According to the sources, the investors questioned the business case for Zomato Ltd.’s acquisition of local grocery delivery startup Blinkit on Tuesday, sending the stock down as much as 8.2 percent and extending losses for the second straight day.
As it strives to establish a foothold in the fiercely competitive quick delivery sector, the Ant Group-backed food delivery company announced on Friday that it would buy Blinkit for Rs 4,447 crore ($568.16 million) in stock.
About the Zomato and Blinkit Deal
The agreement follows its purchase of an approximately Rs 518 crore (9.1 percent) interest in Blinkit, sponsored by the SoftBank Group, in August. At the time, it committed to investing up to $400 million in the Indian quick-commerce sector over the following two years.
Given the escalating level of competition, analysts at Kotak Institutional Equities predicted that Blinkit would need investments above and above the $400 million planned by Zomato.
Since the deal’s announcement, the company’s shares have dropped as much as 14 percent, resulting in a market capitalization loss of around Rs 7,678 crore. They have lost about 48% of its value since coming public in July of last year.
Shares and Market Worth
According to a client note from Morgan Stanley, the issuance of additional shares by Zomato to Blinkit, including the employee stock option pool, would result in a dilution of about 7.25 percent of the total number of outstanding shares after the acquisition basis.
Rivals Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket, and Zepto are making significant investments as the quick-commerce market expands quickly. According to research firm RedSeer, the market was worth $300 million last year and is projected to increase by 10-15 times to $5 billion by 2025.
Given the cost-based rivalry, relatively low margin nature of the category, the significant number of products per order that require quick fulfillment, and the intense competition, according to a Kotak analyst, the economics of e-grocery have proven to be challenging.
Read: Zomato gets ready to acquire Blinkit for INR 4447 Crore
