Swiggy’s High Valuation Big Concern
Ongoing losses pose challenge to long-term sustainability: Angel One
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Consistently incurred net losses and negative cash flows since its establishment in 2014, raising concerns about its path to profitability. Revenue growth may also be at risk due to fierce competition and high operational costs, which could impact margins, said Angel One, a leading online brokerage
New Delhi: Swiggy’s Rs11,327-crore initial public offering (IPO) faces several risks and challenges that potential investors should consider, leading online brokerage Angel One said, adding that the company’s high valuation, coupled with its ongoing losses, raises concerns about its long-term sustainability.
According to a blog by the online trading platform, the food delivery platform has “consistently incurred net losses and negative cash flows since its establishment in 2014, raising concerns about its path to profitability. Revenue growth may also be at risk due to fierce competition and high operational costs, which could impact margins”.
The Zomato rival is set to launch its highly-awaited IPO from November 6 to November 8. As the company prepares to go public, investors are keenly eyeing its financial performance, strengths and weaknesses to estimate its potential.
According to the Angel One blog, in FY2024, Swiggy spent 16.46 per cent of its revenue on advertising, a substantial expense that may strain profitability if not managed efficiently. Additionally, Swiggy’s reliance on a large workforce of 4,57,249 delivery partners brings risks related to retention; difficulties in maintaining this workforce could disrupt service efficiency, it noted.
“Strikes and disputes among delivery partners further pose a threat, potentially affecting continuity of service and increasing operational costs. Managing 557 active dark stores is another critical challenge, as inefficiencies could lead to higher operating expenses, impacting Swiggy’s overall financial performance,” the note read.
These factors collectively underscore the operational and financial challenges Swiggy may face post-IPO, Angel One noted, advising that “investors must carefully weigh the risks and rewards before investing.”
“The company’s high valuation, coupled with its ongoing losses, raises concerns about its long-term sustainability. Ultimately, the success of Swiggy’s IPO will depend on various factors, including its ability to sustain growth, improve profitability, and navigate the competitive landscape,” said the online brokerage.
