Swiggy has also set a price band for the IPO, which will open on November 6.
Why did you increase the size of the offering?
Rahul Bothra: One of the reasons we have increased the size of our offering in general is to invest in the back end of our fast trading business. We’ve seen faster growth in the industry and to prepare for greater dark store expansion, one of the reasons we’re expanding our core offering.In September, Blinkit has around 700 dark stores, you have 537-540. How much do you want to add a year or two down the road?
Sriharsha Majety: We are definitely expanding the number of dark stores as well as quickly to keep up with the growth ambitions we have. Even in the first quarter results we published, there was some strong growth in that category and we continue to go after strong growth. But I think the store count will be a consequence of our continued aggressive growth ambitions. But at the same time, there is only a window of three months between deciding to open a dark shop and actually opening it. The key here is to be nimble and keep watching the market and constantly repeat the trail.
When you look at our closest competitors, they have recently done a lot of diversification in their own businesses. Does Swiggy have any such plans? Do you want to incorporate a new segment focused on quick trade and food delivery or will this be your main focus?
Sriharsha Majety: Our mission statement is all about unparalleled convenience for urban consumers. Today, we have three core categories between food delivery and fast trade and let’s talk about home consumption. In addition to this, we are constantly working on new initiatives that could become our business in the future.
If you look at the entire history of Swiggy, we’ve been constantly working on a lot of things and it’s still happening today. Even as we speak, we have a pilot for a new line of business. One that’s getting some new coverage is Rare, a private members’ club built for a slightly smaller audience than Swiggy’s mass premium audience. It can be very useful in the future. We will know only when consumer responses are collected at scale.Do you have a target for GOV and take rates post IPO. How will this IPO change both metrics?
Rahul Bothra: The IPO itself will not change the economics of the business. The business economy is already on a growth trajectory. The food delivery business achieved a contribution margin of 6.4% and a positive EBITDA of 0.8% in Q1 in the announced results and this is a combination of an increase in the take rate.
It has been very successful in monetizing through advertising opportunities on the platform with win-win results for restaurant partners as well as consumers who get access to more restaurants and for restaurants, they get a better funnel. .
I’ll take you back to the pricing section again. Time, of course, is in your hands. Market forces act independently of your control, but your competitors only make money. Has it been one of the reasons for the price share, which has been done now? Is that a consideration or is it just market forces that happen?
Sriharsha Majety: More important, perhaps closer to the heart, is this journey to build a public company. It started two years ago with an incoming independent board of directors and is all about feeling ready for the next phase of life as a public company and most importantly. You can any time the market wants, but you must be prepared for what version you think is ready. We are ready to take on the responsibility of taking on more stakeholders and doing it right.
From your RHP, I understand that you have increased your allocation to fast trade than you had previously planned. Many players who were previously online stores or online trading have also now started moving to instant trading. What is the strategy going to be? Is it better to trade quickly from here?
Sriharsha Majety: I think 10 minutes is not new anymore. It’s been a few years, but consumers are seeing it as the new normal. What isn’t considered the new normal is still the choice offered to consumers on the platform and that’s where we’re constantly seeing the envelope being pushed in terms of what you can get quickly. The last launch we have covered is the pharmacy launch we are doing in partnership with PharmEasy. Now, this is an example of a category that didn’t exist three months ago, but is now a possibility. Can it all be fulfilled? That is the journey ahead of us. Our job is to innovate and find new categories that consumers want when they think about how to do things sustainably.
What is the path to profit? Your company has shown better performance according to RHP, financials as mentioned, losses have reduced, profits have increased, but there have been losses since the beginning. So when do you make a profit?
Rahul Bothra: Again, it’s the sum of the parts. If you look at the food delivery business, which is a more mature business, we are already profitable, the business is generating cash. It is growing at a healthy clip and is expected to continue on that trajectory to achieve steady EBITDA.
The fast trading business has been calibrated in terms of growth and profitability. Our contribution margin profile declined from a loss of 23% in FY23 to 6% in FY24, falling to 3% in the first quarter of FY25. As the overall business has expanded, our throughput per store has increased, the monetization lever has kicked in, the cost levers are now looking where they should be stabilized. All these factors mean that the business is on a sustainable economic trajectory.
Would you say that the cash burn rate that initially went into any company when it was growing and growing, is now starting to decline?
Rahul Bothra: I have seen that. For example, a food delivery business takes X years to turn a profit, but we’ve seen newer businesses turn a significant profit before. So, it’s a factor of the size of the opportunity, as well as the economics of achieving parity and we’ve seen that trajectory across the industry.
Let us talk in cricketing terms. Which category do you see the highest, T20 type of growth and a sector with stable growth like test cricket?
Sriharsha Majety: No, T20 or ODI, there may not be any category of test cricket being played today.
Let us tell you who is your Suryakumar Yadav and who is your Ajinkya Rahane?
Sriharsha Majety: I don’t know. I saw them all. Everyone has a very different trajectory. As I said, although the food delivery business, which is now much longer than say the fast trade category, but it has decades of growth ahead of it. And I’ll tell you why. I think the underlying reason for the food delivery or home delivery business is that the restaurant industry and the restaurant industry is at an incredibly early stage in India.
A country like China vis-a-vis a country like India, may have 30x the number of restaurants in India for the same population. So, as our GDP per capita grows, we should expect the restaurant industry to continue to grow. It has grown at a very healthy clip of 10% plus, the restaurant industry is regulated, and it is not going anywhere. Our job is to build on top of this great rail and continue to do what we can to increase consumption through innovation, affordability, all of this.
In the past month, you’ve got your Scootsy and it’s working for you. Dineout has been a wonderful acquisition for you. Will you be looking for more acquisitions after the IPO? Is it in the cards?
Sriharsha Majety: We have a history of building homes organically, but not because of some dogma about us only doing this or because if you were the one who innovated and pioneered the first version of the category, who would you get? But at the same time, in the case of Dineout, we saw a good time to take advantage of the market because we felt that the offer should be there and there was a company that liked it and we went ahead and got it. It’s hard to predict in advance what you’re going to get. It’s all a situation based on excitement about the market and the company that can help us move forward.
But will you run for it?
Sriharsha Majety: We have shown openness to. We will continue to open.
What are the top three reasons to invest in Swiggy?
Sriharsha Majety: The first reason is simply to see it as a barometer of India’s consumption story. If we look at the next one-two decades, we operate in a very interesting part of the demographic pyramid of India. We offer like the highest X percentage of consumers in India who expand their wallet share with the platform. It’s just a consumption story, a macro story.
I think the number one thing is that we should be excited about Swiggy’s track record of being able to pioneer and innovate and enter the blue ocean category as it has in the past and we hope to continue to do so over the next decade or two.
