Swiggy In Loss- FY 2022-23: Startups Failing, Investors Do Not Seem To Learn

Swiggy, a Bengaluru-based foods along with grocery delivery company, had an enormous spike in losses during the fiscal year (FY) 2023, according to the annual report provided by Dutch-listed technological investor “Prosus”. Swiggy’s attempts to address problems in the food delivery market are highlighted in the study, including a particular emphasis on reviving consumers, enhancing customer engagement, and reaching profitability.

As reported by investment firm Prosus earlier, losses of food delivery company Swiggy would exceed $500 million by 2022. The Netherlands-based company’s portion of Swiggy losses on trading increased to $180 million in 2021 compared to $100 million. Swiggy’s fiscal year runs from April to March, whereas Prosus accounts is subject to a one-quarter lag.

In the fiscal year that concluded in March, the private equity organization made $299 million in investments. Prosus’ portion of Swiggy’s income reached $297 million, an increase of 40% from the prior year, thanks to an increase in the average value of orders, income from delivery costs, as well as sales of advertisements. The private equity firm was the only stakeholder and had a 32.38% operating ownership stake in Bundl Technologies Pvt., the company that owns the Swiggy brand.

The overall value of the items sold by Swiggy, including delivery fees, increased by 13% to $2.6 billion in 2022 from $2.3 billion. The GMV of Swiggy’s primary food delivery service increased by 26% on a yearly basis, whereas Instamart witnessed a fivefold increase.

Swiggy’s Widening Losses:

According to papers with the Ministry of Corporate Affairs, Swiggy’s loss more than doubled to INR 3,629 crore in the fiscal year that ended March 2022 after reporting INR 1,617-crore loss in the fiscal year prior to that.

The company that specializes in meal delivery recorded earnings of 5,705 crore and costs of 9,574 crore. Operational revenue increased by over two times from the 2,547 crore recorded in FY21. In the fiscal year under review, the business’s total income increased by more than twofold to 6,119.8 crore from 2,675.9 crore, according to the Director’s report that was submitted by the company to the Registrar of Companies.

We continued to focus on growth post-business recovery from COVID, particularly on the expansion of our quick commerce offering, we saw our revenues improve 2.3×in FY22.

– Filing by the company to the RoC stated.

Prosus, the company’s biggest stakeholder with a 33 percent interest, disclosed that their loss share in Swiggy increased to $180 million in FY23 from $100 million in FY22. Investments in Instamart, Swiggy’s quick-commerce division, which peaked during the year, were mostly responsible for this surge. However, Swiggy said that the firm has reached the top of its Instamart investments.

Over the course of FY23, Swiggy lost around $545 million, an increase of over 80% from its losses of about $300 million in FY22. In a similar vein, Prosus said that its revenue share from Swiggy increased by 40% to $297 million in FY23, translating to an estimated $900 million in total revenue for Swiggy for FY23. Swiggy’s efforts to reactivate customers, increase monthly frequency, and improve user conversion were singled out by Prosus as contributing elements to the company’s FY23 results.

Swiggy has focused on user reactivation, monthly frequency growth, and user conversion during the past two reporting periods. According to Prosus’ annual report for FY23, the advantages were reflected in company performance. According to the report, their portion of Swiggy’s trade loss climbed to $180 million (from $100 million in FY22) as a result of investments in Instamart, which surged in the year.

Swiggy’s rising losses happened just after CEO Sriharsha Majety declared that the company’s primary industry, meal delivery, will achieve profitability in March 2023, ignoring ESOP payments. In less than 9 years after its founding, Swiggy has emerged as one of the handful of international food delivery services to become profitable, said Majety in March.

Swiggy’s Revenue and GMV:

Gross Merchandise Value, often known as GMV, refers to the sales that a platform for e-commerce records during a pre-determined time frame.

According to Prosus, Swiggy’s revenue share increased by forty percent to $297 million during FY23. On the basis of this sum, Swiggy’s full-year earnings for FY23 is projected to be in the neighborhood of $900 million. Swiggy’s gross merchandise value (GMV) went from $2.3 billion in FY22 to $2.6 billion in FY23, a small rise of around 13%. A larger restaurant base, now totaling over 272,000 eateries that are enabled on Swiggy’s platform, up from over 197,000 in FY22, was the main factor in the surge in GMV.

Even while Swiggy’s GMV increased slightly, it still behind Zomato, its nearest rival, by a wide margin. Gurugram-based Zomato stated in its reports that its GMV was over $3.2 billion during FY23, up from approximately $2.7 billion in FY22. This suggests that Zomato has a superior market position with regard to of GMV.

While Zomato’s revenues were relatively comparable to Swiggy’s in FY23, the former’s losses were far smaller in the range of $126 million, as opposed to Swiggy’s $545 million. Swiggy’s losses have also increased at a time when Majety stated that the company’s primary operation, delivery of food, was projected to become profitable in March 2023, removing ESOP expenses, and was on track to do so.

While Swiggy’s losses and costs increased, its revenue increased by 2.2 times to INR 5,705 crore in FY22, up from INR 2,547 crore in FY21. In accordance with Entrackr, outsourcing support costs accounted for 24.5% of total corporate spending in FY22, representing a 2.3-fold increase from INR1,031 crore in FY21. Swiggy’s advertising and promotional spending more than quadrupled to Rs 1,848.7 crore in FY22, based on the report.

Swiggy’s spokesman allegedly stated in a statement last month, despite the layoff claims, that there actually have been no job cuts at Swiggy. In October, they completed their performance cycle and issued ratings as well as promotions across all levels. They anticipate exits depending on performance, just like with every cycle.

