Eternal Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Profitability inflection reached: Food delivery achieved adjusted EBITDA breakeven and the entire business turned cash-flow positive, a milestone management says was built during the stock's peak, not by cutting marketing.
• Blinkit investment budget cut by 20%: The required investment to reach breakeven was revised down from \$400 mn to ~\$320 mn, as the business surpassed expectations on both growth and loss reduction.
• Delivery economics are turning: After a year of rising costs, delivery cost per order is expected to decline while delivery partner hourly earnings rise, a shift management frames as sharing efficiency gains rather than a zero-sum trade.
• MTU growth resumed, but GOV is the real north star: Monthly transacting users grew 0.1 crore after two weak quarters, yet management optimises for GOV and will shed low-quality cohorts even if MTU dips.
• What to watch next quarter: Whether the promised delivery cost reduction materialises after the monsoon quarter, the pace of Blinkit loss reduction post-integration, and any detail on the four-CEO restructuring.

Profitability Milestone & Path Forward

• Food delivery breakeven: The core business hit adjusted EBITDA breakeven this quarter, driven by a ~40 bps take rate improvement (₹2.5 per order) from higher restaurant ad spends, take rate parity on lower-paying restaurants, better ad sales, and higher customer delivery charges.
• Cash flow positive: The entire Zomato business turned cash-flow positive, as adjusted EBITDA losses of ₹150 crore were more than offset by other income of ₹170 crore.
• No intentional trade-off: Management stated no meaningful marketing spend was cut to reach profitability. The core business is now large enough to throw up cash beyond what is needed for investment.
• Path to Zomato-level breakeven: The majority of adjusted EBITDA improvement will come from incremental food delivery EBITDA and Hyperpure losses coming down. Unallocated costs will remain range-bound around ₹130 crore, as fixed cost reductions have absorbed salary increases.
• Employee cost outlook: Overall employee expenses outside share-based compensation are expected to stay within a 15–20% annual increase range. ESOP expenses will decline going forward because the accounting charge is front-ended.

Deepinder Goyal: "Most of the work to get here was done when our stock price was at its peak."

Delivery Economics: The Inflection

• Cost reversal expected: Delivery cost rose materially over the last year, compressing contribution margins. Management now expects costs to decline going forward, but the current September quarter remains a monsoon-driven headwind and the outcome will depend on rain intensity.
• Partner earnings to rise alongside: The company explicitly frames this as sharing efficiency gains: delivery partner hourly earnings should increase while cost per order falls. This is not positioned as a trade-off against partner income.
• Customer delivery charges rising faster than cost: Last quarter, delivery cost borne by Zomato rose only 5% while GOV rose 10%, and customer delivery charges rose 20%, meaning customers bore a higher share. The delta between cost and customer charges should continue reducing.
• Orders per partner rising: The number of orders per delivery partner per day has been rising for several quarters, with a strong jump this quarter per analyst estimates. Active delivery partner count has moved in a narrow band, but will need to grow as order volumes rise.
• Rain mechanics: During rains, partner earnings expectations rise but only a portion can be recovered from customers. When rains reverse, contribution margin benefits because the overall cost benefit exceeds the revenue foregone.

Akshant Goyal: "This is not us versus delivery partners. There has to be a business case where they make more money per hour while our cost per order comes down, which is essentially us sharing the benefit of increasing efficiencies with our delivery partners."

Blinkit: Faster Progress, Lower Cost

• Investment budget revised down: The total Blinkit investment to breakeven was cut from \$400 mn to ~\$320 mn (starting January 2022), with ~\$150 mn already invested. The business surpassed expectations on growth and loss reduction versus 6–7 months ago. Management has no visibility on the breakeven timeline.
• Legacy pivot complete: No legacy infrastructure-related expenses remain. The business is fully pivoted to quick commerce, with both revenue and cost structures aligned to the current model.
• Loss trend: Losses are coming down and the trend is expected to continue post-transaction as synergies kick in.
• Dark store rationalisation: The overall number of dark stores decreased as unviable stores were churned out. Store count should stabilise now, then increase as the company expands post-deal closure.
• Delivery cost synergy: Blinkit delivery cost is currently similar to Zomato levels. Post-integration, fleet integration is expected to yield benefits that should reduce losses.
• No breakeven timeline: Management has no visibility on which quarter Blinkit reaches breakeven, calling it too early to estimate.

Akshant Goyal: "I think the business has surpassed our expectations so far in terms of growth as well as loss reduction to where we were 6-7 months ago and we wanted to now update that overall budget and guidance from \$400 million down to about \$320 million."

Demand & User Metrics

• MTU growth resumed: Monthly transacting users grew 0.1 crore, an improvement versus the prior two quarters. Growth came from higher conversion of annual users to monthly users and increased repeat frequency.
• GOV is the north star: Management optimises for GOV growth, not MTU, and will shed bad-quality customer cohorts even if that means lower MTU growth or a reduction. Year-on-year MTU growth is expected to remain healthy given room to expand.
• MTU is lumpy: Nothing unusual drove the quarter; the business is inherently lumpy and not always linear. No meaningful IPL bump has been observed in recent years.
• AOV near steady state: AOV has barely moved (₹397 in FY21, ₹398 in FY22, ballpark the same now). Management believes there is not much downside given long enough history, though multiple offsetting forces remain: return-to-office (downward), food inflation (upward), higher delivery charges driving larger baskets (upward), and restaurant mix shifts.
• CAC stable and declining: Customer acquisition cost is stable at acceptable levels. Marketing spend is steady, unlike the volatile spend of two-three years ago. The company acquires a similar number of users monthly while spending slightly less each quarter, so CAC keeps edging down.
• Order growth drivers: Healthy order growth continues, with frequency growth joining MTU growth as a key driver. Newer use cases like instant food delivery (currently a small pilot) are expected to meaningfully impact frequency in the medium to long term.

Take Rates & Advertising

• Take rate improved 40 bps QoQ: The ₹2.5 per order improvement came from multiple levers: restaurant ad spends recovering post-COVID, driving parity on take rates with lower-take-rate restaurants (not raising the top end), improving ad sales, and higher customer delivery charges.
• Further upside remains: Some headroom on take rates still exists and will continue to help overall take rates rise in subsequent quarters.
• Ad business is mature: The restaurant advertising product for food delivery is already fairly mature, having started monetisation ten years ago. Current ad revenue growth is driven more by platform sales, growth, and traffic than by product gaps.
• Restaurant mix detail withheld: Management declined to share what portion of restaurant partners remain meaningfully below the average take rate, calling it non-public data.

Organisational Restructuring

• Four-CEO model: An internal announcement has been made about reorganising the company as it moves beyond food delivery as a single business. Media reports indicate four CEOs under Deepinder Goyal. A public announcement with more clarity on the rationale is expected at some point in the future.
• Dining out reset: The dining out business is being rebuilt. Revenues are expected to stay at current levels for at least one or two more quarters. After that, as data on the rebuild and customer traction accumulates, management may share more on revenue and margin expectations. The business will always be profitable and will not consume capital.

Deepinder Goyal: "Change is always slow, and then it's fast. So, I think you don't wake up one day and say, now I want to change, and then change happens overnight."

Guidance & Commitments

Key Metrics