Eternal's Blinkit margin guidance supports growth thesis despite elevated quick-commerce capex

Investment View

Motilal Oswal Financial Services Limited reiterated its BUY rating on Eternal in its July 22, 2026 results update. The broker views the food delivery business as stable and sees Blinkit providing a long runway to benefit from the structural shift in retail, grocery and e-commerce. Although quick-commerce competition remains elevated, Motilal Oswal believes it has become more predictable, with Eternal's business model showing a clearer path to structurally higher margins.

1QFY27 Performance

Net revenue exceeded Motilal Oswal's expectations, while reported EBITDA was below estimate. PAT was materially below the broker's forecast, principally because of a higher-than-expected tax charge.

Food Delivery Growth and Margins

Food Delivery NOV grew more than 20% year on year, marking the fourth consecutive quarter of acceleration. Management attributed the performance to faster new-customer additions over the preceding three to four quarters and higher order frequency among existing users.

Food Delivery adjusted EBITDA margin increased 10 basis points quarter on quarter to 5.6% of NOV, near the upper end of management's 5-6% steady-state range, although below Motilal Oswal's 6.1% estimate. Food Delivery revenue grew 13% quarter on quarter and 33% year on year, while contribution margin was unchanged sequentially at 10.2% of NOV.

Blinkit Profitability and Investment

Blinkit's adjusted EBITDA margin was 0.6% of NOV, or Rs 102 crore, in line with the broker's expectation. Its contribution margin declined 10 basis points sequentially to 5.3%. Management guided towards the higher end of Blinkit's long-term profitability range, targeting around 4% reported EBIT margin and around 6% adjusted EBITDA margin.

Management said recent take-rate improvement had not yet fully flowed into contribution margin because of minimum-wage increases in several states and the opening of larger stores.

The key near-term concern is elevated Blinkit investment. Blinkit capex was Rs 710 crore in 1QFY27, materially above prior quarters, driven primarily by warehousing-capacity additions. Quick-commerce free cash flow burn was Rs 778 crore.

Motilal Oswal notes that warehouse-linked capex is lumpy, but considers expansion into frontier cities and warehouse openings critical to achieving attractive returns on incremental investment. Management's refreshed steady-state framework assumes Rs 2.5 crore capex per store, working capital of 12 days of NOV and daily NOV per store of Rs 11 lakh. These assumptions imply pre-tax RoCE of about 41.7% at a 4% EBIT margin.

Competitive Environment and Long-Term Outlook

Competitive intensity remains a risk. Management described 1QFY27 as the period of peak competition so far, while Motilal Oswal cautioned that newer entrants could keep the market irrational for longer. The broker considers straight coupon-led discounting unsustainable and expects future competition to centre more on assortment intelligence and supply-chain efficiency.

Management's longer-term target is more than 60% NOV growth and US dollar 1 billion of EBITDA by FY29, supported by store maturity and operating leverage.

Earnings Estimates and Valuation

Motilal Oswal reduced FY27E EPS by 7.1% to Rs 2.27, largely because of the 1QFY27 tax outcome, while FY28E EPS was reduced 1.9% to Rs 4.54.

The broker's Rs 400 target price uses a sum-of-the-parts approach. Food Delivery is valued at 35 times EV/EBITDA, Blinkit is valued using DCF with 12% WACC and 4.5% terminal growth, and residual businesses including Hyperpure and Going-out are assigned around US dollar 1 billion of value.