Swiggy's $1.3 bn QIP draws interest from top domestic mutual funds and global backers

“The QIP has already drawn nearly 4.5x demand from top mutual funds including Kotak Mahindra, SBI Mutual Fund, ICICI Mutual Fund, HDFC MF, Nippon India Mutual Fund, Axis MF, and Mirae Asset Mutual Fund," a person familiar with the matter said.

“While high quality FIIs have put in bids, the company is expected to give higher weightage to domestic funds," said a second person, adding the allotment could happen in the next two hours.

All three people spoke on the condition of anonymity. Temasek and GIC declined to comment while others did not immediately respond to Mint’s requests for comment.

Temasek was one of the earliest backers in Swiggy's rival Zomato hiking its stake in the latter about three years ago.

BofA Securities believes that Swiggy’s recent fundraise will enable the company to emerge as a clear no.2 player in the quick commerce space. “With the top 2 platforms (Eternal and Swiggy) having a war-chest of $2 billion each, we would expect this to discourage aggressive capital injection in the industry as it could increase risks of a prolonged price-war – especially as new platforms have a ‘me-too’ offering," analysts wrote in a note Wednesday. With Swiggy’s other verticals showing good momentum, BofA Securities expects margins to improve further.

It also anticipates the current competition in the quick commerce industry to taper down given the capital intensive nature of the business and unsustainable discounting on the back of mounting losses. As competition intensifies, the pace of consolidation could be faster, they noted.

“We reiterate our view that quick-com industry will likely consolidate in medium term with the top two platforms having [about] 70-80% of NMV (net merchandise value) share and 80-90% of EBITDA pool given network effects," the analysts noted after upgrading Swiggy’s stock to buy from neutral. Shares of Swiggy closed trading on Wednesday flat at ₹398 each.

Doubling down on quick commerce

Swiggy plans to use the funds raised towards expanding and operating its quick-commerce fulfilment network, including dark stores and warehouses that power Instamart, enhance its fulfillment footprint, and expand its cloud and technology infrastructure.

Instamart, its quick commerce arm which delivers everyday essentials from milk to groceries, saw its revenue double from the year-ago period in the September quarter. But, it added just 40 new dark stores, taking its total count to 1,102 across 128 cities. This is much slower than its larger rival, Eternal, which added 272 stores during the September quarter, taking its dark store count to 1,816, and aims to establish 3,000 stores by March 2027, Mint reported in October.

Although the number of dark stores for Bengaluru-based Swiggy is less than its Gurugram-based rival, it has an upper hand as each of its dark stores clocks 800-1,000 orders per store a day thanks to its megapods, which are about 4,000 + sq ft. These large-sized dark stores facilitate the storage of non-grocery items, which now make up about 26% of the gross order value (GOV) or the total value of all customer orders placed on Swiggy’s platforms before discounts, commissions, and other costs are deducted. By comparison, a typical Blinkit store is about 2,000-3,000 sq ft.

Swiggy's fundraising plans come as India’s instant-commerce sector rapidly expands amid surging demand and intensifying competition. Startups are competing with Amazon and Walmart-backed Flipkart to cover cities with networks of neighborhood warehouses and fleets to quickly deliver everything from groceries to electronics.

The Swiggy QIP comes a little more than a year after Eternal which operates Zomato, raised ₹8,500 crore through a QIP to expand its quick commerce arm, Blinkit, at a time when the sector is witnessing surge in demand. Even unlisted peer Zepto has raised more than a billion dollars in the last 12-18 months as the quick commerce sector sees intensifying competition.

Swiggy explained that the planned fundraise is a strategic move to strengthen its balance sheet and stay nimble amid rising competition from well-capitalized rivals. “Our cash reserves today are very strong," Sriharsha Majety, co-founder and group CEO of Swiggy, said on a call with analysts in October. “The additional capital we plan to raise is more for maintaining flexibility, not out of necessity. We don’t expect to raise further funds after this unless we see exceptional opportunities or industry shifts that warrant it."

Other than quick-commerce, Swiggy’s other arms include food delivery and out-of-home consumption with supply chain and distribution being its only business-to-business vertical. Its consolidated revenue in the second quarter increased by 54.4% to ₹5,561 crore from ₹3,601 crore in the same period last year. Its net loss also widened to ₹1,092 crore in the September quarter from ₹626 crore in the year ago period.