Goldman Sachs said in a report Thursday that Blinkit, the high-speed trading arm of Indian food delivery giant Zomato, is now more beneficial than its core food delivery business, in response to the bank’s sum-of-the-parts evaluation.
The investment bank puts Blinkit’s estimated value at Rs 119 per share ($1.43), or about $13 billion, while Zomato’s food delivery business is valued at Rs 98 per share. Goldman previously estimated Blinkit’s March 2023 valuation at $2 billion.
The sharp rise in Blinkit’s valuation is resulting from its strong growth potential in India’s fast-growing high-speed trading market. Goldman Sachs forecasts that Blinkit’s gross order value (GOV) will grow at a compound annual growth rate (CAGR) of 53% over fiscal years 2024-2027, outperforming the overall online grocery market’s projected CAGR of 38% over the same period.
Zomato acquired Blinkit for just below $600 million in 2022.
The investment bank believes that the Indian fast trading market is poised for growth resulting from several aspects, including a large unorganized food sector, high population density in urban areas and a favorable ratio of delivery costs to average order value. This dynamic allowed Blinkit to supply competitive prices and short delivery times, which drove customer adoption of the solution.
Blinkit’s suggested value per share is currently greater than the food delivery value of SOTP GS (Goldman Sachs)
High-speed trading, which boomed around the world during the pandemic, has since weakened in many markets. However, India continues to buck this trend. According to many analysts, India stands out resulting from unique aspects akin to a large unorganized retail sector and favorable demographics coupled with attractive unit economics.
India is poised to maneuver from unorganized retail on to high-speed retail, potentially bypassing the modern retail phase seen in other countries, HSBC analysts wrote in a note this month. The success of fast trading lies in its ability to mimic the characteristics of traditional kiranas (convenience stores), akin to supporting small but frequent purchases and offering a wide selection of SKUs. Indian kitchens requiring regular restocking and limited cupboard space, proximity to high-speed trade and an expanding product range make it an attractive alternative to each kiranas and modern retail.
Goldman Sachs estimates that the value of the Indian high-speed trading market in the 50 largest cities alone might be USD 150 billion in 2023. Despite the presence of well-capitalized competitors akin to Swiggy and Zepto, the bank believes that this market is large enough to accommodate as much as five profitable players by fiscal 12 months 2030.
The report shows that Blinkit is expected to realize EBITDA break-even by June 2024 and generate higher EBITDA margin than Zomato’s food delivery business by fiscal 2030.
The surge in Blinkit’s valuation is more likely to have ramifications for Zepto and Swiggy, which are planning to make their public debuts this 12 months.
Swiggy, the operator of fast trading platform Instamart, revealed this week that it has received shareholder approval for an initial public offering in which it expects to boost about $1.25 billion. The latest private financing round in early 2022 valued Swiggy at $10.7 billion.
Zepto, backed by StepStone Group and Y Combinator Continuity, is also competing fiercely with each firms for a slice of India’s high-speed trading market. The Mumbai-based startup was recently on track to realize $1.2 billion in annual sales.