As widely speculated, Zomato finally acquires Blinkit for Rs 4,447 crore in an all stock deal.

Quick commerce is a buzzword now-a-days and Zomato has been at the forefront of it.

It has provided significant support to Blinkit (erstwhile Grofers) over the last few months.

  • In November 2021, invested an equity of $100 mn, valuing Blinkit at > $1 bn; and
  • In March 2022, committed debt of $150 mn to support Blinkit’s operations (aka fund losses)

Given Zomato’s signifiant support to Blinkit and also struggle in it’s own operations, it was widely speculated that Zomato will soon buy Blinkit – and finally that’s happening.

Zomato has announced acquiring 100% of Blinkit at a valuation of Rs 4,447 crore.

Key points on the deal –

  • It’s an all stock deal.  New Zomato shares @ Rs 70.76/ share will be issued to the shareholders of Blinkit.
    • The transaction implies a 6.88% dilution for the existing shareholders of Zomato
  • Zomato has also acquired Blinkit’s warehousing and ancillary services business, Hands on Trades Private Limited (HOTPL) for $8 million. It would, however, not acquire the B2B trading business as that no longer fits strategically into its plans, it said.
  • Announced valuation is at almost 50% discount to the valuation of Blinkit at which Zomato had invested just 7 months back in November 2021. One can attribute this to be in line with the decline in the overall market sentiments. However, still the extent of decline is worth noting.
  • Blinkit posted a revenue of Rs 236 crore in FY22, Rs 200 crore in FY21 and Rs 165 crore in FY20. Operations are loss making – extent of the losses are not disclosed. This reported performance provides no comfort on the announced valuations.
  • Blinkit’s investors have got an opportunity to convert their private shareholding into a listed shareholding and this can further create pressure on Zomato’s stock price as and when they decide to sell.
    • These shares are though subject to lock-in. As per Zomato – “While the statutory lock-in requirement is six months, we have negotiated for a 12-month lock-in for selling shareholders of Blinkit”.

Given the overall market sentiments, lack of clarity on Zomato’s and Blinkit’s path to profitability and shareholding pattern (where investors may look to exit and book profits/ minimise losses – Info edge’s 15% stock lockin is due to expire next month) – I would continue to remain cautious and would not be adventurous to try calling the bottom.

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