Zomato news update:
Goldman Sachs reports that Zomato‘s quick commerce arm, Blinkit, has now exceeded the implied value of its food delivery business for the first time. With Blinkit valued at Rs 119 per share, equivalent to around $13 billion in equity, it constitutes a larger portion of Zomato’s overall valuation than the food delivery segment, which is valued at Rs 98 per share.
Manish Adukia, Harshita Wadher, and Anisha Narayan, analysts at Goldman Sachs, emphasized, “We believe the market is still not fully recognizing Zomato’s potential for growth and profitability in the online grocery sector.” Zomato’s shares closed at Rs 188.1 each on the NSE last Friday.
The company forecasts that Blinkit‘s gross order value will grow at a compounded annual growth rate (CAGR) of 53% between FY24 and FY27, contributing to Zomato’s overall adjusted revenue CAGR of 32%. In contrast, the food delivery business is expected to see a more modest CAGR of 20% due to limited visibility in the near term.
The brokerage’s analysis reveals that a selection of FMCG products on Blinkit and other quick commerce platforms is priced 10-15% lower than their maximum retail price. This price advantage stems from the absence of intermediaries in online or organized channels, allowing for advantageous pricing negotiated directly with manufacturers, facilitated by the platforms’ scale.
In addition to the pricing benefit, quick commerce platforms in India offer a superior assortment compared to unorganized retail. While kirana stores typically carry 1,500-2,000 SKUs, quick commerce platforms offer 6,000-7,000 SKUs, spanning beyond groceries. Furthermore, with delivery times of less than 20 minutes, quick commerce platforms rival or surpass the time required for purchasing the same basket of goods at kirana stores, eliminating the need for travel time and expenses.
The brokerage estimates that quick commerce platforms already command approximately half of the $11 billion online grocery market in FY24, representing about $5 billion in gross order value, including BigBasket’s BBnow. Among these, Blinkit is estimated to hold a 14% share. The analysts anticipate that the quick commerce segment will continue to gain market share from scheduled delivery services, potentially reaching a 70% share of India’s online grocery market within 2-3 years, driven by a favorable balance between pricing competitiveness and delivery efficiency.
The brokerage foresees Blinkit achieving breakeven on adjusted EBITDA by the June quarter, with a projected 5.8% EBITDA margin by FY30. This margin is higher than the forecasted 5.3% margin for the food delivery business. Factors driving this improvement include enhanced take rates from improved gross margins, increased advertising revenue, handling fees, and leverage from fixed costs.
