India's Zomato buys PE-backed Blinkit for $567m

The all-stock deal will see Blinkit shareholders receive 628.5m shares in Zomato at INR 70.76 apiece, according to a filing. Separately, Zomato is also buying Blinkit’s warehousing and ancillary services business for up to INR 607m.

The three largest external investors in Blinkit – SoftBank Vision Fund 1, Tiger Global Management, and Sequoia Capital India – will receive positions valued at INR 20.3bn, INR 8.7bn, and INR 3.2bn, respectively. Other investors mentioned in the filing include Yuri Milner-controlled Apollete Asia, KTB Ventures, and Bennet Coleman & Co.

The company received nearly USD 700m across multiple funding rounds between 2014 and 2021. Sequoia was the earliest institutional investor. Last year, Zomato paid USD 69.8m for a 9.3% stake, valuing Blinkit at just over USD 1bn.

Founded in 2013, Blinkit initially pursued a hyperlocal delivery model but struggled to make it work because of high operating costs and small order sizes. In 2016, the company acquired warehouse space and repositioned itself as a source for groceries and other daily goods. A Vision Fund-led Series F round in 2019 – at a premium to the 2015 valuation of USD 400m – was seen as validation of the pivot.

Zomato, which also received substantial PE funding ahead of an INR 93.7bn domestic IPO last year, said that expansion from food delivery into quick commerce represented a natural extension.

“How is it a natural extension? Because it is also a hyperlocal business, just like food delivery. And, because it also caters to a need for quick delivery of products for our customers. Quick commerce will help us increase the customer wallet share spent on our platform and also drive higher frequency and engagement from our customers,” said founder and CEO Deepinder Goyal.

CFO Akshant Goyal added that peak demand times for food delivery are not the same as quick commerce, which should increase our hyperlocal delivery fleet utilisation and reduce delivery costs.

Zomato noted in a letter to shareholders that Blinkit completed its transition to quick commerce in January and has since made significant progress on all relevant metrics.

In May, the company – which guarantees delivery within 15 minutes – fulfilled 7.9m orders with a gross order value (GOV) of INR 4bn, up from 5.1m orders and INR 2.9bn in GOV in January. Over the same period, the number of monthly transacting customers rose from 1.5m to 2.3m, revenue increased from INR 221m to INR 580m and adjusted negative EBTIDA halved to INR 1bn.

Losses narrowed due to reduced operating leverage and improved execution. Blinkit’s dark store network fell from 450 outlets to 400 as unviable locations were shuttered, while increased commissions and customer delivery charges pushed up average revenue per order. Zomato believes the company could break even in terms of adjusted EBITDA within five years.

Zomato generated INR 55.4bn in revenue – mostly from food delivery – for the 12 months ended March 2022, up from INR 26.5bn a year earlier. Adjusted negative EBITDA widened from INR 3.3bn to INR 9.7bn, while the net loss jumped from INR 8.9bn to INR 10.9bn. The company’s stock closed at INR 65.85 on June 27, a 13.3% discount to the IPO price.

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