Zomato sheds nearly $1 bn in valuation after Blinkit deal

BENGALURU: Shares of India’s Zomato Ltd fell as much as 8.2% on Tuesday, extending losses for a second straight day as investors questioned the rationale of the company’s deal to buy local grocery delivery start-up Blinkit.

The Ant Group-backed food delivery firm said on Friday it would acquire Blinkit for Rs 4,447 crore ($568.16 mn) in stock, as it tries to gain a foothold in the fiercely competitive quick delivery market.

The deal comes after it bought a more than 9% stake in SoftBank Group-backed Blinkit for nearly Rs 518 cr in August, with a promise to invest as much as $400 mn in the quick-commerce market over the next two years.

“We believe Blinkit will require investments beyond the $400 mn envisaged by Zomato, given rising competitive intensity,” analysts at Kotak Institutional Equities wrote in a note.

The company’s shares fell as much as 14% since the announcement of the deal, shedding nearly Rs 7,678 crore in market capitalisation. They are also down nearly 48% since going public last July.

Issuance of new shares by Zomato to Blinkit, including employee stock option pool, would amount to dilution of about 7.25% of total outstanding shares post acquisition basis, according to a Morgan Stanley client note.

The quick-commerce sector is growing at a rapid clip, with rivals Swiggy, Reliance Industries-backed Dunzo, Tata’s BigBasket and Zepto making big investments. The industry was worth $300 mn last year and is expected to grow 10-15 times to $5 bn by 2025, as per research firm RedSeer.

“E-grocery economics have been tough to crack given price competition, relatively lower margin nature of the category, high number of products per order which need efficient fulfilment, and very high competition,” Kotak analysts said.