In the harsh competitive Indian market, where cash flow in startups is drying with the early boom, it becomes very important to manage the balance sheets as well as its product adaptability among customers. After the spring of cash flow, companies are now focusing on sustainability in their overall business and merger & acquisition are one of the instruments of such a goal. According to the latest report, the board of food delivery company Zomato has approved a Rs 4447 crores acquisition deal of the quick commerce delivery company, Blinkit.
Zomato’s grand plan
Zomato’s CEO Deepinder Goyal announcing the deal said, “quick commerce has been our stated strategic priority since the last one year. We have seen this industry grow rapidly both in India and globally, as customers have found great value in quick delivery of groceries and other essentials. This business is also synergistic with our core food business, giving Zomato the right to win in the long-term.”
We are 1% done today, towards the larger journey we envision for ourselves in the long run.
Read here for more details and disclosures we have made to our shareholders as part of our proposal to acquire Blinkit: https://t.co/bePcRAZZum
— Deepinder Goyal (@deepigoyal) June 24, 2022
“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 of 86% in the last 4 years to adjusted revenue of INR 55.4 billion ($710 million) while the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin has improved from (153%) in FY19 to (18%) in FY22.” he added.
Although the earlier estimated deal was valued at $ 700 million, but the downfall in Zomato’s stock price reduced it to $568 million at current exchange rates. The approval of Blinkit’s acquisition was valued at Rs 44447 crore in an all-stock deal.
Read More: How 10 Minute marketing gimmick boomeranged for Zomato
Future is quick delivery
Blinkit’s merger reflects the growing competition in the 10 minutes grocery delivery companies. The new companies like Zepto and Dunzo are giving tough competition to established companies and the conundrum of discounts & offers by start-ups is making the business unsustainable.
The current market capitalization of Zomato is Rs 49996 Crore. In the last year, the company’s share value decreased to about 49%. In the last five years on average, the company is making a loss of around Rs 1000 crore. Its return on equity is around 10% negative.
The introduction of the 10-minute delivery concept has further aggravated the situation. To match the level of competition and retain the fragile Indian customer, it becomes very important to bring a joint fight against competitors. So the merger reflects the same position in this direction.
Read more: Zomato’s nosediving stock prices reaffirm the faith in the market’s intelligence
It is pertinent to mention that the constant competition and cash crunch were forcing the company to raise loans. As extending a loan of over $100 million for the quick-commerce entity Blinkit, Zomato currently owns 9 percent of the stakes in Blinkit. But sustainability in business was still a distant dream.
Zomato Blinkit merger reflects the growing consensus to give a joint fight in both the food as well as grocery delivery market. The aim would be to cut short the input cost in the operation of the company and use the limited resources to bring the balance sheets of the two companies. Further, keeping the Blinkit app separate from the Zomato app after the acquisition, they are jointly trying to target the fast delivery market of all items like food, groceries, beauty and pharma products. But as we had predicted earlier, the merger will little help the ‘drowning’ companies. The balance sheet of both the companies are crumbling and the profit margin in the competitive scenario is still a distant dream. In a way, without a profitable market strategy the merger will little help and both the company sucking the public money will die its own death.
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