Blinkit Reports Strong Revenue Growth Yet Faces Hidden Challenges

Eternal’s quick-commerce segment, Blinkit, showcased impressive performance metrics on the surface. Orders surged rapidly, leading to an adjusted EBITDA of Rs 102 crore. However, a crucial statistic within the company’s shareholder communication presents a contrasting narrative. Blinkit indicated that approximately 1.8% of its NOV (net order value) is attributed to factors such as expired products, damaged inventory, and losses occurring during transit, as well as theft. This issue primarily impacts fresh produce, which has a limited shelf life.

Blinkit’s NOV for this quarter was reported at Rs 17,132 crore. Consequently, if we calculate 1.8% of that figure, the resultant loss totals around Rs 308 crore. To contextualise this amount, the Rs 308 crore loss has been factored into Blinkit’s cost of goods sold. The shareholder letter specifically states that this deficit is accounted for prior to calculating Gross Profit, which in turn influences the adjusted EBITDA. Therefore, the Rs 102 crore in adjusted EBITDA does not exist independently of this loss; it represents what remains after the Rs 308 crore loss has already been integrated. If we exclude this loss, Blinkit’s actual profit for the quarter would be significantly greater than what has been recorded.

In straightforward terms: the losses from inventory this quarter were nearly three times greater than the profits that remained after accounting for them.

This situation arises from a transformation in Blinkit’s operational model. Previously, Blinkit functioned as an intermediary, merely connecting sellers with buyers while taking a modest commission. Currently, Blinkit has adopted an “inventory-led” model, where it procures goods directly and sells them itself.

This strategic shift enhances Blinkit’s revenue portrayal, resulting in a staggering 553% growth year-on-year, since the entire sale price of inventory is now captured as revenue, unlike the previous model where only the commission was accounted for. However, this model also shifts the entire risk onto Blinkit, accruing the burden of unsold or damaged goods, with this risk manifesting as a substantial impediment to profitability, even though it is not explicitly detailed in their financial statements.

Importantly, the 1.8% figure is not included in Blinkit’s certified financial reports; it was only disclosed in the shareholder letter as a casual response to inquiries. There is no historical comparison provided, leaving uncertainty about whether this issue is improving or deteriorating.

Additionally, Blinkit is incurring higher costs for opening new stores. The expense associated with establishing a single store has escalated from Rs 1 crore to Rs 2.5 crore. Yet, the addition of new stores this quarter was limited to just 200, marking one of the slowest periods for expansion in the company’s history.