Buy Eternal Ltd for the Target 400 by Emkay Global Financial Services Ltd
Eternal's 1QFY27 results exceeded expectations, with Blinkit's NOV growth accelerating (by 19.1% qoq vs 8.2% growth in 4QFY26) as seasonal tailwinds aided the structural buildout – assortment expansion, geographical expansion, and demand densification. While Blinkit’s AOV dipped marginally, strong MTU growth and increased frequency demonstrate Blinkit’s ability to gain market share despite higher competitive intensity. The Food Delivery NOV also grew, by 20.1% yoy vs 18.8%/16.6% growth in 4Q/3QFY26, with margin expansion leading to adj EBITDA growth of 34.4% yoy. We expect competitive intensity to remain elevated in the upcoming festive season. Blinkit has demonstrated its ability to retain market share while maintaining profitability. Considering Eternal’s strong execution track record in Quick Commerce (QCom), sturdy Food Delivery momentum, and adequate cash reserves, we retain BUY on the stock. We increase FY27E/28E QCom NOV by 5.4%/8.0%, on the back of strong growth momentum. We revise up our TP by 8.1% to Rs400 from Rs370.
Blinkit delivers NOV growth surprise
Blinkit NOV accelerated 19.1% qoq to Rs171.3bn in 1QFY27. Its focus on growth is reflected in the 1.8% qoq decline in NAOV to Rs518, while MTU growth accelerated (16.9% vs 15.3% in 4QFY26) and frequency increased (3.47 vs 3.36 in 4QFY26). Take rate increased by 60bps qoq to 27.5%, though the 2.0% qoq rise in direct costs/order to Rs115 resulted in a 10bps decline in contribution margin to 4.0%. The increase in direct cost is attributed to some states implementing minimum wages and higher delivery payouts during summers. Dark store addition remained robust at 200 stores, taking the cumulative count to 2,443.
Food delivery - Growth acceleration with profitability improvement
Food Delivery NOV grew 20.1% yoy, led by 18.8% growth in MTU. Adj EBITDA increased 34.4% yoy to Rs6.06bn, with 17/60bps qoq/yoy margin expansion. We attribute the strong growth and profitability in Food Delivery to higher density and improved monetization (80/320bps qoq/yoy rise in take-rate to 32.8% of NOV). Hyperpure revenue has stabilized at ~Rs10bn, with adj EBITDA at Rs100mn. District NOV accelerated 60% yoy to Rs32.2bn; adj EBITDA margin improved by 100bps qoq to -2% of NOV.
Outlook, valuations - Best placed to capitalize on the large QCom opportunity
We believe that the QCom opportunity in India is huge and Blinkit’s superior execution will ensure it captures majority of the market share. Eternal expects 40% ROCE for the QCom business at steady-state, despite the Rs25mn capex per store and 12-day working capital. At steady-state, EBITDA margin is likely to reach 6%. The stock trades at 32.5x FY28E EV/EBITDA. We maintain BUY while revising up DCF-based TP to Rs400, implying 34.5x FY28E EV/EBITDA for Food Delivery and 1.75x FY28E EV/NOV for QCom business.
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