Swiggy IPO Enriches Merchant Bankers With Rs 275 Crore Fees For A Timely Issue; Comparison With Peers?

The highly anticipated IPO of Swiggy not only stirred excitement in the stock market but also significantly benefited its merchant bankers, who earned Rs 275 crore in fees from the successful offering. As per Swiggy's red herring prospectus (RHP), the IPO, which raised Rs 11,327 crore and was subscribed nearly 3.6 times, marked the second-highest fee payout by a digital giant, surpassed only by Paytm, which paid Rs 324 crore to its bankers for its Rs 18,300 crore IPO in 2021.

Swiggy allocated 3.11% of its total IPO size, amounting to Rs 352.4 crore, towards the entire cost of the offer. This includes not just the fees for merchant bankers but also other listing costs, such as SEBI charges, commissions, stock exchange processing fees, legal fees, printing and stationery expenses, and marketing. Swiggy's allocation of 3.11% towards IPO-related costs was notably higher than Paytm, which paid 2.2% of its IPO size (Rs 411.5 crore) in total expenses.

The group of merchant bankers involved in Swiggy's IPO includes prominent names such as Kotak Mahindra Capital Company, Citigroup Global Markets India, Jefferies India, Avendus Capital, JP Morgan India, BofA Securities India, and ICICI Securities. The fees paid to these financial intermediaries represented nearly 78% of Swiggy's total IPO expenses, amounting to 2.43% of the offering size.

Comparison with Other Digital IPOs
In the digital sector, Swiggy joins a list of tech majors that have paid substantial fees to merchant bankers in recent years. Zomato's IPO in 2021 saw merchant banker fees amounting to Rs 229.14 crore, while Policybazaar and Nykaa paid Rs 168.45 crore and Rs 148.35 crore, respectively. Ola Electric Mobility, which also debuted in recent years, paid Rs 145.04 crore, while Delhivery disbursed Rs 104.70 crore for similar services.

Other digital firms, such as First Cry, Go Digit, Yatra Online, Ease My Trip, Ixigo, and Unicommerce eSolutions, have also entered the bourses, albeit with lower merchant banker fees, each amounting to less than Rs 100 crore.

2024 has been particularly profitable for merchant bankers, with the IPO market experiencing record-breaking activity. Over Rs 1 lakh crore has already been raised, with nearly 75 companies entering the public markets.

Notably, while Swiggy's Rs 275 crore fee payout is substantial, it is still far from Hyundai Motor India's record-breaking Rs 493 crore fees, attributed to the massive scale of Hyundai's Rs 27,855 crore IPO. Despite the higher amount paid by Hyundai, the auto giant's total issue expense was 2.24% of its IPO size, lower than Swiggy's expense ratio of 3.11%.

Startups and Higher IPO Expense Ratios
Historically, digital and startup IPOs tend to incur higher costs as a percentage of their IPO size, partly due to the additional marketing and listing-related expenses often required to attract investors in a crowded market. Swiggy's expense rate is notably lower than that of some other digital firms like Nykaa, Ola, and Ease My Trip, whose IPO expense ratios ranged from 4% to as high as 11%. These expenses highlight the distinctive needs of tech-driven companies, which often depend heavily on branding, marketing, and investor relations to secure their place in the competitive public markets.