Zomato: It’s time for investors to open their eyes to Blinkit

Eventually, Zomato expects Blinkit to have a steady Ebitda margin of 4-5%.
Eventually, Zomato expects Blinkit to have a steady Ebitda margin of 4-5%.


  • The quick commerce business, which turned adjusted-Ebitda-positive in March, could be the biggest contributor to Zomato’s profits in a few years. But is the company’s moat wide enough to justify its current valuation?

As Zomato Ltd’s quick commerce arm Blinkit grows, it’s grabbing more eyeballs than the food delivery business. And why not? There are encouraging signs of a turnaround this quarter (Q1FY25), given that Blinkit turned adjusted-Ebitda-positive for the first-time in March. Zomato arrives at adjusted Ebitda by adding employee stock option (Esop) expenses and subtracting lease rentals.

Note that in the fourth quarter of FY24, Blinkit posted an Ebitda loss even as quick-commerce gross order value (GOV) continued to grow, rising 14% sequentially. It turned adjusted-Ebitda-positive in March as the average delivery fee per order was about 20, showing consumers were willing to pay more for prompt delivery.

As such, the revenue from delivery fees alone could be in the region of 44 crore a month if one assumes the 66 million orders in Q4 were spread evenly across the three months. The only concern is the sequential drop in average order value (AOV) to 617 in Q4 from 635 in Q3. Normally, a larger AOV leads to higher profitability as the delivery cost broadly remains the same.

Blinkit expansion plans

Nevertheless, in view of Blinkit’s improving financials, Zomato’s management has chalked out ambitious plans to increase the number of stores in its delivery network from 526 at the end of FY24 to 1,000 stores by the end of FY25. This could boost revenue in FY25, but expansion costs could hurt profitability.

Eventually, Zomato expects Blinkit to have a steady Ebitda margin of 4-5%. Last year, the GOV jumped to 12,500 crore from 6500 crore in FY23. Given that the bulk of store additions have just been rolled out and further expansion is underway, GOV could touch 40,000 crore and Ebitda 2,000 crore by FY26.

Also read: Zomato is winning the contest with Swiggy

Zomato’s food-delivery business is already adjusted-Ebitda-positive, having clocked a GOV of 8,439 crore in Q4FY24, up 28% year-on-year but down 0.6% from Q3. The quarter-on-quarter decline could be due to increased demand from festivals in the previous quarter. The year-on-year growth was propelled by a 23% increase in orders, driven by 14% rise in average monthly transacting customers and higher order frequency. To be sure, sequential growth in average monthly transacting customers has been tapering consistently for the past four quarters and could be a concern.

Nevertheless, other growth levers in the form of AOV and higher order frequency are intact. If GOV increases at a 25% compound annual growth rate (CAGR) from FY24 to FY26 with a 5% Ebitda margin, the company could achieve a GOV of 50,000 crore and Ebitda of 2,500 crore.

Is Zomato's moat wide enough?

In a few years, Blinkit could be the biggest contributor to Zomato’s profits. For now, based on the calculations above, the company’s two main businesses – quick commerce and food delivery – could bring in nearly 4,500 crore of Ebitda in FY26. Zomato’s market capitalisation is now almost 1.68 trillion, having almost tripled last year. As its debt is insignificant, its market capitalisation and enterprise value are similar.

Also read: Zomato lands in a sweet spot after remarkable recovery

With the government’s Open Network for Digital Commerce (ONDC) yet to make inroads, Zomato and Swiggy continue to enjoy a duopoly in food delivery. But investors need to ask themselves whether they have a moat wide enough to justify an EV/Ebitda multiple of 37 times based on estimated FY26 earnings. On the bright side, there is also the option value of the Hyperpure, B2B and dining-out businesses if and when they grow to a meaningful size in the future.

Also read: Swiggy makes confidential filing for IPO

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