Buy Eternal Ltd for the Target Rs 420 by Emkay Global Financial Services Ltd
Eternal’s 2QFY27 performance was healthy, with Quick Commerce (QCom) NOV growth increasing to 22.2% qoq from 19.1% in 1QFY27 and adjusted EBITDA for Food Delivery growing 24.7% yoy to Rs6.27bn. Growth accelerated for a 5th consecutive quarter to 21.5% yoy, though margin moderated sequentially. Management is seeing strong traction in smaller cities, with OPD ramp-up in line with that in metros along with sustainable unit economics. Blinkit added 308 stores, with store-count now at 2,751; it raised its Mar-27 target to >3,500 stores from 3,000 and Mar-28 target to 5,000 stores. This leads to a ~10% cut in FY27E/28E EBITDA, albeit an increase in FY29/30 estimates by 1%/10%, leading to higher NPV. We believe Blinkit is capitalizing on the QCom opportunity via aggressive network rollout and larger scale feeding into better unit economics. Eternal announced dark.ai, a privacy-first AI assistant aimed at power users, running on frontier open-weight models on Eternal's own infrastructure – pending details on monetization and cost structure, we have a neutral stance. We believe Eternal is best-positioned to capitalize on the QCom opportunity in India. We retain BUY while raising our TP by 5% to Rs420.
QCom sees expansion accelerate with profitability; growth momentum continues in Food Delivery
Blinkit NOV grew 22.2% qoq to Rs209bn; contribution margin was 5.3%; adj EBITDA increased to Rs1.84bn from Rs1.02bn, with reported margin expanding to 0.9%. Per Management, new stores in smaller cities are reaching OPD within a similar timeframe as in metros, with NAOV at 85-90% that of metros. Hence, smaller cities will see store expansion, with stores built around newer categories. Mature cities already generate adj EBITDA margin of >5%, and Management expects improvement in established stores to more than offset the initial drag from new stores. Food Delivery NOV grew 21.5% yoy to Rs114bn, while adj EBITDA reached Rs6.27bn, up 24.7% yoy. Management believes that the food delivery market can see >20% CAGR in the long term
dark.ai – A dark horse?
dark.ai, a privacy-first AI assistant aimed at power users (founders, researchers, enterprises, governments), will run on frontier open-weight models on Eternal's own infrastructure, with end-to-end encryption and user-controlled encrypted memory layer; so Eternal will not be able to read conversations even if compelled. Benchmarks will be released soon and the global launch target is 2026. We are generally positive on a conservative management entering a new segment, especially in the adjacent category. But considering lack of clarity and not-so-adjacent category, we are neutral on this foray.
Outlook and valuation – Strong execution supports expansion
We believe Blinkit’s superior execution will help it capture major market share in QCom. Food Delivery is scaling up well, with industry-leading scale and profitability. The stock trades at 42.8/24.3x FY28/29E EV/EBITDA. We retain BUY; raise DCF-based TP to Rs420, implying 35x FY28E EV/EBITDA for Food Delivery and 1.89x FY28E EV/NOV for QCom.
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