Food and quick commerce giant Swiggy is moving closer to its goal of becoming an Indian-owned and controlled company (IOCC), but international brokerage Jefferies highlighted that the company may see passive outflows worth $400 million following the shift due to subsequent exclusion from MSCI and FTSE indices.
Swiggy’s shareholders this week gave their nod to proposals that will let the company achieve the status, approving a proposal to cap foreign shareholding in the company at 49.5 percent. The company can now approach the Reserve Bank of India to seek approval for a ceiling on its foreign ownership. This will subsequently allow the company to operate its quick-commerce business Instamart under an inventory model.Why can Swiggy see $400 million in outflows after IOCC status?As of early August, Swiggy’s domestic ownership stood at 50.5%, and foreign ownership was 49.5 percent, effectively near the proposed cap. Jefferies explained that for a stock which has a cap on foreign holding, if FPI holding is within 3 percentage points of the maximum permissible limit, the stock comes under the red-flag list. For Swiggy, this threshold would be 46.5 percent. If the FPI limit is breached, the foreign investor shall divest their excess holdings within five trading days from the date of settlement of trades, by selling shares only to domestic investors.Once this resulting dip in foreign ownership is updated with the depositories, benchmarks will likely exclude the stock within 2-3 business days, as per Jefferies. “In such a scenario, Swiggy could see passive outflows of over $400 million from MSCI and FTSE indices, in our view,” it added.IOCC impact on Swiggy’s operationsJefferies in its note highlighted that the move supports Swiggy management’s plan for a 1P (inventory-led) model at Instamart, which could drive 80 bps margin upside. With the crucial approval now in place, the international brokerage now expects the company to move swiftly on the implementation process. This will require notifying the depositories, which will then initiate the necessary changes, a process that may take 2-3 weeks.The international brokerage noted that the company indicated that operational groundwork is underway, enabling a seamless migration once all necessary approvals and implementation steps are completed.Jefferies on Swiggy share priceJefferies has a ‘Buy’ call on Swiggy’s shares with a target price of Rs 435 per share. This implies a staggering upside potential of 59 percent from the stock’s previous closing price of Rs 274 apiece.The shares of the food delivery and quick-commerce giant have fallen over 1 percent in a week and around 30 percent YTD.
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