Internet Sector Update : Zepto - Scale searching for unit economics by Emkay Global Financial Services Ltd
Zepto has scaled to become the second-largest player in India's fiercely contested quick commerce (QCom) market, with FY26 NOV 13ppt above Swiggy Instamart's but 53ppt below Blinkit's. It has traded down NAOV to drive scale, delivering the highest orders per day (OPD) per store, yet continues to carry the largest adj EBITDA loss per store. We expect Zepto to follow Swiggy’s path of increasing NAOV to narrow losses, likely at the cost of order-volume growth. Scale matters in QCom, but unit economics matters more. Blinkit fixed its unit economics at ~400 dark stores, while Swiggy is doing so at ~1,200; Zepto is yet to make this transition, and the path will be more challenging given its lower NAOV base and an EDLP (everyday low prices) value proposition. Unlike peers, Zepto runs on negative working capital, driven by materially higher payable days. We remain constructive on QCom, supported by demand- and supply-side tailwinds and a long growth runway in tier 2/3 cities. We maintain BUY on Eternal and Swiggy with unchanged DCF-based TPs of Rs370 and Rs350, respectively
Benchmarking against peers indicates divergent strategies
Zepto’s scale-up has been impressive 110% NOV CAGR over FY24-26 vs 68%/115% for Swiggy/Blinkit. Importantly, Zepto achieved this with a much smaller network, resulting in the highest OPD per store 2,117 in Q4FY26 vs 1,098/1,425 for Swiggy/Blinkit. Zepto’s FY26 adj EBITDA loss of Rs53.6bn is much higher than Rs35.1bn/Rs2.8bn for Swiggy/Blinkit. We attribute this to low NAOV, Rs357 in FY26, vs Rs491/530 for Swiggy/Blinkit. The scale-up philosophies across players have diverged.
Divergent working capital requirements
While Blinkit, despite its much larger scale, operates with positive working capital, Zepto manages a negative (13) days of working capital, with difference arising largely from higher payable days—55 days for Zepto vs 26 days for Blinkit. We attribute this to procuring inventory on a ‘Sale-or-Return’ (SOR) basis, which may lead to lower margins. However, the company turned cash-flow positive from working capital in FY26, and we will watch for its sustainability. We note that Zepto’s merchant partners also run negative working capital, in line with industry practice.
Outlook: Zepto’s large scale in an attractive segment needs a unit economics fix
While the Zepto IPO offers investors an opportunity to invest in a pure-play, scaled QCom business, the company needs to bridge a bigger gap in adj EBITDA loss as compared with Swiggy. It has built its customer base around an EDLP philosophy and low minimum order value (MOV) and hence, may find it difficult to retain orders as it transitions to profitability, especially in an environment where competitive intensity is high. Zepto’s last funding round was at a valuation of $7bn, a significant premium to Instamart’s.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
