Shares of Eternal, the parent company of Zomato, have surged by over 30% since March this year, reflecting renewed investor confidence in the foodtech giant’s growth plans, operational turnaround, and strategic diversification. This sharp rally has raised crucial questions among market watchers and long-term investors: Is the rally fundamentally justified, or is it merely speculative momentum driven by broader market buoyancy?
What Triggered Eternal’s Recent Stock Rally?
Several key factors have contributed to Eternal’s share price rise:
- Consistent Profitability by Zomato
- Zomato turned profitable on a consolidated basis in FY24, a major milestone for the company that had been criticised for its high cash burn post-listing.
- Improved average order values, optimised delivery partner commissions, and focus on high-margin categories such as premium dining and B2B Hyperpure boosted margins.
- Blinkit Growth Story
- Blinkit (formerly Grofers), Zomato’s quick commerce arm, continues to outperform expectations with a significant increase in gross merchandise value (GMV) and near-break-even performance in top 15 cities.
- Market share gains against competitors like Zepto and Swiggy Instamart added to positive sentiment.
- Strategic Investments
- Eternal recently expanded into food logistics SaaS solutions and restaurant POS integrations, diversifying beyond food delivery into enabling restaurant operations digitally.
- Its investments in drone delivery startups and cloud kitchen brands are seen as futuristic bets to widen revenue streams.
- Positive Market Sentiment
- The broader rally in Indian tech and consumer internet stocks, driven by FIIs inflows and improved global risk appetite, has lifted Eternal’s valuation multiples.
Financial Performance Snapshot
| Metric | FY22 | FY23 | FY24 |
|---|---|---|---|
| Consolidated Revenue | ₹4,192 crore | ₹5,540 crore | ₹7,010 crore |
| EBITDA | -₹1,050 crore | -₹550 crore | ₹230 crore |
| Net Profit/Loss | -₹1,222 crore | -₹971 crore | ₹80 crore |
| EBITDA Margin | -25.0% | -9.9% | +3.3% |
| Gross Order Value (Zomato) | ₹21,900 crore | ₹28,000 crore | ₹34,000 crore |
| Active Users (Monthly) | 32 million | 36 million | 42 million |
The shift from negative EBITDA to profitability within two years marks a remarkable turnaround, enhancing investor confidence in Eternal’s execution.
Key Drivers Of Zomato’s Sustainable Growth
- Quick Commerce Leadership
- Blinkit’s fast-growing quick commerce segment is witnessing GMV growth of over 70% YoY, driven by demand for 10-minute deliveries of essentials, groceries, and daily convenience items.
- Premiumisation And Dining Out
- Zomato Gold and dining out programs have expanded, catering to premium urban consumers, resulting in higher spends per transaction.
- Synergies Across Platforms
- Integration of Hyperpure, feeding Zomato’s restaurant partners with reliable ingredient supplies, is improving supply chain stickiness and expanding B2B revenue.
- Technology Investments
- Investments in AI-enabled restaurant recommendations, customer retention algorithms, and drone delivery pilots reflect its intent to remain ahead of the innovation curve.
Is The Current Valuation Justified?
At current levels, Eternal trades at an EV/Sales multiple of ~7.2x FY24 revenue, higher than most global foodtech peers. However, analysts believe that:
- Profitability Is Still Nascent: While Zomato reported profits in FY24, sustaining them amidst intense quick commerce competition remains challenging.
- Blinkit’s Future Capital Needs: Quick commerce has thin margins and high capital requirements, raising questions on how Eternal will fund expansion without straining cash flows.
- Competitive Threats: Swiggy, Amazon Fresh, Zepto, and Reliance JioMart continue to intensify market competition with aggressive pricing and delivery offers.
Management Commentary On Future Plans
Deepinder Goyal, CEO of Zomato, recently stated:
“We are no longer just a food delivery company; we are building an integrated food ecosystem – from sourcing to delivery to dining out experiences. Our investments in Blinkit, Hyperpure, and dining out are designed to drive long-term profitability and leadership.”
He also hinted at international expansion opportunities and drone delivery pilots, reflecting an ambitious vision beyond India’s foodtech market.
Analyst Views
- Bullish View
- Eternal is well-positioned to capitalise on India’s growing food delivery and quick commerce segments, backed by strong tech, brand recall, and operational synergies.
- Sustainable EBITDA and positive cash flows from FY24 onwards could support a re-rating of the stock.
- Cautious View
- Some brokerages advise caution, citing high valuations, quick commerce profitability risks, and execution challenges in integrating multiple verticals.
Investor Takeaways
For investors, the critical questions are:
- Can Eternal sustain profitability as it scales quick commerce and new ventures?
- Is the current premium valuation justified given competitive pressures and margin uncertainties?
- How will its strategic bets in drone deliveries, international expansion, and B2B SaaS solutions play out over the next 3-5 years?
While momentum traders may continue to feast on the stock’s rally, long-term investors should align their decisions with risk appetite, portfolio exposure to tech/consumer internet sectors, and expectations of structural profitability.
Conclusion
Eternal’s 30% rally since March signals market optimism around Zomato’s profitability turnaround and Blinkit’s growth momentum. However, whether this optimism translates into sustained shareholder returns depends on execution discipline, market share defence in quick commerce, and prudent capital allocation in new bets. As India’s consumer internet story matures, Eternal must demonstrate that it is not just feasting on market growth but is building enduring value with profitable scale.
Disclaimer: This content is for informational purposes only. Investors are advised to consult their financial advisor before making any investment decisions in equity markets.
