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Prioritising long-term value creation over near term gains in QC

Eternal’s 2QFY26 results suggest that the management will henceforth be prioritising long-term value creation over near-term gains in quick commerce. The company delivered solid NOV growth in quick commerce (+137% YoY, +27% QoQ) and accelerated supply chain (dark store / warehousing densification) and MTU expansion to drive meaningful market share gains over the near to medium term, with 100%+ NOV growth now expected in FY27 as well. However, its absolute loss reduction was nominal as Adj. EBITDA loss stood at INR 1.56bn (below JMFe of INR 0.93bn) vs. INR 1.62bn in 1Q. Importantly, accelerated growth investments such as plans to expand dark-store network to 2,100 stores by Dec’25 and increased marketing spends (1.4x QoQ/~4x YoY in 2Q) are likely to push out the break-even in the business till 1QFY27. Nevertheless, we believe as and when management’s focus shifts towards profitability, Eternal will deliver a sudden ramp-up in its absolute EBITDA profits. Accordingly, while we take sharp cuts in our Consol. FY26 EBITDA/EPS estimates, we raise our FY27/28 estimates. We reiterate Eternal as our preferred pick with a revised Sep’26 TP of INR 450 (NTM PER of 80x).

* Blinkit – exponential growth trends to sustain in FY27 as well but break-even likely to get pushed to 1QFY27:

Blinkit’s NOV grew a robust 137% YoY (+27% QoQ) to INR 116.8bn, broadly in-line JMFe. Growth was mainly driven by 140% YoY expansion in orders (+26% QoQ), which in turn was driven by strong MTU expansion to 20.8mn from 16.9mn/8.9mn in 1QFY26/2QFY25. NAOV was flattish (-1% YoY, +1% sequentially). Adj. EBITDA margin (% of NOV) stood at -1.3% (+42bps QoQ), a miss on JMFe by 56bps, due to sharp increase in marketing spends (~4x YoY, 1.4x QoQ). As a result, while Adj. EBITDA loss narrowed to INR 1.56bn from a loss of INR 1.62bn in 4QFY25, it was below JMFe of INR 0.92bn. During the quarter, the company added 272 stores (243/294 stores in 1QFY26/4QFY25), with total store count reaching 1,816. The management now expects to operate ~2,100 active stores by the end of Dec’25 vs earlier guidance of ~2,000 stores with a potential of expansion to 3,000 stores by Mar’27. The management highlighted that NAOVs across Tier-1 and Tier-2/3 cities are broadly similar, with margins in smaller cities currently a bit lower due to a narrower assortment (expected to improve as assortments deepen). On the inventory-led transition, in 2QFY26, about 80% of Blinkit’s NOV was already on its own inventory, which is expected to reach a steadystate level of ~90% in the next quarter. As a result of this shift, net working capital (NWC) in the quick commerce business rose to ~12 days of annualised NOV, and the management continues to guide for NWC to remain below 18 days (~5% of NOV) once the transition fully stabilizes. It reiterated that the net margin uplift from the 1P model will be about +100bps, to be realised gradually over the next 4–6 quarters (a change from earlier expectation of 2-3 quarters), as brand contracts mature and supply chain efficiencies kick in. The step-change in revenue from the 1P transition is largely complete, and incremental gains will now be driven by mix improvement and operating leverage. Over the long term, the management continues to view the inventory-led model as highly capital efficient, with capex per store (including backend warehousing) at ~INR 10mn, and remains confident that this structure will support strong returns on capital and sustainable profitability as scale deepens.

