Swiggy's shares surge over 9% on India market debut following a successful IPO, backed by SoftBank.

• The shares of Swiggy, an Indian food delivery giant, experienced a rise of over 9% during their initial public offering.
• The IPO of the company raised $1.34 billion on Monday.

On Wednesday, Swiggy's shares surged over 9% during its trading debut, following a successful IPO that was the second-largest in India this year.

The company, backed by SoftBank, raised $1.34 billion in its IPO that closed Monday, pricing its shares at 390 rupees apiece. The IPO was reportedly oversubscribed more than three times, according to Indian business outlet Mint.

Hyundai Motor India's $3.3 billion IPO in October was followed closely by a listing.

According to Mint, the shares allocated to qualified institutional buyers were subscribed more than six times, while the portion given to retail investors was 114% subscribed.

The IPO included both the sale of existing shares, valued at 68.28 billion rupees, and a new issue of shares, worth 44.99 billion rupees.

The IPO was led by Kotak Mahindra Capital, J.P. Morgan India, and Citigroup Global Markets India as the lead bookrunners.

Scootsy will receive 43.59 billion rupees from Swiggy's fresh share issue proceeds to pay off its debts and invest further in the subsidiary.

Proceeds from the sale could be used for various purposes, including unidentified acquisitions and general corporate purposes.

Profitability concerns

Before the stock began trading, Macquarie Equity Research stated that the company had a "strong potential growth runway and improving margin," but a "long and winding road to profitability."

The "quick commerce" industry in India has experienced a rapid increase in adoption over the past 1-2 years.

Instamart, Swiggy's delivery arm, has an "exponential latent growth runway" due to the small size of the sector, which is only 1% of India's overall grocery retail landscape, according to a research firm.

Instamart's profitability was questioned by Macquarie, who pointed out challenges in improving the unit economics of the business.

If Instamart expands beyond India's eight major cities, it may face challenges such as a lower average order value and inflationary pressures resulting from regulatory actions, including a proposed welfare scheme for gig workers.

Despite Swiggy not being as profitable as Zomato due to a smaller base and higher branding and employee costs, Macquarie remained optimistic that Swiggy could catch up with Zomato in the food delivery segment.