Zomato’s quick commerce arm Blinkit has surpassed its food delivery business in terms of implied value for the first time, according to Goldman Sachs. At Rs 119 per share or about $13 billion in equity value, Blinkit accounts for a higher proportion of Zomato’s sum-of-the-parts valuation than the food delivery business at Rs 98 per share.
“We believe the market is still under-appreciating Zomato’s growth and profit potential in the online grocery segment,” analysts Manish Adukia, Harshita Wadher and Anisha Narayan wrote. Shares of the company closed at Rs 188.1 apiece on the NSE on Friday.
The firm forecasts Blinkit’s gross order value will rise at a compounded annual growth rate (CAGR) of 53% between FY24-FY27, driving Zomato’s overall adjusted revenue CAGR of 32%, while the gross order value in its food delivery business is expected to have a subdued CAGR of 20% due to limited near-term visibility.
Goldman believes that for a quick commerce business model to work, both from a revenue and profitability standpoint, it needs high population density urban centres, a large unorganized and inefficient supply chain and low rider cost to average order value (AOV) ratio.
The brokerage’s analysis showed that the price of a basket of select FMCG products is 10-15% cheaper on Blinkit, and other quick commerce platforms, than its maximum retail price. This is due to the absence of intermediaries in the online or organized channels and the pricing advantage they get from manufacturers, thanks to its scale.
Apart from the pricing advantage, quick commerce platforms in India have a better assortment compared to unorganized retail. Typically, kirana stores have 1,500-2,000 SKUs, while quick commerce platforms have 6,000-7,000 SKUs, including non-grocery categories. Moreover, at less than 20 minutes, delivery time is comparable to or better than the time taken to purchase the same basket at kirana stores, while avoiding the time and cost of commute.
The brokerage estimates that quick commerce platforms already make up about half of the $11 billion online grocery industry in FY24 or about $5 billion in gross order value including BigBasket’s BBnow. Within this, Blinkit likely has a share of 14%. “We believe the quick commerce segment can continue taking share from slotted delivery, and reach about 70% share of India’s online grocery in 2-3 years, a combination of good balance between pricing and delivery times,” the analysts said.
The brokerage expects Blinkit to breakeven on adjusted EBITDA by the June quarter, with a 5.8% EBITDA margin by FY30, which is higher than its 5.3% margin forecast for the food delivery business. This will be driven by higher take rates from better gross margin, higher advertisement income, and handling fees and fixed cost operating leverage.