* Zomato (Food delivery) – Marginal miss on NOV but profitability above expectations: Zomato’s NOV grew ~14% YoY (+5% QoQ) to INR 94.2bn, marginally below JMFe by c.1%. The management again reiterated that YoY growth is likely to have bottomed out. Having mentioned that, in FY26, Food delivery NOV growth will be 15%+ instead of 20%, albiet long-term guidance of 20% is maintained subject to macro and quick commerce substitution headwinds. NOV expansion was largely driven by MTU expansion to 24.1mn from 22.9mn in 2QFY25 (22.9mn in 1QFY26). Take-rate (as a % of NOV) excluding customer delivery fees grew 116bps sequentially to 26.4%. Similarly, take rate (as a % of NOV) including delivery fees grew 75bps QoQ at 30.4%. Reported revenue was up 24% YoY (+10% QoQ) to INR 24.6bn. Contribution margin (% of NOV) grew ~49bps QoQ to 10.4% (JMFe of 10.1%) while Adj. EBITDA margin (as a % of NOV) also grew ~31bps QoQ to 5.3%, a beat on JMFe by 21bps. Overall, Adj. EBITDA in 2Q stood at INR 5.03bn vs. INR 4.51bn/INR 3.41bn in 1QFY26/2QFY25 respectively, and was a beat on JMFe by c.3%.

* Hyperpure – likely to turn profitable over the next 2 quarters: Revenue declined 55% QoQ (- 31% YoY) to INR 10.2bn, but was ahead of JMFe of INR 8.8bn. The decline was on account of Blinkit transitioning to an inventory-led model, as a result of which the non-restaurant business of Hyperpure will be phased out completely in the coming quarters. However, the shift in Blinkit’s business model will have no impact on Hyperpure’s restaurant business. Hyperpure’s Adj. EBITDA loss stood at INR 50mn vs. loss of INR 180mn in 1Q. Adj. EBITDA margin (as % of revenue) for this business stood at -0.5% vs. -0.8% in 1Q. Importantly, adjusted for nonresturant business, Hyperpure delivered 42% YoY revenue growth with losses coming down to INR 80mn from INR 180mn in 1Q. Management expects the core restaurant business of Hyperpure to deliver 40% YoY, with the business likely to turn profitable over the next 2 quarters.

* Going-out (District app) – remains in investment phase: Going-out NOV grew c.32% YoY to INR 20.6bn in 2QFY26 (2.5% QoQ). The segment reported Adj. EBITDA loss of INR 630mn vs. loss of INR 540mn in 1QFY26. The management highlighted that it will continue to invest in category building through FY26 and expects losses to remain range-bound around current levels. A turnaround in loss trajectory of this business is expected to start some time in FY27, as per management. It also mentioned that it has onboarded ~3.4k outlets across six cities and enabled 60k+ transactions till date. The management plans to scale the business continuously.

* Other key takeaways from shareholders' letter: 1) The company highlighted that the recent GST rate cuts (effective late 2QFY26) are expected to aid Blinkit’s demand momentum from 3QFY26 onward, while food delivery growth could remain slightly subdued in the near term as the 18% GST on delivery charges—now being passed on to customers—may temper order frequency. 2) The company launched District in Dubai, expanding dining-out and live events offerings in the UAE — marking the first international rollout of the District platform. 3) The management reaffirmed NOV (Net Order Value) as its primary growth indicator, emphasising that GOV (Gross Order Value) can be misleading due to brand-funded discounts. This reinforces the company’s intent to align performance tracking with actual value creation rather than promotional intensity.

* Maintain ‘BUY’ on Eternal with a revised TP of INR 450: We revise down our NOV estimates for Zomato (food delivery) by 1-4% over FY26-28 on the back of management commentary that growth is likely to be slower than earlier estimated. On the other hand we raise Blinkit’s NOV estimates by 23-48% over FY27-28 to factor in very strong growth trends in the business, aided by accelerated store expansion. On the margins front, we raise Zomato’s Adj. EBITDA margin by ~9-26bps (% of NOV). In quick commerce, we tone down our Adj. EBITDA margin (as % of NOV) estimates by 27-147bps over FY26-28 basis management commentary that it would prioritise growth and market share gains over near term profitability, Overall, our EPS estimates are cut in FY26 by c.66% while our FY27 and FY28 estimates are raised by 5-15%. We continue to assign a target multiple of 80x on Eternal’s Sep’27 EPS to arrive at revised Sep’26 TP of INR 450. Eternal continues to be one of our preferred picks in the listed Internet space as we believe it is well positioned to benefit from robust industry tailwinds for the hyperlocal delivery businesses. Its balance sheet also remains strong with net cash of INR 183bn as of Sep’25 (INR 189bn in Jun’25). We maintain ‘BUY’.

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