Eternal Ltd’s food delivery business Zomato has seen a linear drop in growth rates for all quarters in fiscal year 2025 (FY25). The net order value (NOV) growth of 14% year-on-year for the March quarter (Q4FY25) is nearly half of 27% in Q1FY25. The situation isn’t too different for gross order value (GOV). True, the profitability ratio based on NOV is higher, but that’s just because of a lower denominator, given that NOV is nothing but GOV minus discounts.
The Eternal management cited softness in discretionary spending among the various reasons for the growth slowdown in food delivery. Plus, there was a temporary shortage of delivery partners. Also, it delisted 19,000 restaurants due to poor hygiene and misleading business practices. Additionally, Q4FY24 had one more day owing to the leap year, which weighed on growth.
Zomato has decided to shut down its 10-minute food delivery business ‘Quick’ due to inadequate restaurant density and a lack of good kitchen infrastructure. The homely meals service ‘Everyday’, too, is being discontinued, given that scaling up beyond office locations would be tough.
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Eternal’s quick-commerce arm Blinkit continued its rapid expansion by adding an all-time high number of 294 stores in a quarter, taking the total to 1,301 by the end of Q4FY25. Consequently, NOV and average monthly transacting users increased sequentially by 22% and 29% to ₹7,362 crore and 13.7 million, respectively. Still, lower revenue from new stores and higher initial costs meant that adjusted Ebitda (before Esops, or employee stock ownership plans, but after lease rentals) loss widened to ₹178 crore from ₹103 crore in Q3FY25.
Ebitda is short for earnings before interest, taxes, depreciation and amortization.
Encouragingly, Blinkit’s contribution margin (sales minus variable costs) seems to have bottomed out. While the margin was 80 basis points (bps), or 0.80 percentage point, lower year-on-year, it increased 10 bps sequentially to 3.9% of NOV in Q4FY25. But this does not mean competition in quick commerce has peaked out. On the contrary, the management pointed out that the competition has been intensifying and the line between quick commerce and e-commerce is getting blurred as Amazon and Flipkart have been reducing their delivery time even in normal course.
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Still, Blinkit could have an edge over rivals in terms of enhancing profitability as it seeks to remain an Indian-owned and Indian-controlled company that will allow it to own inventory. Eternal’s current foreign shareholding is 44.8% as of March and it plans to cap it at 49.5%. Note that peers Swiggy, Zepto, Amazon and Flipkart have higher foreign shareholding, which does not allow them to own inventory. Thus, they are restricted to just being a marketplace for third-party sellers.
According to the management’s assessment, if the entire quick-commerce business is shifted to the owned inventory model, it would need about ₹1,000 crore (or 5% of FY25 NOV) as additional working capital with an inventory holding period of 15 days. This is meagre considering that it had raised ₹8,500 crore through qualified institutional placement in Q3FY25.
If Blinkit’s business model is shifted to inventory-owned from marketplace, then investors can hope for a faster Ebitda-level breakeven. Meanwhile, a possible negative of capping foreign shareholding could be some selling from foreign funds as its weightage in indexes formulated by MSCI and FTSE will drop.
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In any case, current valuations don’t offer much comfort. The stock trades at 79x its estimated FY27 earnings per share, based on a Bloomberg consensus. Eternal’s management is clear about chasing growth, making profitability appear distant in the backdrop of rising competition. As a result, only investors with a long-term view may bet on the stock’s prospects.
