Huge cash pile from ‘Indian Mr Delivery’ might not be enough for Naspers

BENGALURU – India’s Silicon Valley – has been quite the wealth creator for South Africans … especially those who can swing a cricket bat. Big-hitter AB de Villiers memorably earned 110 billion rupees (more than $1 million) in each of his last four seasons at the city’s Indian Premier League (IPL) team, the Royal Challengers Bangalore.   

This week, Naspers (and its international half-bro Prosus) pocketed considerably more, not from the IPL though, but from an IPO.   

Bengaluru-based Swiggy, the food and grocery delivery business it first invested in back in 2017, debuted on India’s National and Bombay stock exchanges on Wednesday at a valuation of $11.3 billion.  

A bit like Sellotape or Kreepy Krauly or Uber in South Africa, Swiggy in India has become more than a name; it’s a term denoting a more general product or service. In Kannada, Bengaluru’s most widely spoken language, “suggi” – the word on which Swiggy plays – means “harvest”. And since its founding a decade ago, some 110 million people in the world’s most populous nation have “swiggied” food or groceries using the app. So it’s fitting that Prosus used this week’s listing as an opportunity to harvest some value, selling its stake down to slightly less than 25%, netting cash of $500 million in the process.  

This, said chief investment officer Ervin Tu, was emblematic of a fresh management approach. Tu and newly minted CEO Fabricio Bloisi want to “highlight and create value” at most of the group’s sprawling portfolio of technology-related investments. That’s investor relations-speak for: mistakes were made in recent years and we are going to be the ones to fix ’em.  

The Buying Dutchman  

It’s a not-so-subtle reference to Bloisi’s predecessor as full-time CEO, Bob van Dijk, whose acquisitive streak should have earned him the nickname The Buying Dutchman.  

During Van Dijk’s tenure, Naspers listed Prosus in Amsterdam to become the Rorschach image it is today. The new entity then piled deeper into food delivery, education technology, online classifieds and fintech, neatly organising the business into four “verticals” (on slide-decks at least).  

Whether the plan was to list each of the pillars separately as champions in their field, or to spin out individual winners such as Swiggy, the end goal was clearly to crystallise value. Remember, Naspers (and lately Prosus) has for years had to deal with the “problem” of Tencent, its Chinese investment, overshadowing and outperforming everything else it does. This one success created so much value that a discount (often larger than 40%) developed between the value of Naspers and its stake in Tencent. As a result, everything else in the Naspers/Prosus portfolio looked worthless – in fact, the markets ascribed a negative value to its other assets. Investors wanted Naspers only for its Tencent exposure.  

So, building scale in each of the “verticals” is how Van Dijk and his team got ever deeper into India and ended up as Swiggy’s largest shareholder. When Naspers first took a punt on the business, it wasn’t a big deal. The Indian food delivery start-up got only two lines of airtime in the 2017 annual report. After all, Naspers only paid $60 million for its 15% stake. That same year, Naspers forked out seven times as much for 10% of Delivery Hero, another meal-deal on wheels based in Germany. And by selling East European e-tailer Allegro, the company raked in 50 times what it spent on Swiggy.  

Even South Africa, the hinterland of Naspers’s capital allocation, got more than Swiggy in 2017: that was the year it took control of Takealot for a cool R1 billion.  

In the half-decade that followed, however, Naspers and Prosus doubled down, participating in eight Swiggy funding rounds. They pumped in a total of $1,3 billion in the business, to bring their stake to about 30%.  

A matter of timing  

This week’s listing, which valued the Prosus stake at $3,4 billion, was a while in the making.  

“That it happened during Fabricio and Ervin’s era means that they will get the credit for it, but in reality, it was always on the cards. It was merely a matter of timing,” says Argon Asset Management equity analyst Ian Brink.  

But there may be some disappointment with Swiggy’s listing price, which is some way off the $15 billion that the company, according to Reuters’ sources, was eyeing.  

Zomato, Swiggy’s biggest rival, listed three years ago and now has a market cap of nearly $27 billion, for example. Timing an IPO to perfection is always tough.  

“Bear in mind that food delivery companies’ valuations have come down considerably since 2021,” says Aeon Investment Management chief investment officer Asief Mohamed.  

And Swiggy is in a highly competitive market. As per its prospectus, retaining delivery partners, holding on to and attracting new restaurants to the platform, and growing its user base – the people actually ordering the food – is critical. This is where the fight with the Zomato gets tough. Better deals for drivers, restaurants and consumers mean an epic balancing act. Paying drivers more eats into the bottom line; keeping shoppers loyal with meal deals does too.  

In food delivery, Zomato has a market share of 58% and Swiggy some 35%, according to Brink.  

But it’s not all about takeaways. Swiggy has also bet heavily on “quick commerce” – basically grocery delivery within 10 minutes. In densely populated cities such as Bengaluru, Delhi, Mumbai and Kolkata this is possible with hundreds of “dark stores” – shops that are not open to the public, but only to delivery drivers picking up orders. Here Zomato has about a 40% market share and Swiggy 28%. The segment is even more heavily contested than food delivery, and some serious competitors such as Amazon and Walmart’s Flipkart are lurking.  

“Swiggy’s food delivery business is profitable but quick commerce, which is still some way off profitability, drags the group into a loss-making position and it seems like it could take a few more years to break even as a whole,” says Brink.  

No wonder Swiggy has this sobering line in its prospectus: “We have incurred net losses in each year since incorporation and have negative cash flows from operations.”  

The company plans to change that in the coming years. Prosus, which still holds slightly less than 25% of Swiggy, clearly hopes it will too.   

“IPO is not the end,” said Tu in this week’s media call. Just look at the growth that followed the listings of giants like Google, Amazon and Facebook.  

Amazon, for one, famously made losses for years. And then richly rewarded shareholders who hung on for the ride. Will Swiggy investors be as patient, or will they demand the same delivery speeds as the millions of customers who “swiggy” hot meals in minutes? 

♦ VWB ♦

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