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Execution on track; QC to accelerate

Blinkit accelerates store expansion as competition becomes more predictable

* Eternal reported 2QFY27 net revenue of INR241b (up 19.4% QoQ/77.6% YoY), above our estimated growth of 11.7% QoQ/66.1% YoY.

* Food delivery (FD) NOV came in at INR114.5b, in line with our estimate of INR114.7b. Blinkit NOV came in at INR209b (up 79.3% YoY) vs. our estimate of INR210b. For FD, adjusted EBITDA as % of NOV margin decreased 10bp QoQ to 5.5% vs. our estimate of 5.9%.

* Blinkit reported contribution margin of 5.3% (vs. 5.3% in 1QFY27). Adj. EBITDA margin was at 0.9% vs. our expectation of 1.1%. 2Q PAT stood at INR1,250m, rising 92.3% YoY (est. INR3,928m). Consol. EBITDA came in at INR7.5b (est. INR8.5b), with the miss attributed to a higher loss from the ‘Others’ segment. PAT miss was driven by a higher effective tax rate of ~61% as all tax shields at the standalone parent level have been exhausted in carried forward losses in FY27. Thus, the profitable standalone entity’s profits will now be taxed at the full rate. Our TP of INR420 implies a 35% upside from the current price. We reiterate our BUY rating.

Our view: FD profitability is stable as incremental gains are reinvested

* FD growth to remain the priority, with margins range-bound: Eternal has reiterated its long-term target of 20%+ annual NOV growth, supported by customer additions and high ordering frequency, despite high competitive intensity. Margins are expected to remain broadly flat in the next 1-2 years as incremental profitability is reinvested to expand the market and drive absolute EBITDA growth. For FY27/FY28, we build in ~20% YoY NOV growth and 5.6%/6.0% adj. EBITDA margin as % of NOV.

* Blinkit’s expansion to accelerate, with NOV growth expected to pick up: NOV grew 79.3% YoY in 2Q, and growth is expected to pick up from 3Q as new stores come online and ramp up. Despite intense competition, Blinkit’s assortment intelligence, category breadth and execution capabilities are supporting customer acquisition and store paybacks.

* The FY27-end store target has been raised to 3,500 from 3,000 earlier, with a further increase to ~5,000 by FY28-end. Improving store paybacks in smaller cities and a more predictable competitive environment were cited as key factors supporting the acceleration. Blinkit remains ahead of its 60% NOV CAGR guidance over the three-year period and we model 86%/74% YoY NOV growth for FY27/FY28.

* Mature-city profitability to support incremental store expansion in QC: Management indicated that mature cities already generate adjusted EBITDA margins of over 5%, while cities accounting for ~70% of NOV are adjusted EBITDA positive and those representing ~96% of NOV are contribution positive. While new stores weigh on margins during the initial ramp-up, it expects profitability improvements in mature stores and cities to more than offset this impact.

* District and Hyperpure progress toward profitability: District is on track to achieve adjusted EBITDA breakeven within 4-6 quarters from Jan’26 and deliver INR280b in NOV and INR14b in adj. EBITDA by FY30. Hyperpure revenue grew 22.7% YoY, with restaurant count rising to 85,000 from 62,000; adj. EBITDA margin improved to 0.9% from -0.5% a year ago.

* Dark.ai represents an early-stage investment in privacy-focused AI: Dark.ai is being developed as an AI application using fine-tuned open-weight models hosted on Eternal’s own infrastructure, with end-to-end encryption and usercontrolled encrypted memory. The product targets power users, including founders, researchers and enterprises, who require privacy for sensitive conversations and work. This was described as an early-stage opportunity, with monetization and investment requirements to be assessed following the launch.

* Agentic commerce – fulfilment infrastructure to determine the extent of disintermediation: As discussed in our earlier note (dated 14th Oct’26: Consumer AI agents: Our views on Instinct and Muse), we believe the impact of agentic commerce will vary by business model, with platforms controlling fulfilment and supply-chain infrastructure better positioned than pure intermediaries. Management expects Zomato and Blinkit to remain relatively resilient given their integrated delivery and inventory networks, while District faces higher exposure as its underlying supply can be accessed independently of the platform. It also expects in-app AI interfaces to address repeat-order use cases, while browsing-led discovery remains important for food delivery.

Valuation and changes to our estimates

* Eternal's FD business is stable, while Blinkit continues to offer a long runway to participate in the structural shift in retail, grocery, and e-commerce. We trim our FY27 EPS estimate, driven by a substantially higher tax rate in 2Q, as all tax shields at the standalone parent level have been exhausted in carried forward losses in FY27 and standalone entity profits will now be taxed at the full rate. While competitive intensity remains elevated, competition is becoming more predictable, and the business model appears established, with a clear path to structurally higher margins.

* We continue to factor in management's long-term growth trajectory of 60%+ NOV growth for the QC business, along with gradual margin expansion through store maturity and operating leverage. We expect Eternal to report PAT margins of 0.8%/1.4% in FY27/28. Our TP of INR420 implies a 35% upside from the current price. We reiterate our BUY rating.

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