Kotak bullish on Zomato, sees 24% upside on Blinkit's category additions, average order value

Domestic brokerage Kotak Institutional Equities is bullish on Zomato, as its quick-commerce arm Blinkit adds new categories to its platform to achieve higher average order value, better unit economics and customer loyalty.

Zomato shares surged 3 percent in the early trade on March 15 but pared most of the gains as the day progressed. At 10.30 am, the stock was quoting Rs 153.25 on the NSE, up 0.4 percent from the previous close.

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Kotak expects the food delivery GOV to see a 19 percent CAGR over FY23 to FY26. The brokerage issued a target price of Rs 190 on the restaurant aggregator, indicating an upside of around 24 percent from the current market price.

Blinkit has been adding new categories and stores to its app, such as books, toys, health, beauty and apparel. "Blinkit’s strategy of adding newer categories to its platform serves dual purposes: it helps in cornering a higher wallet share of customers and aids customer retention and improves AOV as the customer purchase basket becomes more diversified," Kotak analysts said in a note on March 15.

However, higher category additions will increase the complexity of operations, including the need for larger dark stores. "Our recent channel checks suggest that dark stores are now stocking 6-6.5k SKUs (stock keeping units), higher than the 2-3k SKUs stocked a couple of years back," Kotak said.

Therefore, to control operations, Blinkit will expand its assortment in a step-by-step fashion such that the quick delivery promise to the customer does not get diluted.

In the recent two or three quarters, Blinkit has managed to increase AOV beyond Rs 600, possibly on account of the addition of new general merchandise categories.

Kotak's survey of dark store operators in October revealed that Blinkit’s AOV was higher than competitors such as Instamart and Zepto.

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