Eternal moves to cap FPI shareholding to 49.5%, brokerages bullish on margin expansion

Over the past 12 months, shares of Zomato have given investors returns of around 11 percent.

Formerly known as Zomato, Eternal, has proposed to implement a limit on total foreign ownership of 49.5 percent in the firm's equity share capital. Brokerages reiterated their bullishness following this move, as it would allow Eternal to be known as an Indian-Owned-and-Controlled Company (IOCC).

As of March 31, 2025, the aggregate Indian shareholding in the company was 55 percent, above the 51 percent threshold required to be termed an IOCC (Indian-Owned-and-Controlled-Entity).

However, despite having a majority Indian ownership, Eternal said, "Unlike many Indian-listed companies, we are a professionally-managed public company without an  identifiable promoter group holding a substantial stake. This makes us structurally different from most IOCCs in

India, where promoter holdings often serve as a safeguard for maintaining domestic control.

To ensure we retain our IOCC status, we are seeking an enabling approval from shareholders."

The company also believes that by offering working capital support directly to small brands and

manufacturers and/or by using its balance sheet to own inventory, Blinkit can help drive growth for many such product categories, said Eternal in an exchange filing.

Analysts at JM Financial noted that the IOCC classification is crucial for Eternal to be able to switch to an own inventory business model in its quick commerce business (Blinkit) from a marketplace business model that it currently operates.

The exchange filing listed a few reason why Blinkit could benefit from an inventory business model:

1. The firm can directly source merchandise from brands/manufacturers without having to engage third-party-sellers, thereby getting better control over operations
2. Introduce new, underserved categories or merchandise that third-party-sellers may not be currently investing due to inability to fund working capital investments
3. Seek better commissions from brands/manufacturers by leveraging the platform’s scale advantage
4. Offer high-quality, competitive-priced products under its own brand names
5. Expand operating margins and cash flows due to better product commissions and other operational efficiencies.

However, as per India’s FDI policy, only IOCC-classified companies (i.e., those that have majority Indian ownership and control) can operate an inventory-based business model, whereas up to 100 percent foreign ownership is allowed in a marketplace-based business model.

Conversion to an IOCC will bring Blinkit on par with other large Indian retailers such as Reliance and Dmart. Among e-commerce companies, Blinkit will be the only IOCC, with Swiggy (~28 percent domestic shareholding), Zepto, Flipkart and Amazon having much lower domestic ownership.

Any change in government regulation favoring IOCCs will be a positive for Blinkit. If at a future date the IOCC status is no longer essential, Eternal may return to shareholders to remove the cap, noted Kotak Institutional Equities.

"We expect a shift to the inventory-led model to add 40-50 bps in margin expansion though this

will come at the cost of a heavier balance sheet," added Kotak, "The inventory ownership will make the business moderately more working capital-intensive; however, management believes the ROCE potential and long-term value creation will justify the approach."

ICICI Securities reiterated its buy call given an improving medium-term margin outlook in quick-commerce. Kotak Institutional Equities also maintained its buy rating with a target price of Rs 270 per share. JM Financial also remained bullish, with a price target of Rs 280 apiece.

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