Eternal (earlier Zomato) is ranked in the top 25 and top 15 firms among Nifty 50 companies in terms of total market capitalization (mcap) and free float mcap. Ranking in terms of free float mcap is higher, leading to more weightage in Nifty 50, as non-promoter shareholding is at 73%. Eternal stock price surged 30% in the last two months, driven by upbeat management outlook on its quick commerce arm Blinkit in the Q1FY26 call. If a soaring mcap is not supported by strong fundamentals—in this case, success in quick commerce—it can mean inflated and unsustainable valuation.
Eternal’s mcap is often compared with well-established companies such as Tata Motors and Titan. Sometimes, it is pegged against Swiggy. But considering Eternal’s business model, Avenue Supermart (D’Mart) is a more relevant comparison because Blinkit has now shifted to an inventory-owned model from a commission model. Now, the sales will reflect in its books. So, its sales and Ebitda margin should be evaluated versus that of D’Mart.
True, Swiggy is catching up.
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It announced the demerger of Instamart through a slump sale, which is a likely precursor to reducing foreign shareholding below 50%. This would make Instamart compliant with Indian-owned and Indian-controlled company norms, helping it shift to Blinkit’s inventory-owned model. As of now, Instamart still has a commission model. In any case, the first mover advantage stays with Blinkit.
Valuation versus potential
Eternal, as a whole, has a market cap of ₹3.1 trillion versus ₹2.9 trillion of D’Mart. Unlike D’Mart, Eternal has a food delivery business, Zomato. So, the valuation of Zomato has to be deducted from the total market cap of Eternal to make a fair comparison. Most brokerages value Zomato at about ₹1.25 trillion. If it is deducted from the current market cap of Eternal, Blinkit is being valued by the Street at ₹1.85 trillion.
For the sake of simplicity, let’s consider Blinkit’s valuation based on mcap/sales metric. In the Q1FY26 earnings update, Blinkit stated that its target for store count has been shifted upward to 3,000 stores in future from 2,000 stores. Based on conservative assumptions, assuming that the average net order value (NOV is after deducting discounts from gross order value), or sales remain at ₹7 lakh per store per day as was the case in Q1FY26, and only 2,000 stores come up instead of 3,000, it could mean annual revenue of ₹50,000 crore by FY27. Still, Blinkit is available at almost the same valuation as D’Mart at mcap / sales of 3.8 times for FY27, based on Bloomberg consensus estimate.
Competition ahead
Blinkit’s mature stores in some cities are already profitable, having a 2.5% Ebitda margin, which makes the goal of a long-term Ebitda margin of 5% feasible. D’Mart and Reliance Retail have Ebitda margins at about 7-8% in the long term. Despite a lower Ebitda margin, the store economics of Blinkit are superior, with a potential Return on capital employed (ROCE) of around 40% based on management’s operating assumptions that could be more than twice that of D’Mart, thanks to lower capital intensity. The capex per store is at ₹1 crore, and working capital at ₹1.3 crore (5% of annual sales), which means total capital employed of ₹2.3 crore per store.
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In short, elevated mcap and/or further upside hinge on quick commerce’s performance—if improving store count, revenue per store, or Ebitda margin surprises positively. That said, Amazon, Flipkart, etc., have deep pockets and the potential to replicate Blinkit’s inventory-owned model by having separate companies with necessary tweaks in the shareholding pattern.
Key Takeaways
- Eternal’s current high valuation is overwhelmingly driven by market expectations for its quick commerce arm, Blinkit, not its traditional food delivery business.
- Due to its shift to an inventory-owned model, Blinkit’s financial performance and valuation are best compared to retail giant D’Mart, not other tech platforms.
- Based on projected FY27 revenue, Blinkit’s valuation multiple is in line with D’Mart’s, suggesting the current price is not outlandish if growth targets are met.
- Despite lower potential profit margins, Blinkit’s key advantage is its capital-light model, which could deliver a Return on Capital Employed of around 40%, more than double that of D’Mart.
- The entire investment thesis rests on Blinkit’s ability to execute its expansion plan successfully while fending off deep-pocketed competitors like Amazon and Flipkart.
