Whalesbook
Ambit Capital has reiterated its 'Sell' rating on Eternal (formerly Zomato), highlighting concerns over high cash burn and aggressive marketing spends that are hindering profitability. Despite Blinkit's strong year-on-year net order value (NOV) growth of 137%, which surpassed Ambit's forecast, its margins have decreased. The brokerage now anticipates Blinkit will achieve breakeven only by FY27, impacted by a shift to an inventory-led model, increased store expansion guidance, and a 1.4 times quarter-on-quarter rise in marketing spend.
The company's core food delivery business saw slower gross order value (GOV) growth of 18% and NOV growth of 14% year-on-year, falling below its guidance. Although food delivery margins improved slightly to 5.3% of NOV, Ambit suggests further take-rate hikes are unlikely due to existing restaurant commission pressures and flat orders per restaurant.
Concerns are amplified by Eternal's substantial cash burn of Rs 1,100 crore in the first half of FY26 and escalating promotional activities. Increased competition from new fund raises by companies like Zepto and Rapido, alongside expansion by Amazon and Flipkart, is expected to further pressure pricing and profitability. Ambit noted that Eternal's business model requires sustained investment and is neither low-capex nor working-capital-light.
Furthermore, the Going-Out segment experienced widening losses, and the Hyperpure business saw a revenue decline of 31% year-on-year after its transition to an inventory model. Ambit values the food ecosystem business at Rs 100 per share on a Discounted Cash Flow (DCF) basis. The brokerage maintains a target price of Rs 202 per share, which, at the current trading price of around Rs 343, implies a potential downside of 39%. Ambit's valuation already factors in significant growth for Blinkit and a substantial exit EBITDA margin.
Impact
This news directly impacts investors' sentiment and potential trading decisions concerning Eternal (formerly Zomato). The brokerage's strong 'Sell' rating and warnings about profitability can lead to sell-offs, affecting the company's stock price and potentially influencing investor perception of the quick commerce and food delivery sectors in India. The high cash burn and competitive landscape are critical factors for the Indian market. Rating: 8/10.
Terms
Ambit Capital: A financial services group in India providing research, advisory, and asset management services.
'Sell' rating: A recommendation from a financial analyst or brokerage suggesting investors should sell a particular stock because they expect its price to fall.
Cash burn: The rate at which a company is spending its capital, especially when it is operating at a loss.
Profitability: The ability of a business to earn a profit.
Blinkit: A quick commerce platform owned by Eternal (formerly Zomato), focused on delivering groceries and other essentials within minutes.
Year-on-year (YoY): A comparison of a period with the same period in the previous year.
Adjusted EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, adjusted for certain non-recurring or non-cash items. It is a measure of a company's operating performance.
Net Order Value (NOV): The total value of orders placed through the platform after accounting for discounts and cancellations.
Gross Order Value (GOV): The total value of orders placed through the platform before accounting for discounts and cancellations.
Take rate: The percentage of the gross order value that a platform company keeps as revenue.
EBITDA losses: A situation where a company's earnings before interest, taxes, depreciation, and amortization are negative, indicating operating losses.
Inventory-led model: A business model where the company holds and manages its own inventory of goods, rather than acting solely as a marketplace for third-party sellers.
CY25: Calendar Year 2025.
FY26: Financial Year 2026 (typically April 2025 to March 2026 in India).
FY27: Financial Year 2027.
DCF basis: Discounted Cash Flow, a valuation method used to estimate the value of an investment based on its expected future cash flows.
Market capitalisation: The total market value of a company's outstanding shares.
CAGR: Compound Annual Growth Rate, the mean annual growth rate of an investment over a specified period of time longer than one year.
Exit EBITDA margin: The expected EBITDA margin when a company is sold or reaches its mature stage.
Zepto: A rapid grocery delivery service company in India.
Rapido: A bike and auto-rickshaw ride-sharing platform in India.
Hyperpure: Eternal's (Zomato's) business-to-business (B2B) supplies platform for restaurants.
Going-Out: Eternal's segment that includes dining out and entertainment bookings.