Swiggy shares: Pre-IPO shareholders’ lock-in expiry to weigh on stock performance, says JM

JM Financial in a fresh note warned that shares of Swiggy may turn volatile in the near term on account of market speculation around possible exits by some pre-IPO shareholders, whose lock-in is set to expire on May 12. 

To recall, non-promoter, pre-IPO investors are required to go through a mandatory lock-in of six months post listing of their stock on the exchanges. Accordingly, 83 per cent of Swiggy’s shareholding will be eligible for secondary trade for the very first time once the lock-in for these investors expires on May 12, will shares available for trade from May 13 onwards.

Given Swiggy's recent performance and basis past actions of pre-IPO investors -- mainly PE/VC/Chinese investors across listed Internet names, JM Financial said a sizeable proportion of Swiggy’s stock can get traded in a not-so-distant future post lock-in expiry, despite the fact that the stock is trading well below its IPO price. 

At the prevailing price, the stock is trading 12 per cent below the IPO price of Rs 390.

JM Financial admitted it cannot accurately predict when these Pre-IPO shareholders will exit, or whether they will even exit, but said it is pertinent to note that several of them are already sitting on significant unrealised gains. 

"While a few had partly liquidated their positions pre-IPO as well as during the IPO, we believe at least some investors will be eager to liquidate their holding despite the fact that the stock is trading below its IPO price. So, a sizeable proportion of Swiggy’s shares can get traded in the near term," the brokerage said. 

JM Financial said the total stock that is currently locked in is 83 per cent, which at the prevailing market price is valued at Rs 66,000 crore or $7.7 billion. 

"Even if one were to assume that only 15 per cent of company’s stake will be available for trade immediately post expiry, the total outflows could be Rs 12,000 crore ($1.4 billion), broadly equal to the total IPO size of Rs 11,300 crore (USD 1.3 billion). Long-term investors can use these liquidity events to build a sizeable position in Swiggy as, at CMP, the market seems to accord value to only its food delivery business, whereas Instamart and other businesses are not getting any meaningful value," JM Financial said.