Zepto offered $2bn by Flipkart, says "No"; plans fundraise at $2.5bn

Zepto, India's only unicorn of 2023 and a leading player in the quick commerce market, was offered nearly $2 billion (over Rs 16,000 crore) for a majority stake in the company by Walmart-owned Flipkart.

Zepto founders Kaivalya Vohra and Aadit Palicha (who started the company as Kiranakart in 2020) said "NO", and are instead in the markets for a fresh round of funding at a valuation of around $2.5 billion (Rs 21,000 crore).

Flipkart was clear it wanted a large shareholding with the founders running the company, The Economic Times reported. “Flipkart didn’t want to strike a deal which would give it a minority stake. That’s when the talks ended."

Zepto was looking for at least $3 billion (Rs 25,000 crore) price tag, The Arc reported. Zepto was valued at $1.4 billion last year when it raised $200 million in August 2023. Zepto had raised $560 million till the last round.

Zepto reported a 14x increase in revenue at Rs 2,024 crore for the year ended March 31, 2023. In its second year of launching the first dark store in Mumbai, Zepto reported a 3x increase in loss at Rs 1,272 crore.

"The company has significantly improved its Profit After Tax (PAT) margin from -277 percent to -63 percent in FY23. Zepto is on track to achieve EBITDA breakeven (excl. ESOP and other statutory non-cash line items) in 10 months while continuing to grow the business meaningfully,” the company said while announcing the results.

"At the time of the deal talks, Zepto's monthly burn was over $12 million. This has since decreased to $5-7 million a month," The Arc reported.

Zepto has been reached out for comments, and the story will be updated once we hear from the company.

Zepto looking for fresh funds?
Zepto is currently in talks with a clutch of private equity (PE) funds along with existing investors to close a fresh funding round at a valuation of around $2.5 billion, almost double that of its previous round, The Economic Times reported.

PE firms like General Atlantic and sovereign funds including Abu Dhabi Investment Authority (ADIA) and others for a possible investment have been approached for investments. “We have almost all the capital from the previous fundraise still in the bank while the company is close to EBITDA positive. With that context, in any future fundraise, we would have no intention or need to raise an amount as large as $500 million,” Palicha told Economic Times.

Any future fundraise, Palicha added, would be primarily to prepare a balance sheet as a precursor to an initial public offer (IPO). Palicha and Vohra own more than 20 percent of the company.

Flipkart plans to launch its own quick delivery service in July, and is in the process of setting up dark stores that will fulfil deliveries in under 30 minutes, The Economic Times reported.

Zepto GMV at $1.2bn
Zepto has seen a rapid rise in its gross merchandise value (GMV) over three years, and currently has a GMV run-rate of $1.2 billion, which is doubling every year, according to the latest analysis by HSBC.

“Zepto is already doing nearly 1,600 orders per day per store, and hence further margin expansion is not driven by operating leverage but other levers such as higher advertising revenues, better take-rates (sourcing leverage and better mix), reduction in last mile delivery cost (due to non-ICE vehicles and store densification) and higher delivery charges,” the report said.

The majority of the grocery spend by Indian consumers is through small tickets, high frequency purchases, which are suitable for the quick commerce format; plus, most Indian kitchens don’t have the space to store monthly groceries, the report added.