Eternal's growth engines are firing, as it doubles down on Blinkit expansion

Summary

Eternal's revenue and quick-commerce growth remain strong, but profit missed estimates. As Blinkit expands and competition intensifies, investors will watch returns on fresh investments.

Eternal usually brings some or the other exciting ingredient to the table. This time, while announcing its September quarter (Q2FY27) earnings, it spoke of launching a privacy-focused AI assistant, 'dark.ai'. The assistant would use fine-tuned frontier open-weight models and run on Eternal's own infrastructure with end-to-end encryption. Investors will closely assess how significant this could become after launch.

"We believe user adoption, independently verifiable privacy architecture, benchmarked model quality, and inference economics will determine whether dark.ai develops into a meaningful platform opportunity," said Jefferies India's analysts.

Coming to Q2 earnings, growth was largely in line, but net profit disappointed. Operating revenue surged 78% year-on-year to ₹24,138 crore, while net profit nearly doubled to ₹125 crore, against estimates of ₹250-300 crore.

Blinkit drives growth

Quick commerce remains Eternal's biggest growth engine, contributing nearly 80% of consolidated revenue. Blinkit's revenue soared 94% year-on-year to ₹19,152 crore, while like-for-like growth, which adjusts for revenue from own-inventory sales after Blinkit began owning inventory last year, stood at 84%. Adjusted Ebitda was ₹184 crore, against a loss of ₹156 crore a year ago, with margins improving for the sixth consecutive quarter to 0.9% of NOV (net order value).

Encouragingly, cities contributing 96% of NOV are contribution-positive, while those accounting for 70% are adjusted Ebitda-positive. The management is particularly bullish on smaller cities, while acknowledging that some stores in these markets may remain subscale. So far, such stores have ramped up to 1,000 orders a day at a pace similar to metro stores, with net average order value within 85-90% of metro levels.

Eternal has accordingly raised its store target to 3,500 by March 2027, from 3,000 earlier. It added 308 stores last quarter, taking its footprint to 2,751, against the March 2028 target of 5,000 stores. To be sure, Eternal's consolidated net profit miss was partly due to higher depreciation from more aggressive Blinkit expansion than expected, besides higher effective tax rates.

Blinkit's growth is also moderating against a larger base, even as competition heats up. Its 60% three-year CAGR guidance remains unchanged despite the business tracking ahead of it so far, as new stores clear return thresholds even at current competitive intensity.

While new stores weigh on margins initially, the management expects the improvement in more mature stores and cities to more than offset that, thus expanding margins with growth. Mature stores operate at over 5% margin.

Other businesses

Food delivery business Zomato's NOV grew 21.5% year-on-year to ₹11,445 crore, extending its growth acceleration to a fifth consecutive quarter. Ebitda was 5.5% of NOV. The management is targeting at least 20% year-on-year growth in the business while holding margins flat over the next 1-2 years.

Among other businesses, District is most at risk from AI advancements, but clocked 61% year-on-year revenue-growth to ₹304 crore, ahead of its FY30 plan of 30%+ growth. Ebitda losses continued, however. B2B business Hyperpure's revenue grew 13% to ₹1,154 crore at 0.9% adjusted Ebitda margin.

Going ahead, capital allocation intensity needs closer tracking. "Business momentum is encouraging, but aggressive expansion plans, amid increased competition and losses in new initiatives remain key concerns, given rich valuations," said Dolat Capital.

Eternal's shares trade at 49 times EV/Ebitda on consensus Bloomberg estimates for FY28. This leaves little room for disappointment if returns on incremental investments fail to live up to expectations.