Shivaji Mohinta, Bhubaneswar, 15 January 2025
Introduction
The year 2024 witnessed a flurry of Initial Public Offerings (IPOs) in India, totalling over ₹1 lakh crore. Investor interest was immense, and many IPOs were oversubscribed. As an enthusiastic investor, I couldn’t resist joining the action and applied for shares in Swiggy’s IPO on November 6th through my online Demat account. Here’s a detailed account of the IPO process and some interesting insights I gathered along the way.
The IPO Basics and My Experience
Swiggy’s IPO opened for bidding on November 6th and closed on November 8th. During these three crucial days, investors could apply for shares. Full-page advertisements, called IPO prospectus, were published in several newspapers, detailing essential information about the company and inviting the public to invest. One line in the prospectus caught my attention: “Our Company does not have any identifiable promoter.” This statement means that Swiggy is professionally managed, with a Managing Director or CEO reporting to a Board of Directors, and no single individual or group holding more than 25% of shares. Several blue-chip companies like HDFC, ITC, L&T, and ICICI also have zero promoter holdings.
Understanding the Offer and Bidding Process
Swiggy’s IPO size was approx. ₹11,000 crore, comprising an Offer for Sale (OFS) of ₹6,000 crore by existing shareholders and a Fresh Issue of ₹4,500 crore. A total of 16 crore shares were available, but the IPO received bids for 57.53 crore shares, translating to an oversubscription of 3.59 times.
The price band for the shares was set between ₹371 and ₹390 through a process known as Book Building. Without active buying and selling before the public listing, the initial price is decided by financial advisors and merchant bankers based on Investor interest, market mood & conditions. For Swiggy, few of the Book Running Lead Managers (BRLMs) were financial institutions like Kotak Mahindra, Jefferies India, and ICICI Securities. Investors can then bid within this price band. As a Retail Individual Investor (RII), I bid for 152 shares (Lot Size of 38 shares each) at ₹390 per share, totalling ₹59,280. RIIs can only invest up to ₹2 lakh in an IPO, and 10-35% of shares are typically reserved for them. Other types of investors include Qualified Institutional Buyers (QIBs) and High Net worth Individuals (HNIs). QIBs, which includes financial institutions and mutual funds with investment upward of 10cr, often have 50-75% of shares reserved, depending on the company’s financial performance. In Swiggy’s case, QIB quota was 75% as the company did not make any profits in the past 1 year. HNIs/NIIs can invest more than ₹2 lakh, with 15% of shares usually reserved for this group.
Big Gains for Early Investors
Swiggy’s IPO disclosures revealed some fascinating insights. Early venture capital investors like Accel India and Elevation Capital made astronomical profits. They had acquired shares at a Weighted Average Cost of Acquisition (WACA) of just ₹11.17 and ₹11.44 per share, respectively. For instance, Elevation Capital, offloaded their shares for Rs 1600cr which is a multiple of 34X at the issue price of Rs 390/-vs the WACA of Rs 11.44 per share.
Allotment and Listing
The shares were allotted on November 11th at the Issue Price of ₹390 and listed on the NSE/BSE on November 13th at a Listing Price of ₹421. The final Issue Price is determined based on investor interest during the bidding period. Although, the IPO was oversubscribed, I received the full allotment. In oversubscription scenarios, allotments are made through a computerized lottery system.
The Importance of the Red-Herring Prospectus
For potential investors, it’s crucial to understand a company’s business model, vision, financial status, and risk factors before investing. The Red-Herring Prospectus (RHP) serves this purpose and can be accessed through a QR code in IPO advertisements. Swiggy’s RHP highlighted key risks, such as losses incurred since inception, fierce competition with rivals like Zomato, and challenges in efficiently managing delivery partners.
What Is ASBA?
Application Supported by Blocked Amount (ASBA) is a SEBI-implemented method that ensures investors’ money is only blocked in their bank accounts and not debited until shares are allotted. This provides greater security and transparency.
A Historical IPO Success Story: Microsoft
Here’s an interesting IPO fact. Microsoft went public on March 13, 1986. Before its IPO, Microsoft had an Earnings Per Share (EPS) of $1.10, and similar software companies had a Price-to-Earnings (PE) ratio of 15. Based on this, Microsoft estimated an initial price of $16.50 per share. However, Bill Gates, after gauging strong investor interest, set the price at $21 per share. It was an immediate success, with shares trading at $27.75 on the first day and closing at $35.50. This is a substantial Listing Gain.
Microsoft has split its shares nine times since 1986. If you had bought one share at the IPO, you would now have 288 shares. With today’s share price of around $415, that original share would now be worth $119,520— over ₹1 crore, excluding dividends (taxation rules would apply).