- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
Zomato Blinkit Acquisition
I wrote that Zomato’s valuation would increase post this deal because it is entering a growing market already heated up with deep pocket players like Zepto, #SwiggyInstamart, #BigBasketNow, and #JiomartExpress.
After the Zomato board had approved this deal, I valued this deal and arrived at the following numbers:
𝘿𝙞𝙡𝙪𝙩𝙞𝙤𝙣 𝙩𝙤 𝙕𝙤𝙢𝙖𝙩𝙤 𝙨𝙝𝙖𝙧𝙚𝙨 𝙥𝙤𝙨𝙩-𝙙𝙚𝙖𝙡 = 8%
𝙀𝙣𝙩𝙚𝙧𝙥𝙧𝙞𝙨𝙚 𝙑𝙖𝙡𝙪𝙚 = 4890 𝙘𝙧𝙤𝙧𝙚𝙨
𝙀𝙑/𝙎𝙖𝙡𝙚𝙨 = 20.7
𝙕𝙤𝙢𝙖𝙩𝙤 𝙬𝙞𝙡𝙡 𝙞𝙨𝙨𝙪𝙚 𝙖𝙙𝙙𝙞𝙩𝙞𝙤𝙣𝙖𝙡 62.9 𝙘𝙧𝙤𝙧𝙚 𝙨𝙝𝙖𝙧𝙚𝙨 𝙩𝙤 𝘽𝙡𝙞𝙣𝙠𝙞𝙩 𝙞𝙣𝙫𝙚𝙨𝙩𝙤𝙧𝙨. 𝘽𝙡𝙞𝙣𝙠𝙞𝙩 𝙬𝙞𝙡𝙡 𝙧𝙚𝙩𝙖𝙞𝙣 𝙞𝙩𝙨 𝙞𝙙𝙚𝙣𝙩𝙞𝙩𝙮 𝙥𝙤𝙨𝙩-𝙩𝙧𝙖𝙣𝙨𝙖𝙘𝙩𝙞𝙤𝙣.
Further, I looked at how other players are performing in this business. Few salient observations include:
1) Due to heavy discounts, Zepto is the cheapest (29% cheaper than Blinkit).
2)Swiggy charges a delivery fee while others do not charge a fee.
After interest rate hikes, startups have resorted to cost-cutting due to uncertainty in raising new capital. Due to the crash in startup valuations, 𝗭𝗼𝗺𝗮𝘁𝗼 𝗶𝘀 𝗮𝗰𝗾𝘂𝗶𝗿𝗶𝗻𝗴 𝗕𝗹𝗶𝗻𝗸𝗶𝘁 – 𝗔𝗻 𝘂𝗻𝗶𝗰𝗼𝗿𝗻, 𝗳𝗼𝗿 $𝟱𝟳𝟬 𝗠𝗻 (𝗮𝘁 𝗮 𝟰𝟯% 𝗰𝗵𝗲𝗮𝗽𝗲𝗿 𝗽𝗿𝗶𝗰𝗲).
𝐖𝐡𝐚𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐩𝐚𝐲𝐛𝐚𝐜𝐤 𝐟𝐨𝐫 𝐙𝐨𝐦𝐚𝐭𝐨 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐝𝐞𝐚𝐥?
I looked at the following KPIs:
Avg Delivery fee/Order in food delivery business = Rs. 80
Blinkit’s Monthly orders in May = 7.9 million
Delivery charges = Rs.63.2 crores
Blinkit Average Order Value= 509
Blinkit per Order loss = Rs.136
At every Order, Blinkit loss at contribution level = Rs.89
Therefore, in my view, 𝐆𝐎𝐕 𝐡𝐚𝐬 𝐭𝐨 𝐠𝐫𝐨𝐰 𝐚𝐭 𝟏𝟎𝟎% CAGR for next 5 yrs 𝐚𝐧𝐝 𝐁𝐥𝐢𝐧𝐤𝐢𝐭 𝐧𝐞𝐞𝐝𝐬 𝐭𝐨 𝐫𝐞𝐝𝐮𝐜𝐞 𝐢𝐭𝐬 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝗹𝗼𝘀𝘀/𝐨𝐫𝐝𝐞𝐫 𝗲𝘃𝗲𝗻𝘁𝘂𝗮𝗹𝗹𝘆 𝗺𝗮𝗸𝗶𝗻𝗴 𝗶𝘁 𝗽𝗼𝘀𝗶𝘁𝗶𝘃𝗲 𝐭𝐨 𝐚𝐜𝐡𝐢𝐞𝐯𝐞 𝐛𝐫𝐞𝐚𝐤𝐞𝐯𝐞𝐧.
Due to heavy competition, Blinkit will not pass on the delivery costs to the end-consumer, fearing a reduction in GOV because Swiggy has already announced a $700 million investment in Instamart and Jiomart Express is expanding.
Net, 𝗕𝗹𝗶𝗻𝗸𝗶𝘁 𝗮𝗱𝗱𝘀 𝗮𝗻𝗼𝘁𝗵𝗲𝗿 𝗥𝘀.𝟭,𝟭𝟬𝟬 𝗰𝗿𝗼𝗿𝗲 𝗹𝗼𝘀𝘀 𝘁𝗼 𝗭𝗼𝗺𝗮𝘁𝗼, 𝗳𝘂𝗿𝘁𝗵𝗲𝗿 𝗱𝗲𝗹𝗮𝘆𝗶𝗻𝗴 𝗭𝗼𝗺𝗮𝘁𝗼’𝘀 𝗽𝗮𝘁𝗵 𝘁𝗼 𝗽𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆. At the price of Rs.71, Zomato trades at 6.2x EV/Sales.
𝐓𝐡𝐢𝐬 𝐚𝐜𝐪𝐮𝐢𝐬𝐢𝐭𝐢𝐨𝐧 𝐰𝐢𝐥𝐥 𝐚𝐜𝐜𝐞𝐥𝐞𝐫𝐚𝐭𝐞 𝐙𝐨𝐦𝐚𝐭𝐨’𝐬 𝐠𝐫𝐨𝐰𝐭𝐡 𝐚𝐭 𝐭𝐡𝐞 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐛𝐮𝐫𝐧𝐢𝐧𝐠 𝐜𝐚𝐬𝐡. 𝐓𝐡𝐮𝐬, 𝐈 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐙𝐨𝐦𝐚𝐭𝐨 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫𝐬 𝐧𝐞𝐞𝐝 𝐩𝐚𝐭𝐢𝐞𝐧𝐜𝐞 𝐛𝐞𝐜𝐚𝐮𝐬𝐞 𝐭𝐡𝐞 𝐟𝐢𝐫𝐦 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐢𝐧𝐭𝐞𝐧𝐝 𝐭𝐨 𝐠𝐞𝐧𝐞𝐫𝐚𝐭𝐞 𝐜𝐚𝐬𝐡, 𝐚𝐭 𝐥𝐞𝐚𝐬𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐡𝐨𝐫𝐭 𝐭𝐞𝐫𝐦.