Eternal Limited , formerly known as Zomato, has reported significant improvements across multiple business segments, with particularly strong performance in its quick commerce division. However, the company is also facing several challenges that may impact its short-term growth prospects and has decided against launching a separate budget-focused food delivery app.

Food Delivery Segment Shows Steady Growth

The company's food delivery segment demonstrated solid progress, with a 14% year-over-year growth in November. More notably, profitability in this segment reached a record high of 5.3%, up from 5.0% in the previous quarter, indicating improved operational efficiency.

Quick Commerce Sees Exceptional Growth

Eternal's quick commerce business exhibited remarkable performance:

• 137% year-over-year growth in November
• 27% quarter-over-quarter growth, marking the best performance in 10 quarters
• Expansion of network with 272 new stores added
• Gain of 3.9 million average monthly active customers

The company's transition to an inventory ownership model in quick commerce is nearing completion, with approximately 80% of November's business using its own inventory model.

Financial Metrics Show Improvement

Eternal's financial metrics demonstrated positive trends:

• Quarterly losses reduced to INR 156.00 crore from INR 162.00 crore in the previous quarter
• Adjusted EBITDA margin improved from -1.8% to -1.3% in November

Segment-wise Performance

Challenges and Headwinds

Despite the strong performance in key segments, Eternal is facing several challenges that could impact its short-term growth:

• Weaker consumer spending patterns
• Increased competition from rapid delivery services
• Unstable weather conditions affecting operations

These factors may pose obstacles to the company's growth trajectory in the near future.

No Plans for Separate Budget App

Eternal Ltd has announced it has no immediate plans to launch a separate budget-focused food delivery app, unlike competitors Swiggy Ltd and Rapido. While Swiggy operates 'Toing' in select Pune locations targeting students, and Rapido runs 'Ownly' across select Bengaluru areas, Eternal is taking a different approach.

Co-founder Deepinder Goyal stated that the company prefers maintaining a streamlined operational structure and is willing to be the last mover in this space. Instead of launching a separate app, Eternal is addressing budget-conscious consumers by reducing the minimum order value for free delivery to Rs 99 for Zomato Gold users, down from Rs 199. The company cited that launching another app would significantly increase organizational complexity.

Looking Ahead

While the significant growth in quick commerce and the improved profitability in food delivery indicate that Eternal is successfully executing its business strategy, the company will need to navigate the identified challenges effectively. The company's focus on expanding its quick commerce network and transitioning to an inventory ownership model may continue to drive growth, but the impact of external factors will need to be closely monitored.

Investors and market watchers will likely keep a close eye on how Eternal maintains its growth momentum, addresses the current headwinds, and further improves its profitability metrics across all segments. Additionally, the company's decision to forgo a separate budget app in favor of enhancing its existing offerings will be an interesting strategy to watch in the competitive food delivery market.

Eternal , the parent company of food delivery giant Zomato, is poised to report a staggering revenue growth in its September quarter results, primarily fueled by its quick commerce platform Blinkit. However, the company's profitability is expected to face significant pressure.

Revenue Boom vs Profit Squeeze

Analysts project a remarkable year-on-year revenue growth of up to 137% for Eternal in Q2. This surge is largely attributed to the strong performance of Blinkit, the company's quick commerce arm. However, the bottom line paints a contrasting picture, with profit after tax (PAT) potentially declining by up to 71% year-on-year.

Financial Projections

Brokerage estimates for Eternal's Q2 performance show:

Segment-wise Performance

Food Delivery

• Projected gross order value: Rs 11,340 crore
• Year-on-year growth: 17%

Blinkit (Quick Commerce)

• Estimated gross order value: Rs 14,590 crore
• Quarter-on-quarter growth: 24%

Growth Drivers and Challenges

The substantial revenue growth is primarily driven by:

1. Strong performance of Blinkit in the quick commerce segment
2. Steady growth in the core food delivery business

However, profitability is under pressure due to:

• Elevated costs
• Increased rider incentives
• Higher marketing expenses

Market Competition and Sustainability Concerns

Analysts have raised concerns about the sustainability of Eternal's high growth trajectory, citing intensifying competition in the quick commerce space. Key competitors include:

• Zepto
• Amazon
• JioMart

The company's continued heavy spending on customer acquisition and market expansion is expected to keep profitability under pressure in the near term.

Investor Outlook

While the revenue growth presents an optimistic picture, investors may need to closely monitor the company's path to profitability. The balancing act between aggressive growth and sustainable profitability will likely be a key focus area for Eternal in the coming quarters.