Investors want diversification: Swiggy-backer Accel on upcoming IPO amid Zomato surge

Prashanth Prakash, partner at Accel

As Swiggy prepares to list on the bourses, one of the company's early venture capital backers is confident that it would be able to generate investor interest despite a sustained surge of arch-rival Zomato's stock price.

"Public investors are smart. They look at every company for what it is capable of and what it is worth. And also investors want diversification. So everybody doesn't want to bet on just one asset or company in a particular space. I think investors will be discerning," Prashanth Prakash, partner at Accel, said at the Moneycontrol Startup Conclave on August 9.

In April this year, Swiggy received a nod from its shareholders for a $1.2-billion initial public offering (IPO), according to regulatory filings. The Bengaluru-based company plans to raise up to Rs 3,750 crore (around $450 million) through a fresh issue and up to Rs 6,664 crore (around $800 million) as an offer-for-sale (OFS) component.

At the conclave last week, Prakash also indicated that Swiggy still retains its market leadership in some regions — without specifying which. This came a week after Zomato's management said in an earnings call that it has gained market share in the cities of Southern states, a region where initial public offering-bound Swiggy has historically dominated.

“If you look at different parts of the country, different companies dominate. It's not one platform that has dominant market share in every part of the country. And we have seen that those leaderships in different parts of the country don't change so easily. I think there are reasons why there will be value in different platforms,” said Prakash of Accel.

Multiple brokerage firms have estimated that Zomato's market share in India's food delivery sector has risen to around 55 percent, while Swiggy has lost ground. To be sure, in 2020, Swiggy reigned supreme with a 52 percent market share. In the three years since, it has ceded space to Zomato, with Swiggy’s market share falling to 45 percent.

Where Zomato differed in its approach is in placing early bets in non-metro cities, a move that was not considered good for profitability. But, it took that leap knowing that these regions would not yield immediate results.

According to experts, Zomato built its business in a more localised way, approaching each region with a strategy that was unique to that market, be it supply chain, marketing or even restaurant choices.

Meanwhile, Zomato has also raced past Swiggy in terms of profitability. The Gurugram-based company has reported five consecutive quarters of net profits now whereas Swiggy logged an operating loss of over Rs 1,000 crore in the first nine months of FY24, according to reports.

Zomato's net profit jumped 126.5 times to hit Rs 253 crore in the April-June quarter (Q1), compared to the year ago period, even as the food aggregator hiked platform fees charged to consumers and saw an improvement in the operational profitability of its quick commerce arm Blinkit.

Apart from food delivery, its quick commerce arm Blinkit has also become a bright spot for Zomato. The implied value of Blinkit is now larger than that of Zomato’s core business (food delivery), analysts at Goldman Sachs said in a note published on April 25.

Zomato had acquired Blinkit for $568 million in 2022 but since then, on the back of improved performance, the latter’s implied valuation has grown to a staggering $13 billion, according to analysts at Goldman Sachs.