Blinkit more valuable than Zomato's food delivery business: Goldman Sachs

Initially viewed as a daring rescue mission, Zomato's acquisition of Blinkit in 2022 rattled investors, causing a 20 per cent dip in Zomato's share prices

Don't want to miss the best from Business Standard?

In a notable turn of events, Blinkit, the once-troubled quick commerce startup acquired by Zomato in a 2022 fire sale, now boasts an implied value surpassing that of Zomato's food delivery business, according to analysts at Goldman Sachs.

In a note released on Thursday, the financial experts underscored the remarkable ascent of Blinkit from a perceived liability to Zomato's flagship division.

Initially viewed as a daring rescue mission, Zomato's acquisition of Blinkit (formerly Grofers) in 2022 rattled investors, causing a 20 per cent dip in Zomato's share prices. Undeterred, Zomato persisted with its vision, and today, it seems their perseverance has paid off.

The acquisition, made at $568 million in 2022, has seen Blinkit's implied valuation soar to an impressive $13 billion, riding on the back of commendable performance improvements, as noted by Goldman Sachs analysts. This represents a staggering sixfold increase in valuation on a Year-on-Year (YoY) basis.

"We note that Blinkit's implied valuation in our Zomato's sum of the parts [SOTP] is [close to] $13 billion now, versus $2 billion in March 2023, with per share implied value of Rs 119 higher than food delivery, at Rs 98, for the first time," the note said.  

The valuation methodology employed, known as the sum of the parts (SOTP), is used to calculate the valuation of a company by assessing the value of each of its business segments (or subsidiaries) separately and then adding them up to get the total value of the firm.

For Zomato, which currently boasts a market capitalisation of approximately $20 billion, Blinkit stands as the largest segment, accounting for a substantial $13 billion total market capitalisation. Other divisions, such as Hyperpure and Dining Out, contribute to the remainder.

Goldman Sachs' reassessment, elevating Blinkit's valuation from an earlier estimate of $8 billion, primarily stems from heightened gross order value (GOV) projections. The GOV for Blinkit is now tracking around 50 per cent higher than estimates from a year prior, signalling a robust upward trajectory.

Goldman Sachs also anticipates a sustained upward trend in GOV, supported by favourable economics and an evolving industry structure within the quick commerce sector. 

Quick commerce platforms, currently operational in fewer than 30 cities, hold the potential to expand to 40-50 cities over time, representing a substantial market opportunity. 

According to Goldman Sachs' analysis, these cities represent a combined grocery and non-grocery total addressable market (TAM) of approximately $150 billion as of CY23. Notably, the online grocery industry is estimated to be around $11 billion as of FY24, with quick commerce companies poised to capture around 50 per cent of this market, presenting a $5 billion opportunity in GOV.

"We believe the quick commerce segment can continue taking share from slotted delivery, and reach (around) 70 percent share of India's online grocery in 2-3 years, a combination of good balance between pricing and delivery times," the note added.