The strike of Blinkit’s delivery executives in Delhi-NCR since mid-last week is likely to have already resulted in approximately 1% revenue loss to the quick-commerce arm of Zomato in Q1 of the financial year 2023-24 (FY24), ICICI Securities said in a research note on Monday (April 17).
Since the start of the strike over Blinkit’s new pay structure for delivery partners on April 12, more than 50% of the 200 Blinkit dark stores in the region have remained closed.
“We estimate Blinkit was operating about 370 dark stores pan-India as of Q3 FY23. This implies almost 25% of the dark stores are currently not operational. Given that at least 3-4 days’ sales have already been lost, this implies about 1% loss in revenue from Blinkit and almost 0.15% of consolidated revenue for Q1FY24 – already,” said ICICI Securities note on Zomato.
After the strike started, a message on the Blinkit app in some areas of the national capital said: “Sorry for the inconvenience. Your store is under maintenance.” Later, in a statement, the startup said, “We have introduced a new payout structure for our partners that compensates them based on their effort to deliver an order. This is an opt-in exercise, and our teams are on the ground to answer any questions from the partners.”
Blinkit’s decision to reduce the delivery fees of its delivery executives, leading to the ongoing strike, coincides with Zomato’s drive to reach its profitability targets. The foodtech giant has already implemented various restructuring measures in its other business segments, including staff reductions and exiting the food delivery business in several cities.
According to ICICI Securities, the change in Blinkit’s delivery fee structure is a reflection of Zomato’s drive towards cost control. The brokerage believes that the change will enable Blinkit to expand the delivery radius for its existing dark stores and enhance its network coverage while limiting capital expenditure.
“We believe strikes/agitations are unavoidable in the sector given the large exposure to an urban ‘blue-collared’ workforce. However, given that the strike (at Blinkit) is happening in the national capital and has already garnered political attention, we think the company should try to resolve the issue at the earliest,” said the brokerage.
After the Blinkit delivery executives’ protest began, Yashpal Batra, a spokesperson of the Bharatiya Janata Party (BJP) from Haryana, supported the protest and met with Gurugram Labour Commissioner Dinesh Kumar to seek swift resolution of their concerns. Recently, the delivery executives met with Kumar to request a minimum payment of INR 25 per order delivered.
ICICI Securities has suggested that Blinkit can tackle the issue by providing better clarity on the anticipated change in earnings for delivery partners, and offering some concessions on the delivery fee.
ICICI Securities has maintained its ‘buy’ rating on Zomato’s stock, despite the growth challenges in the food delivery segment and the recent problems at Blinkit.
ICICI Securities has predicted that Blinkit’s growth will be at 30% quarter-on-quarter in the fourth quarter of FY23, primarily due to its expansion in more locations. In contrast, the brokerage anticipates that Zomato’s gross order value (GOV) in its food delivery segment will remain stable in the same quarter, despite the activation of Zomato Gold, because of the seasonal weakness and waning online consumption. Nonetheless, the brokerage has maintained its ‘buy’ rating on the Zomato stock despite the recent issues at Blinkit affecting its growth in the near term.
It is worth noting that Zomato’s consolidated net loss widened both year-on-year (YoY) and quarter-on-quarter (QoQ) to INR 346.6 crore in Q3 FY23, despite total adjusted revenue of INR 2,363 crore. Blinkit’s contribution to the adjusted revenue in the quarter was INR 301 crore.
ICICI Securities has reiterated its price target (PT) of INR 65 on Zomato, which represents a potential upside of 20.7% based on the stock’s closing price on the BSE.
Today, Motilal Oswal started covering Zomato and gave a ‘buy’ rating with a PT of INR 70. This PT indicates an increase of 30% to the stock’s closing price on Friday.
According to Motilal Oswal’s report, while Blinkit is demonstrating good scalability and profitability, the space is still in its early stages for Zomato, as there are a significant number of players in the ecosystem.
“We view the acquisition of Blinkit as an additional risk and high attrition at senior management level remains a concern,” the brokerage said.
Despite facing stiff competition in the food delivery industry, Motilal Oswal predicted a 29% revenue compound annual growth rate (CAGR) for Zomato between FY23-25 due to the rapid growth of the industry in India, fuelled by increasing internet penetration, consumption, and urbanisation. As a leading player in the industry, Zomato is expected to gain from this trend.
“We expect strong growth to be complemented by the company turning profitable over FY25, despite elevated competitive intensity,” the brokerage added.
Although the stock market saw a decline in most new-age tech stocks today, Zomato’s shares remained relatively stable, trading at INR 53.8 on the BSE during noon trade.
