Buy Eternal Ltd For Target Rs 370 By Emkay Global Financial Services Ltd
Eternal's Q4FY26 results came in below expectations, as Blinkit's NOV growth decelerated (8.2% QoQ, from 13.9% in Q3FY26), primarily on account of heightened competitive intensity, seasonality, and fewer days in the quarter. The company has now guided for 60% NOV growth over the next 3 years for its QCom business, lower than the earlier indicated expectations of +100% growth for FY27. In contrast, adj EBITDA increased to Rs370mn, from Rs40mn in Q3FY26, above median street estimates. For consecutive quarters, we are seeing better-than-expected profitability, while the growth has disappointed. This trend indicates Blinkit’s preference for profitability over market share. As Blinkit is not losing MTUs, but is seeing softness in frequency and AOV, we believe in a consolidation scenario, it should be able to regain market share provided it leverages its larger presence and superior execution. Food delivery showed strong growth, with adj EBITDA growing 24.3% YoY, along with 18.8% NOV growth. Considering Eternal’s strong execution track record in QCom, reflected in its superior unit economics, steady food delivery momentum, and adequate cash reserves, we retain BUY and TP of Rs370.
Blinkit: Holding on customers, losing on frequency
Blinkit’s NOV growth decelerated to 8.2% QoQ from 13.9%/26.9% in Q3/Q2FY26. While MTU growth was strong (15.3% QoQ), monthly frequency declined to 3.36, lowest in the last 10 quarters, along with a 3.9% decline in NAOV to Rs525. We attribute this to customers using multiple platforms for price arbitrage. Contribution margins remained flat QoQ, as direct cost per order declined 2.2% QoQ. Active dark stores’ count rose to 2,243 (net additions of 216). Outside top-8 cities, the company is seeing faster store ramp-up and profitability, comparable to mature markets, despite lower NAOVs, driven by lower real estate and operating costs, in line with our research findings
Food delivery remains a cash cow with duopoly market structure
Food delivery’s (Zomato) NOV growth accelerated to 18.8% YoY from 16.6% YoY in Q3FY26, with a 21.5% YoY increase in MTU. Adj EBITDA grew 18% YoY to Rs5.3bn, with 5.5% margin, flat QoQ. Food delivery remains a cash cow for the company with a supportive duopoly market structure. Hyperpure reported 8.6% QoQ revenue decline due to seasonality and adj EBITDA of Rs50mn. District NOV growth accelerated to 47% YoY, with adj EBITDA loss narrowing to Rs810mn, from Rs1.21bn in Q3FY26.
Outlook and valuations: Best placed to capitalize on the large QCom opportunity
We are convinced of the QCom opportunity in India, the strong underlying unit economics of the business at maturity, and Blinkit’s superior execution vs other players. In the landgrab phase, near-term increase in competitive intensity will remain elevated, impacting profitability and growth, in our view. The stock trades at 32.5x FY28E EV/EBITDA. We maintain BUY with a DCF-based target price of Rs370, which implies 34.3x multiple for FY28E adj EBITDA for food delivery and 1.73x multiple for FY28E QCom NOV.
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