Zomato’s fast trading unit Blinkit dwarfs its core grocery business in value terms, says Goldman Sachs

Goldman Sachs said in a report Thursday that Blinkit, the high-speed trading arm of Indian food delivery giant Zomato, is now more helpful than its core food delivery business, based on 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 general online grocery market’s projected CAGR of 38% over the identical 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 big unorganized food sector, high population density in urban areas and a positive 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 answer.

High-speed trading, which boomed around the globe in the course of 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 big 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 trendy 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 a sexy 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 will likely 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 yr 2030.

The report shows that Blinkit is anticipated to attain 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, that are planning to make their public debuts this yr.

Swiggy, the operator of easy trading platform Instamart, revealed this week that it has received shareholder approval for an initial public offering in which it expects to lift 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, can be competing fiercely with each corporations for a slice of India’s high-speed trading market. The Mumbai-based startup was recently on course to attain $1.2 billion in annual sales.