Eternal Ltd. , the company behind popular brands Zomato and Blinkit, has received a significant GST demand order from Uttar Pradesh tax authorities. The order, totaling over Rs 128 crore, raises questions about the company's tax compliance and potential financial implications.

Details of the GST Demand

The order, issued by the Deputy Commissioner, State Tax, Lucknow, includes the following components:

The demand covers the period from April 2023 to March 2024 and relates to alleged short payment of output tax and excess availment of input tax credit.

Company's Response

Eternal Ltd. has stated that it believes it has a strong case on merits and intends to file an appeal against the order before the appropriate authority. The company's stance suggests confidence in its tax practices and a willingness to challenge the demand through legal channels.

Implications and Context

This GST demand comes at a time when Eternal Ltd. has been undergoing significant changes. The company rebranded itself from Zomato to Eternal in March, reflecting its evolving business model and expanding portfolio beyond food delivery.

The substantial tax demand may raise concerns among investors about potential financial impacts and the company's tax management practices. However, Eternal's decision to appeal the order indicates that it does not expect any immediate financial impact.

Regulatory Compliance

In compliance with SEBI regulations, Eternal Ltd. has disclosed this information to the stock exchanges. The company's prompt disclosure aligns with the transparency requirements for listed entities, ensuring that shareholders and the market are informed of significant developments.

As the situation unfolds, stakeholders will be watching closely to see how Eternal navigates this tax challenge and what implications it may have for the company's financial health and market perception.

Eternal Ltd , formerly known as Zomato, reported a mixed bag of results for the second quarter, with substantial revenue growth overshadowed by a decline in profitability. The food delivery giant's strategic shifts and expansion efforts have yielded significant top-line growth but at the cost of near-term margins.

Revenue Soars, Profits Dip

Eternal Ltd's consolidated revenue from operations surged nearly threefold to Rs 13,590.00 crore in Q2, significantly beating analyst estimates of Rs 8,665.00 crore. This remarkable growth was primarily driven by the company's transition to an inventory-led model in its quick commerce segment, Blinkit.

However, the company's net profit declined by 63% to Rs 65.00 crore, down from Rs 176.00 crore in the same quarter last year. The profit decline was attributed to higher inventory costs and compressed EBITDA margins, which fell to 1.8% from 4.7% in the previous year.

Segment Performance

The quick commerce segment, Blinkit, emerged as the star performer with a staggering 756.00% year-on-year growth. Food delivery maintained steady growth at 23.00%, while the Going Out segment (dining and entertainment) grew by 24.00%. Hyperpure, the B2B supplies segment, saw a decline due to the shift in the quick commerce business model.

Strategic Shifts and Investments

Eternal Ltd has been aggressively expanding its quick commerce operations. The company added 272 new dark stores during the quarter, bringing the total to 1,816. Management expects to reach 2,100 stores by December 2025, indicating continued focus on this high-growth segment.

The company has also made strategic investments in marketing and customer acquisition, with marketing spends in Q2 up approximately 4 times year-on-year and 1.4 times quarter-on-quarter.

Analyst Opinions

Brokerage opinions remain divided on Eternal Ltd's performance and outlook:

• Bank of America, UBS, Emkay, and Nuvama maintained Buy ratings with target prices between Rs 400.00-430.00, citing strong revenue growth and positive guidance for quick commerce expansion.
• Macquarie, however, maintained an Underperform rating with a Rs 200.00 target price, expressing concerns over rising competitive intensity and questioning the sustainability of profitability given the company's high valuation multiples.

Management Commentary

Deepinder Goyal, Managing Director and CEO, commented on the results: "While our revenue growth has been strong, we are consciously investing in market share growth and expansion. We believe these investments will drive long-term value creation, even if they impact near-term profitability."

The management expects Blinkit to achieve 100% growth over the next 1-2 years, underlining the company's bullish stance on the quick commerce segment.

Outlook

As Eternal Ltd continues its aggressive expansion in the quick commerce space and maintains steady growth in its core food delivery business, investors will be closely watching how the company balances growth with profitability. The coming quarters will be crucial in determining whether the company's strategic investments translate into sustainable long-term value creation.

Investors should note that while the top-line growth is impressive, the decline in profitability and margins warrants careful consideration. The company's ability to improve operational efficiency and achieve economies of scale in its rapidly growing segments will be key factors to monitor in the future.