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QCom focus on market-share gain

Eternal reported better-than-expected revenue growth, aided by strong NOV growth in Quick Commerce (QCom, 137% YoY) and accelerated shift to owned inventory model. EBITDA was largely in line with expectations, wherein weaker QCom EBITDA offset the stronger food delivery EBITDA. QCom margin disappointment was on higher marketing spends toward acquiring new customers and accelerated store network expansion. We believe when the industry is in a ‘landgrab’ phase, the company should focus on market share rather than profitability. Blinkit is executing well on this front, and significantly superior unit economics and balance sheet versus peers allow it to invest in this growth and gain market share. We increase our NOV growth expectations, while keeping long-term QCom margins at 5%. We maintain BUY on the stock while we hoist DCF-based target price by ~48% to Rs430 (from Rs330 earlier).

Higher investments driving Blinkit growth

Eternal’s QCom business reported a 137% YoY NOV growth, while adjusted EBITDA margin improved by 50bps QoQ to -1.3%. The Street was expecting higher EBITDA margin expansion due to shift to owned inventory model, in line with the management’s earlier guidance. However, the management has now toned-down margin expansion expectations over 4-6 quarters. Margins were lower due to: 1) higher marketing spends to acquire new customers – 4mn QoQ MTU growth, taking the total MTU to 20.8mn; and 2) accelerated store network expansion – 272 stores added QoQ, taking the total to 1,816. The company has increased network expansion guidance to 2,100 stores by Dec25 vs earlier guidance of 2,000 stores, and expects 3,000 stores by Mar-27.

Food delivery growth subdued; EBITDA beat

Food delivery NOV growth of 14% YoY was disappointing, considering the 20% long-term growth aspiration indicated in the previous quarter. This was attributed to soft discretionary consumption, impact of quick commerce growth, and volatile weather conditions (extreme heat, extended rains). However, Food delivery EBITDA margin expanded to 5.3% of NOV from 5.0% in Q1FY26 on account of a higher platform fee. We believe that the food delivery business is now firmly in the consolidation phase, and there will be levers for driving profitability while growth may remain muted.

Outlook and Valuations

We raise FY27E and FY28E EBITDA by 9.3% and 6.7%, respectively, on account of higher NOV growth expectations in the QCom business. We believe that Blinkit is well placed to capitalize on the large long-term QCom opportunity with strong execution, superior unit economics versus peers, and healthy balance sheet. The stock trades at expensive valuations (50x FY28E EV/EBITDA) as its QCom business is still logging suboptimal profitability. We maintain BUY, while heaving up DCF-based TP by ~48% to Rs430 (from Rs330 earlier).

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