Swiggy shares to see impact from pre-IPO shareholders’ lock-in expiry: JM Financial

Swiggy's stock is ~12 percent below the IPO price of Rs 390.

Food delivery and quick commerce player Swiggy Ltd.'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, noted domestic brokerage JM Financial.

"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," noted the broking firm.

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 percent of Swiggy’s shareholding will be eligible for secondary trade for the very first time once the lock-in for these investors expires on May 12, shares will be available for trade May 13 onwards.

A few investors did liquidate part of their positions pre-IPO as well as during the IPO, JM Financial believes at least some investors will be eager to liquidate their holding despite the fact that the stock is trading below its IPO price. At the last closing price of Rs 348, the stock is ~12 percent below the IPO price of Rs 390.

Based on the past actions of pre-IPO investors (mainly PE/VC/Chinese investors) across listed Internet names, the brokerage believes that 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.

In fact, the total stock that is currently locked in is ~83 percent, which is valued at R 66,000 crore. Even if one were to assume that only 15 percent of company’s stake will be available for trade immediately post expiry, the total outflows could be ~Rs 12,000 crore, broadly equal to the total IPO size of Rs 11,300 crore.

"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," added the brokerage.

Also Read | Swiggy gets grilled on losing food delivery, quick commerce edge, Ambit Capital says 'sell'

Despite this, JM Financial reiterated its bullish view on the food delivery player. According to the financial services company, 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.

"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, " added the brokerage.

In that context, JM Financial believes that 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 the broking house's opinion.

Swiggy debuted on the bourses on November 13, 2024. The IPO consisted of a fresh issue of Rs 4,499 crore and an offer-for-sale of 17.5 crore by several existing shareholders and promoters.