Zomato- Blinkit deal is finally here

New Delhi: Food aggregator Zomato’s board has FINALLY approved the acquisition of a quick commerce start-up blinkit in an all-stock deal for a total purchase consideration of Rs 4,447 crore. The move comes at a time when Zomato is gearing up for a 10-minute delivery. Blinkit is a quick-commerce marketplace delivering groceries and other essentials to customers. The company manages 400-plus dark stores that stock ~4000 SKUs each, catering to 2.3mn MTUs (15.7mn for Zomato). Blinkit reported 7.9mn orders for May-22, which is nearly 16% of Zomato’s Q4FY22 run-rate. This feat is particularly impressive considering Zomato operates in 1,000 cities versus 15 for Blinkit.

The main synergy for Zomato will be with integration of the delivery fleet to lower delivery costs. Operational excellence and cost leadership is extremely crucial for the combined entity to be a profitable franchise.Blinkit has a higher Average order value (AOV) than Zomato but contribution profit per order is weak due to lower margins/costs related to dark stores. Management hopes for Blinkit to be adjusted EBITDA break-even in less than three years, which we believe is an ambitious guideline. Blinkit has a network of 400+ dark stores, scaled down from 450+ dark stores in January 2022, as some of the dark stores were unviable.

Management has highlighted that the combined entity’s success in quick commerce would be a function of: 1) Blinkit’s relationship with third party brands; 2) Blinkit’s network of dark stores; 3) Zomato’s strong delivery fleet of 316K partners; 4) large combined customer base; 5) integrated membership program; 6) Blinkit’s tech stack for end to end first mile to last mile operations

Edelweiss In its note highlights that acquisition price and dilution are broadly in line with our expectations, but they believe that this acquisition at 21x FY22 P/S is an expensive proposition with Zomato itself trading at 13x FY22 P/S.