Eternal Limited Formly Zomato (ETERNAL) Q3 FY26 Earnings: Quick Commerce Hits Break-Even Despite “Irrational” Competition
Eternal Limited has reported a standout third quarter for the fiscal year 2026, marked by a major milestone: its quick commerce division, Blinkit, has officially hit break-even. The company delivered a blistering 130% year-on-year (YoY) growth in quick commerce, proving that the demand for instant delivery is far from cooling down.
However, the quarter wasn’t without its hurdles. Management flagged “irrational competition” as a key challenge, noting that rivals are aggressively discounting and waiving delivery fees to grab market share. Despite this, Eternal managed to expand its margins, signaling strong operational efficiency.
Here is a comprehensive breakdown of the earnings call, analyzing how Eternal is balancing rapid growth with profitability in a hyper-competitive market.
Financial Performance Highlights
The headline story for Q3 is profitability amidst growth. While the top-line numbers surged, the real surprise was the company’s ability to squeeze out better margins even as store efficiency (throughput) took a slight dip.
- Quick Commerce Explosion: The quick commerce vertical grew by 130% YoY, cementing its position as the primary growth engine for the company.
- Profitability Milestone: Blinkit achieved break-even this quarter. This is a significant psychological and financial win for the company, validating the unit economics of instant delivery.
- Margin Expansion:
- EBITDA margins improved by 130 basis points (bps) quarter-on-quarter (QoQ).
- Contribution margins expanded by 90 bps, showing that the core business of selling and delivering goods is becoming more profitable.
- Store Throughput Dip: Interestingly, the “store throughput” a measure of how much business each dark store does dropped by 6% QoQ. Management attributed this to a shift in product mix rather than a demand problem.
- Take Rates: The margin improvement happened even though “take rates” (the commission or fee percentage Eternal earns) actually compressed by 20 bps. This suggests the gains came purely from cost efficiencies and operating leverage.
Business Segment Updates
Eternal operates across three main buckets: Quick Commerce (Blinkit), Food Delivery, and the newer “Going Out” vertical (District). Here is how each performed.
Quick Commerce (Blinkit)
- Defying the Odds: Despite a 6% drop in throughput per store, the segment expanded margins. CFO Akshant Goyal explained that this was driven by a change in “product mix” and better efficiencies in warehouses.
- Inventory Shift: The company has moved 90% of its business to an inventory model. This means they now own more of the stock they sell, which typically allows for better control over margins and availability compared to a pure marketplace model.
- Assortment Expansion: The company is aggressively adding new categories. While this drags down store throughput initially (as these new items don’t sell as fast as milk or bread), it increases the total addressable market for each user.
Food Delivery
- Steady Growth: The mature food delivery business is seeing a slow but steady acceleration. Management expects growth to trend toward 20% YoY.
- Pricing Power: In response to competitive pressure in certain pockets, the company did lower delivery charges in some markets. However, in most top-tier cities, they have largely maintained their market share.
“Going Out” (District)
- Investment Mode: Losses in this segment jumped significantly this quarter. This wasn’t a surprise failure but a deliberate choice. The company launched “District Pass,” a membership program designed to hook users into their event and dining-out ecosystem.
- Future Outlook: Management expects losses here to narrow over the next 4 to 6 quarters as the membership program gains traction.
Strategic Initiatives & Growth Plans
The management team, led by Albinder Dhindsa and CFO Akshant Goyal, outlined a clear roadmap: expanding physical infrastructure and experimenting with new formats.
Aggressive Store Expansion
- The 100% Growth Target: Eternal has a bold goal to grow at 100% YoY for the next couple of years. However, they clarified that this growth relies on opening more stores specifically aiming for 3,500 to 4,000 stores in the long run.
- Capex Increases: Capital expenditure per store is going up. This is because the company is building larger stores and investing in automation to improve warehouse productivity.
- Tier 2 & 3 Push: While they didn’t give a specific split, the company confirmed that store sizes are increasing across the board, and the economic model (contribution margin) in smaller cities is similar to that in top-tier metros.
New Formats: “Bistro”
- Product Market Fit: The company is seeing early success with “Bistro,” a format likely focused on quick, value-driven snacky food.
- Convenience + Value: Management believes Bistro solves a “cuisine gap” in the market offering high-quality food at the right price point. They are cautious but optimistic, noting that if margin visibility clears up, they will accelerate expansion here just like they did with Blinkit.
Inventory Model Shift
- 90% Adoption: The shift to an inventory model is nearly complete. The remaining 10% of items will stay on a marketplace model because they are either slow-moving or better managed by third-party sellers (e.g., specific electronics).