According to the source, the forthcoming layoffs would have an influence on Swiggy’s rapid commerce delivery business Instamart in order to prevent cash burn. Swiggy, although giving steep discounts, had been losing share of the market against competitor Zomato, according to global investment company Jefferies in November.

According to Jefferies, the gross value of Swiggy’s meal delivery company was $1.3 billion during the January-June timeframe this year, referencing Swiggy investor Prosus’ annual report. Swiggy’s competitor Zomato reported a $1.6 billion gross order volume over the same time period. Swiggy paid a total of approximately $200 million for Dineout, an eating out and restaurant software platform, in May of the previous year.

Swiggy, like its competitor Zomato, is planning an IPO, which might take place this year. Swiggy was already in the midst of planning for an IPO that would raise $800 million to $1 billion in the first quarter of 2023.

Additionally, it was mentioned in a previous article that Swiggy has started recruiting independent directors for its board and intended to present itself as more than just a meal delivery service. Last year, Swiggy hired financial banks JP Morgan as well as ICICI Securities to serve as lead managers, thus beginning the IPO process.

The most significant privately owned food along with grocery delivery company in India, Swiggy, had a 27% decline in scale during FY21, but has recovered in FY22 thanks to a more than two-fold increase in sales. But the expansion came at a price, as Swiggy’s losses exceeded what kept up with the expansion in size.

Swiggy’s main sources of income include the online platform services it offers to its partner merchants (such as food and grocery retailers and delivery partners), advertising services, the selling of food and other traded items, subscriptions, as well as other platform services. Revenue from offering platform services increased by 83.3% during FY22, from INR 1,879 crore to INR 3,444 crore. In contrast to FY21, it did not provide a breakdown of services income in the previous year.

The second-largest source of income during the previous fiscal year was generated by sales of groceries and FMCG items, and revenues from these sales increased by 3.9 times to INR 2,036 crore in FY22 from INR 517 crore in FY21.

The Bowl Company, Goodness Kitchen, Breakfast Express, as well as Homely are just a few of the cloud kitchen brands that Swiggy manages in addition to being an online ordering platform. During FY22, sales related to food from the aforementioned companies were unchanged at INR 88 crore. Significantly, over the previous two fiscal years, the company has pulled back its cloud kitchen business.

Swiggy’s total revenue in FY22 was INR 6,120 crore, including INR 415 crore in additional income that is not related to operations (interest income). On the cost front, outsourced support costs made approximately 24.5% of total costs and increased 2.3 times to INR 2,350 crore in FY22 from INR 1,031 crore in FY21.

Who is to be blame? What needs to be done?

A shocking number of companies in India are incurring serious financial losses, raising questions about the general health and viability of the startup ecosystem, according to a disturbing trend that has been making headlines across the country. Every day, another firm succumbs to insurmountable losses or falls victim to over-valuation frauds, leaving investors and entrepreneurs suffering from the repercussions. Industry experts are now advocating for immediate regulatory action and more oversight of startups to guarantee proper and effective operations.

Startups, long heralded as engines of innovation and economic progress, are now confronted with a slew of problems that threaten their very survival. The general unwillingness to learn from past mistakes is one of the key contributors to this unfortunate predicament. Companies and investors are repeating the same mistakes rather than learning from setbacks and modifying their tactics, resulting in a never-ending cycle of losses.

A fundamental stumbling obstacle for businesses has arisen as a lack of market understanding. Inadequate market research or misreading of market trends has led in products and services that do not resonate with customers. As a result, startups struggle to generate income and become locked in a negative loop of increasing losses.

Weak company strategies that favor quick development and client acquisition above long-term revenue creation exacerbate the situation. Startups frequently fail to develop solid strategy for turning their ideas into lucrative companies, leaving them financially fragile and reliant on ongoing financing.

Cases of over-valuation and mismanagement, which have become all too prevalent, aggravate the situation. Unscrupulous practices, such as fraud and financial mismanagement, have contributed to the demise of countless enterprises. Founders and investors, motivated by short-term rewards and hype, engage in risky activity that jeopardizes their companies’ long-term success.

The absence of effective starting regulation and examination has aggravated the problem. Due to a lack of regulation, unscrupulous persons have been able to exploit loopholes, perpetrate frauds, and participate in unethical behaviors. Comprehensive regulatory procedures and frequent exams are clearly required to filter out fraudulent activity and ensure startups adhere to proper operating standards.

Experts in the sector underline the importance of taking fast action to solve this concerning situation. Building a more open and responsible startup environment requires strengthening the regulatory framework, performing frequent audits and inspections, and enforcing harsher laws. Investor education initiatives should be conducted concurrently to promote safe investment practices and encourage due diligence.

To nurture entrepreneurship in a sustainable way, aspiring entrepreneurs must be provided with support mechanisms such as mentoring programs, access to capital, and company development services. Collaboration and information sharing platforms may help to disseminate best practices and lessons learned, fostering a culture of failure learning and allowing entrepreneurs to make better informed decisions.

Furthermore, financial literacy classes for entrepreneurs may provide them with crucial financial management skills, allowing for better planning and budgeting for their businesses.

While the situation seems dire, striking a careful balance between regulation and encouraging innovation is critical. Excessive rules may impede business, inhibit innovation, and hinder economic progress. As a result, any regulatory measures should be carefully structured to encourage ethical activities while supporting startup growth and development.

As stakeholders grapple with the critical issues confronting the Indian startup ecosystem, it is evident that coordinated actions from the government, investors, and entrepreneurs themselves are required to turn the tide. The startup scene in India can reclaim its vibrancy and pave the road for sustainable growth by learning from failures, embracing ethical methods, and encouraging a culture of creativity and responsibility.