD 1.4bn), broadly equal to the total IPO size of ~INR 113bn (USD 1.3bn). Long-term investors can use these liquidity events to build a sizeable position in Swiggy as, at CMP, the market seems to accord value to only its food delivery business, whereas Instamart and other businesses are not getting any meaningful value.
~83% of Swiggy’s shareholding will be eligible for secondary trade 13th May onwards: As per SEBI, non-promoter, pre-IPO investors are required to go through a mandatory lock-in of 6 months post listing of their stock on the exchanges. Accordingly, ~83% of Swiggy’s shareholding will be eligible for secondary trade for the very first time once the lock-in for these investors expires on 12th May’25, i.e., shares will be available for trade 13th May onwards.
Several pre-IPO investors are sitting on substantial unrealised gains: Our analysis of the cost of acquisition of shares owned by pre-IPO investors suggests several are sitting on multi-fold gains (Exhibit 6) on their investments. While a few of them had partly liquidated their positions in the run-up to the company’s public listing as well as during the IPO, a large chunk of gains still remains unrealised. Given the quantum of these gains and basis past actions of pre-IPO investors (mainly PE/VC/Chinese investors) across listed Internet names, we believe a sizeable proportion of Swiggy’s stock can get traded in a not-so-distant future post lock-in expiry, despite the fact that the stock is trading well below its IPO price. At CMP, the stock is ~12% below the IPO price of INR 390.
Fundamentally too, the stock is likely to remain under pressure in the near term: As highlighted in our recent report (here and here), we expect Swiggy’s Adj. EBITDA loss in its quick commerce business (Instamart) to jump in the near term. The loss is likely to increase from INR 5.8bn in 3Q to INR 7.8bn in 4Q on account of a sharp ramp-up in its dark store count as well as high competitive intensity. While we expect these losses to meaningfully come down starting 1QFY26 onwards, the high base of fixed costs means that the path to eventual break-even at Adj. EBITDA level will take some time. Post 3QFY25 results, while the management had refrained from giving any specific guidance (besides contribution profit break-even in 2QFY26), we, same as consensus (Visible Alpha) expect Adj. EBITDA break-even only in FY29. Either way, the profitability outlook remains stretched and, therefore, the market is unlikely to start according meaningful value to this business immediately.
Despite near-term technical as well as fundamental challenges, we retain our bullish view: Swiggy is a crucial player in India’s hyerlocal delivery space due to its strong positioning in the duopolistic food delivery market as well as top three positioning in the fast expanding quick commerce market. Its food delivery business is likely to continue to outperform the organised food services market due to expanding consumer use-cases and improving quantity of restaurants on the platform. Margins also should continue to gradually move closer to the steady state guidance of 4-5% as % of GOV from 2.5% in 3QFY25, thereby ensuring strong growth at the Adj. EBITDA level. In quick commerce, while its losses are likely to remain a concern in the near term, it is not a unique situation as most other players too are currently bleeding due to aggressive store expansion and high competitive pressures. Moreover, we believe quick commerce ultimately will end up being a 3-4 relevant-player market due to the huge TAM and complex nature of the business. Therefore, we remain convinced that the current investments are inevitable for the company to build scale, customer recall, and a robust supply chain. In fact, for a business that is just 4-5 years old, it has already reached a respectable size, albeit it is smaller than the top two competitors. In that context, we believe Instamart deserves decent valuations even though the path to break-even may be a bit stretched at the moment. That said, at CMP, the market seems to accord value to only its food delivery business, whereas Instamart and other businesses are not getting any meaningful value, which, as highlighted earlier, is unfair in our opinion.
Maintain ‘BUY’ with an unchanged TP of INR 500: We continue to value the company’s food delivery business at 45x EV/ FY27E Adj. EBITDA multiple. In quick commerce, we value Instamart at 1x EV/ FY27E GOV multiple. For Other businesses, we use 0.9x EV/GOV FY27E multiple for out-of-home consumption and 0.5x EV/Sales multiple for supply chain and distribution. Accordingly, our SOTP-based Mar’26 TP stands at INR 500. While we see near-term pressures on the stock price due to volatility on account of lock-in expiry, longterm investors with a strong positive conviction on India’s hyper local delivery market opportunity can use these liquidity events to build a sizeable position. We maintain BUY.
Leave a Reply