- Margin Benefit: Management expects the full margin benefit of this shift (around 1% accretion) to flow through over the next 6 to 9 months.
Management Commentary on Industry & Macro Trends
The tone of the call was confident but cautious regarding the external environment. The executives didn’t shy away from calling out the aggressive tactics of their rivals.
“Irrational” Competition
- Discount Wars: Management repeatedly used the word “irrational” to describe the current competitive landscape. Competitors are offering low Minimum Order Values (MOVs) and zero delivery fees to win customers.
- Impact on Strategy: While Eternal tries not to react to every move, they admitted to dropping delivery fees in some areas to protect their turf. They warned that if this intensity continues, it makes near-term margin prediction “very hard.”
- Market Share vs. Market Size: A key insight from the CFO was that Eternal feels they are the only ones “meaningfully contributing to increasing the market size,” while competitors are mostly focused on taking share away from existing players.
Regulatory & Labor Environment
- Labor Codes: When asked about new labor regulations and social security costs for gig workers, management remained calm. They believe the business can either absorb these costs or pass them on to customers without derailing the long-term margin guidance.
- GST Impact: The reduction in GST, which lowered basket pricing by roughly 3%, helped demand slightly, but the impact was muted by supply chain challenges during the transition.
Key Challenges & Risks Highlighted
Despite the break-even celebration, the call highlighted several friction points that investors need to watch.
- Unpredictable Margins: Because competition is volatile, management refused to give a straight answer on whether margins will expand next quarter. They were clear: if they need to take a margin hit to defend market share, they will.
- Throughput Drag: The expansion into new categories (like electronics or beauty) slows down inventory turnover. This “assortment expansion” is why store throughput dropped 6%. While profitable, these items don’t fly off the shelves as fast as groceries.
- Rising Costs: Capex is rising due to automation and larger stores. Additionally, working capital days might fluctuate as they manage more inventory directly.
Analyst Q&A – Noteworthy Interactions
The Q&A session was sharp, with analysts pressing hard on the disconnect between slowing store throughput and rising margins.
1. The Margin vs. Competition Paradox
- Question: Goldman Sachs asked how margins expanded despite lower throughput and “irrational competition.”
- Response: The CFO explained it is a “multi-variable problem.” Operating leverage (getting more out of fixed costs) and warehouse efficiencies outweighed the negative impact of competition. However, he warned that this isn’t a guaranteed linear trend margins could be volatile in the short term.
2. Is the 100% Growth Target at Risk?
- Question: Nuvama asked why a short-term spike in competition could derail the 100% growth target if the market opportunity is so huge.
- Response: Management clarified that competition is currently focused on market share theft rather than market expansion. This creates friction. However, they remain confident that in a “rational market,” there is headroom to add significantly more stores to hit that growth.
3. Cash Flow & Capex
- Question: JP Morgan noted that Capex is up and working capital days are expanding.
- Response: The CFO stated they are building for the long term. They are investing in automation which costs more upfront but improves productivity later. They maintained that Return on Capital (ROC) should still be north of 40%.
4. Bistro Economics
- Question: ICICI Securities asked about the scale-up of the Bistro format.
- Response: Management confirmed they have “conviction” on the demand side (customers like it). They are now getting comfortable with the economics (it makes money). It is currently in a “cautious investment” phase but could be accelerated soon.
Forward Guidance & Outlook
Eternal Limited is playing the long game. They are refusing to optimize for quarterly consistency if it means losing the broader war for the Indian consumer.
- Long-Term North Star: The company reaffirmed its ambitious target of reaching $3 billion in Net Order Value (NOV) by 2030.
- Growth Rate: To hit that target, they imply a CAGR of over 30% for the next four years.
- Margin Goals: Management remains confident that the quick commerce business will eventually reach a steady-state EBITDA margin of 5-6% of NOV.
- Near-Term Caution: For the immediate next quarter, they offered no specific guidance on margins, citing competitive volatility. They essentially told investors to expect potential fluctuations as they navigate price wars.
- Loss Reduction: For the “Going Out” business, they expect losses to shrink and aim for break-even within 4-6 quarters.
Key Note
Eternal Limited (powering Blinkit and Zomato) is demonstrating exceptional execution. Hitting break-even in quick commerce a sector many critics called a “cash incinerator” is a pivotal moment.
The company is evolving from a simple delivery app into a complex retail and logistics powerhouse. The shift to an inventory model, the push into automation, and the launch of membership programs like District Pass show a management team that is deepening its “moat.”
However, the repeated mentions of “irrational competition” serve as a warning. The next 12 months will likely be a dogfight for market share. Eternal seems prepared to sacrifice short-term margin gains to protect its dominance, a strategy that historically pays off for market leaders in digital commerce.
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