InvestorQ : What is the logic of Zomato paying Rs.4,400 crore for buying Blinkit?
Juvina Maggie made post

What is the logic of Zomato paying Rs.4,400 crore for buying Blinkit?

Deepa Salunkhe answered.
2 months ago

The board of Zomato approved the acquisition of Blinkit, one of India’s leading quick commerce (Q-commerce) companies for Rs4,447 crore. It will be entirely by way of a stock swap. Zomato will allot 62.85 crore shares of Zomato at a price of Rs70.76 per share, which is approximately the price at which the stock is currently trading. It is expected that the transaction would be consummated by early August 2022, subject to the approval of stakeholders and the regulators.

Zomato is already the owner of 9% stake in Blinkit. In addition to the stock swap consideration, Zomato will pay Rs61 crore in cash for Hands on Trade Pvt Ltd, the warehousing business of Blinkit. The acquisition would fit into the forward integration plans of Zomato. The business of Zomato has grown at a CAGR of 86% in the last four years while its EBITDA margins have also sharply improved. IN a sense, this acquisition is based on the belief that quick commerce is the future of food and grocery delivery.

Zomato looks at quick commerce as a natural extension to food delivery. In the last one year, Zomato has already extended Rs 1,125 crore as debt to Blinkit, which will also be acquired by Zomato as part of the transaction. Most of this money would go towards funding losses in Blinkit during the next two years. Zomato has cash to the tune of Rs12,219 crore on its books, so it can afford the buy from its internal sources. While Zomato will take over the warehousing business, it will skip the B2B business, which does not fit in.

For now, they are not tampering with the existing team at Blinkit and they would continue to run the show. Blinkit brand would be kept separate from Zomato. That is because, Zomato has a mental association with food while Blinkit has an association with the delivery of groceries. Blinkit has gross order value (GOV) of Rs403 crore. The Zomato shares would be subject to 6-month lock-in, although Zomato has asked for 1 year lock-in for the shares.