Eternal Ltd’s December quarter (Q3FY26) results were encouraging on many counts. Adjusted Ebitda (before employee stock options and after lease rentals) soared by 63% sequentially to ₹364 crore, mainly led by quick commerce business Blinkit, which clocked a small profit of ₹4 crore versus a loss of ₹156 crore in Q2. This is a significant achievement, given that it has largely shifted to an owned-inventory-led model from a marketplace for third-party sellers since Q2. Notably, almost 90% of net order value (NOV) came from owned inventory versus 80% in Q2.
The turnaround in Blinkit’s profitability could be attributed to the sharp improvement in contribution per order – i.e. profit per order before fixed costs. Simply put, Blinkit earned ₹30 per order or 25% more than in Q2 owing to factors such as sales mix change, operating leverage and seasonality, even though the gross profit margin shrank by 20 basis points sequentially to 26.6%.
While the GST cuts in September adversely impacted Blinkit’s NOV growth rate by about 3 percentage points, it still rose 14% sequentially to ₹13,300 crore. NOV growth prospects remain strong even though Blinkit fell slightly short of achieving its dark-stores target of 2,100 by December. After adding 272 net stores in Q2, it added 211 net stores in Q3, taking the total to 2,027.
Management attributed the moderating pace to slow construction activity in Delhi NCR because of pollution-related restrictions, and its own prioritization of order volumes over new stores. However, it is confident of having 3,000 stores by March 2027, which translates to about 200 new stores every quarter from here.
Profitability hurdles
While Blinkit’s small profit is certainly good news for Eternal’s shareholders, two factors could hamper its profitability going forward. The first is the likely impact of the delivery fees waiver implemented in some markets last week. The move was in response to increased competition in the quick commerce sector, where some rivals have waived minimum order value requirements, delivery fees, or both.
Second, management’s commentary suggested that it may accelerate store additions, depending on changing competition and market conditions. If it decided to have 3,500-4,000 stores by FY27 instead of its current target of 3,000, it would need to add about 300 new stores every quarter. The initial costs of these stores could dent Ebitda.
Meanwhile, the food delivery business’ NOV increased 17% year-on-year to ₹9,846 crore. However, average monthly transacting customers grew even faster at 21% to 24.9 million, indicating that the order value per customer declined. The take rate (commissions earned from restaurants and platform fees from customers, etc as a percentage of NOV) increased by 243 bps to 31%. However, Ebitda margin as a percentage of NOV grew at a slower 40 bps to 5.4%, owing to rising operating costs.
Just when Zomato achieved its highest-ever Ebitda margin and Blinkit became profitable, the founder CEO of Eternal, Deepinder Goyal, decided to hand over reins to Albinder Dhindsa, Blinkit’s current CEO. While the transition may not be a problem for investors, the stock’s elevated valuation certainly is. Despite falling 23% from a peak of ₹368 on 16 October, it still trades at an EV/Ebitda multiple of 40 based on FY28 estimates.
