Zomato board approves acquiring quick commerce firm Blinkit for Rs 4,447 cr

Food aggregator setting sights on big play in quick commerce sector

Food aggregator platform Zomato’s board approved the acquisition of quick-commerce company Blinkit for Rs 4,447 crore (around $567 million) in an all-stock deal. Zomato will be acquiring 33,018 equity shares of Blink Commerce Pvt Ltd (BCPL).

This transaction will be carried out through issuance and allotment of up to 628.5 million fully paid-up equity shares of Zomato, having face value of Rs 1 each at a price of Rs 70.76 per equity share.

The transaction is expected to close in early August. The transaction is subject to shareholders’ and stock exchange nod.

Zomato already holds around 9 per cent stake in the acquired entity. Zomato will also be paying Rs 60.7 crore ($8 million) cash for acquisition of Hands on Trade Pvt Ltd (HOTPL) warehousing business.

Deepinder Goyal, founder and chief executive officer (CEO), Zomato, in a blog, said, “We are proposing to acquire Blinkit, a quick-commerce business in India and where we first invested in August last year. 

This foray into the next big category is timely as our existing food business is steadily growing towards profitability. Zomato has grown at a CAGR (compound annual growth rate) of 86 per cent in the last four years to an adjusted revenue of Rs 55.4 billion ($710 million). 
 

The adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin has improved from 153 per cent in FY19 to 18 per cent in FY22.”

The founders of Zomato and Blinkit have reiterated that quick commerce is the future of food and grocery delivery.

In the shareholders’ letter dated February 2022, Zomato had shared that it will invest up to $400 million in quick commerce in CY22 and CY23. Goyal said that quick commerce is a natural extension of food delivery. According to the company’s blog, it still maintains that outlook. Since then, Zomato has extended Rs 1,125 crore as debt to Blinkit (of which Rs 575 crore is still available as cash with Blinkit). This debt is being acquired by Zomato as part of the transaction.

“This means that we have an additional Rs 1,875 crore, according to the plan, for further potential investments in quick commerce. Most of this capital will go towards funding losses in Blinkit during CY22 and CY23. This capital would be funded from the Rs 12,219.3 crore cash on our balance sheet (as of March 31, 2022),” said the blog.

Zomato has also proposed to create a new Zomato employee stock option plan (ESOP) pool, equivalent to the combination of ungranted ESOP pool and unvested ESOPs of employees of Blinkit.

“We are not acquiring the business-to-business (B2B) trading business as that no longer fits strategically in our plans. Our existing Rs 222.8 crore investment in HOTPL is protected through our liquidation preference right,” said the blog.

Albinder Dhindsa, founder and CEO of Blinkit and the Blinkit team will continue to lead the business and both the brands will co-exist.

“We plan to keep the Blinkit app and brand separate from Zomato. Zomato brand stands for everything ‘food’ in customers’ minds, while Blinkit is on the path to becoming a brand that customers associate with grocery and essential supplies,” said Goyal.

In May, Blinkit’s gross order value (GOV) stood at Rs 402.8 crore, which is 20 per cent of Zomato’s monthly average food delivery GOV in Q4 of FY22, said Akshant Goyal, CFO, Zomato.

The new Zomato shares issued pursuant to the transaction are subject to lock-ins.

He added, “While the statutory lock-in requirement is six months, we have negotiated for a 12-month lock-in for selling shareholders of BCPL. In addition, 50 per cent of the shares attributable to the founder of Blinkit will be locked in for 24 months (and the balance 50 per cent will be locked in for 12 months). The shares attributable to the exercised/ vested ESOPs of employees of Blinkit will be locked in for the mandatory period of six months.”