Buy Eternal; target of Rs 430: Emkay Global Financial

Emkay Global Financial' research report on Eternal

Eternal reported better-than-expected revenue growth, aided by strong NOV growth in Quick Commerce (QCom, 137% YoY) and accelerated shift to owned inventory model. EBITDA was largely in line with expectations, wherein weaker QCom EBITDA offset the stronger food delivery EBITDA. QCom margin disappointment was on higher marketing spends toward acquiring new customers and accelerated store network expansion. We believe when the industry is in a ‘landgrab’ phase, the company should focus on market share rather than profitability. Blinkit is executing well on this front, and significantly superior unit economics and balance sheet versus peers allow it to invest in this growth and gain market share.

Outlook

We increase our NOV growth expectations, while keeping long-term QCom margins at 5%. We maintain BUY on the stock while we hoist DCF-based target price by ~48% to Rs430 (from Rs330 earlier).