Zomato revealed that it had reached an agreement to buy Blink Commerce Pvt Ltd. (formerly known as Grofers)
As part of its goal to invest in rapid commerce businesses, online food delivery platform Zomato Ltd recently announced that it has agreed to buy Blink Commerce Pvt Ltd (previously known as Grofers), where it currently owns an 8–9 percent stake, for $4,447 crore in a share swap arrangement. At an allocation price of 70.76 per share, Zomato will issue up to 629 million shares as part of the agreement, representing an ownership stake of 6.88 percent on a fully diluted basis. “Blinkit raises Zomato’s TAM and strengthens the viability of the company. Both apps will continue to be independent, and Zomato will look for methods to make the most of its current user base. Quick commerce and peak food delivery hours complement each other, which should increase the efficiency of the delivery fleet “wrote Jefferies in a note.
The stock of Zomato has a Buy rating from the international brokerage and a $100 target price. Although it is expanding quickly, quick commerce is still in its infancy and Blinkit has only been active in this market for five months. In contrast to food technology, the market is competitive and take rates are low, but management anticipates improved medium-term profitability.” For an additional $8 million, Zomato purchased HOTPL, a provider of warehousing and related services, from Blinkit. However, it would not buy the B2B trading company because that no longer complements its strategic goals.
With a long growth runway and a clear road to profitability, another brokerage, Edelweiss, has maintained an optimistic outlook on the core business. It still has a “Buy” rating with an 80 target price based on DCF.
For Zomato, the acquisition of Blinkit is essential in order to realise cost-saving delivery synergies. The management of Zomato has set an upper limit of $400 million for investments in fast-moving consumer goods over the next two years (CY22, CY23E). Any departure from this would pose a serious threat to our theory. We anticipate Zomato will be able to save 5–10% on delivery costs, according to a note from Edelweiss.
Analysts at Edelweiss remain dubious, despite management’s “informed assumption” that Blinkit will achieve break-even at adjusted EBITDA level during the next three years.
The board of food delivery juggernaut Zomato approved the purchase of fast grocery startup Blinkit, formerly known as Grofers, for Rs 4,447 crore in an all-stock transaction on Friday. Nevertheless, the sale value is around 40% less than Blinkit’s $1 billion estimate from a year ago, when it became a unicorn after receiving $120 million from Zomato and Tiger Global. By August, the deal is anticipated to be finalised. We are putting out a proposal to buy Blinkit, an Indian rapid commerce company where we made our initial investment in August of last year. As our current food business progressively grows towards profitability, this entry into the next large sector is timely, according to Deepinder Goyal, founder and CEO of Zomato.
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