The board of directors of food delivery company Zomato has proposed to acquire quick commerce business Blinkit (formerly Grofers) for Rs 4.508.2 crore ($578 million). The acquisition, largely expected by the industry, involves Zomato fully acquiring Blink Commerce Private Limited (BCPL) for Rs 4,447.5 crore through the issue of around 629 million Zomato shares at Rs 70.76 per share.

Zomato will also buy the warehousing and ancillary business of Hands on Trades Pvt Ltd for a cash consideration of Rs 60.7 crore ($8 million). Zomato at present owns around 9 per cent of Blinkit.

“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,” Deepinder Goyal, founder and CEO of Zomato, told shareholders. “Quick commerce has been our stated strategic priority for the last year. We have seen this industry grow rapidly both in India and globally, as customers have found great value in the quick delivery of groceries and other essentials,” said Goyal.

“This business is also synergistic with our core food business, giving Zomato the right to win in the long-term.” “Quick commerce will help us increase customer wallet share spent on our platform and also drive higher frequency and engagement from our customers,” he said.

The expansion does not mean that the food delivery business has saturated, the Zomato founder said. Blinkit founder Albinder Dhindsa will continue to run the business and the Blinkit app will be kept separate from Zomato.

“Post the deal closure we are going to start experimenting with various ideas that we have and see which all bear fruit, including having the Blinkit tab on the Zomato app,” Goyal said. Zomato CFO Akshant Goyal said the Blinkit acquisition will not delay the prospect of Zomato becoming profitable and the company does not envisage any capital raise to go towards profitability.

In May 2022, Blinkit had a gross order value of Rs 402.8 crore, which is around a fifth of Zomato’s monthly average food delivery gross order value in the fourth quarter of FY22. Blinkit continues to incur losses with the adjusted EBITDA in May 2022 at (-) Rs 107.7 crore. Zomato also continues to remain in loss with an adjusted EBITDA of (-) Rs 220 crore during the fourth quarter of FY22.

The deal value however is significantly lower than Blinkit’s valuation, with the latter having turned into a unicorn (valuation of $1 billion and above) last year. The final transaction is expected to happen in early August 2022 subject to shareholder and other regulatory approvals. Zomato CFO Akshant Goyal said that the new Zomato shares issued pursuant to the transaction will be subject to lock-ins. “While the statutory lock-in requirement is six months, we have negotiated for a 12 month lock-in for selling shareholders of BCLP,” he said.