Shares of Swiggy, India's prominent food delivery and quick commerce player, are likely to face significant stock price volatility in the coming weeks as a substantial portion of its shares will become eligible for trading for the first time since its IPO. About 83% of the shares, currently held by pre-IPO investors, will be available for trading after the anchor lock-in period expires on May 12.
A pre-IPO lock-in period restricts investors, which held shares before it went public, from offloading their stake for a set duration after a company goes public in order to prevent potential market disruption caused by insiders or over-dumping of shares.
The total stake that is currently locked in is almost 83%, which at current market price is valued at approximately Rs 660bn, JM Financial said in report. Although the stock has fallen below its issue price, the report highlights that many early investors are sitting on substantial unrealised gains as several venture capital and private equity firms acquired shares at prices significantly lower than current market levels.
"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," JM Financial noted.
FDIs make up over 77% of the locked-in value amounting to Rs 509bn, out of which Prosus and Softbank has the highest individual share of Rs 202bn and Rs 60bn, respectively, according to the JM Financial report.
Furthermore, JM Financial’s calculations suggest that nearly Rs 120bn could rush out if just 15% of company shares hit the market after lock-up expiration. The amount is nearly 6% more than the company’s total IPO size. Drawing parallels, JM Financial highlighted that rival Eternal saw its share price drop 23% after the expiry of lock-in period, while Nykaa went through a 13% decline.
Shares of Swiggy made their debut on the bourses on November, last year, and currently trade 12% lower than the issue price of Rs 390 and over 18% lower than its NSE listing price. The stock touched its all-time high Rs 617.30 on December 23, last year, following positive comments from many brokerage houses.
However, not everything went bad for the stock, as Swiggy managed to enter the Nifty Next 50 index, in the latest reshuffle, which came into effect on March 28.
After a rollercoaster journey thus far, shares of Swiggy might be poised to witness another wave of high volatility in the coming weeks. What this means is that the stock may continue to see downward pressure even though it already sits near its historic lows, touched in April.
Swiggy shares hit its record low price of Rs 306.95, on the NSE on April 7. Swiggy shares dived below its IPO price in February after it reported that its losses had widened during the December quarter.
However, even with these near-term pressures, JM Financial held on to a ‘buy’ rating on the stock with a target price of Rs 500. “Long-term investors should view any significant price correction as an opportunity to build positions," the brokerage house advised. The market has likely not valued the company’s Instamart business meaningfully, JM Financial said. It further believes Instamart “deserves decent valuations even though the path to break-even may be a bit stretched at the moment”.
As for the company’s Q4 earnings, its food delivery segment is expected to post a 1.7% sequential decline in gross order value, while adjusted EBITDA margin as a percentage of GOV is expected to expand 57 bps sequentially, the brokerage house predicted.
Its quick commerce business, on the other hand, is expected to post a 25% sequential GOV growth. Overall, Swiggy will likely post a net loss of Rs 9.27bn, higher than Rs 8.03bn loss it incurred in the December quarter, according to the brokerage’s report.
