Eternal Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Growth re-accelerated, led by quick commerce: Food delivery GOV growth guided to 25–30% YoY next quarter, while Blinkit GOV growth is expected to stay in the same high range as current BAU.
• Take rate stepped up with platform fee: A new platform fee, now on nearly 100% of orders, drove a take rate increase alongside better ad monetization; the fee is "here to stay" though the quantum will be experimented with.
• Gold membership is reshaping the P&L: Aggressive pricing drove a surge in Gold members, mostly existing customers converting, but Gold orders carry lower contribution margins, creating a near-term headwind management expects to narrow.
• Blinkit profitability timeline held, with a caveat: Management guided to adjusted EBITDA breakeven by Q1 next financial year, but warned that new store additions will be a short-term drag on margins.
• What to watch next quarter: Whether the 25–30% food delivery growth materializes, the pace of Gold membership additions as the most frequent customers are already converted, and any movement on the contribution margin gap between Gold and non-Gold orders.

Quick Commerce (Blinkit)

• Growth trajectory: Blinkit GOV growth is expected to remain high, in the same range as current business-as-usual growth, with management positioning the company as the category creator focused on long-term market building rather than benchmarking to existing heuristics.
• Profitability path: Adjusted EBITDA breakeven is guided for the first quarter of the next financial year. Management frames this as a deliberate choice to prioritize long-term sustainable business building over a faster path to breakeven.
• Store economics are opaque: New store breakeven timelines vary widely by locality, existing vs new city, and other factors; management declined to disclose any average, calling it "not something that we even talk about."
• Fixed cost normalization: A 35% QoQ increase in Blinkit fixed costs reflects a base effect from the prior quarter, when operations were paused for roughly one week due to disruptions; current levels represent normal operating levels.
• Ad platform is live and programmatic: Blinkit operates a self-serve, programmatic ad bidding platform used by most brands on the platform, though management declined to provide guidance on ad monetization as a percentage of GOV.
• AOV direction: Management corrected an analyst assumption, clarifying that iPhone GOV is excluded from AOV and that no significant swing has come from new categories.

Albinder: "We are looking at it as what will help us build a long-term sustainable business rather than what helps us get there faster because you want to take the kind of calls, which also helps your business to grow into the future, one-year / two-year / three-year down the line."

Food Delivery Growth & Demand

• Next-quarter outlook: Management guided to 25–30% YoY GOV growth for food delivery, calling it "moderate" specifically because sell-side expectations were clustered around 15–20%.
• MTU growth mechanics: Monthly transacting user growth comes from annual transacting users moving into the monthly base, plus new customer acquisition each month. Over the longer term, management expects the majority of growth to be driven by MTU growth, noting the current monthly user base is much smaller than the annual transacting user base.
• Frequency uplift nuance: The observed frequency increase among Gold members is partly an artifact of multiple users consolidating orders into one account, so the organic uptick is smaller than the raw delta suggests.

Akshant: "I think we're calling it moderate because I heard a lot of people from sell side expecting a 15%, 20% growth in that quarter. So, we felt our business plan here is relatively moderate compared to what the sell side was expecting."

Gold Membership & Pricing Strategy

• Member mix and margin drag: The majority of incremental Gold members are existing customers converting, with new customer addition described as "very small and constant." Gold orders carry lower contribution margins than non-Gold orders, creating a headwind that management expects to reduce going forward.
• Pricing discovery, not just competition: Management characterized the aggressive Q2 pricing as a process of figuring out the right price based on customer-perceived value, not purely a competitive response. They now believe they have a fair handle on pricing and can be sharper going forward.
• Pace expected to slow: With the most frequent customers already converted, the pace of Gold membership additions is expected to decelerate from current levels.
• Per-order investment undisclosed: Management declined to disclose whether the per-order investment in Gold increased quarter-on-quarter, calling it "part of the strategy."

Akshant: "I think this is like a five-six-month-old program, so more than the competition, I think there's also a process of figuring out what is the right way to price the service that depends on the value that the customer sees in this product."

Unit Economics & Margins

• Contribution margin walk: Contribution margin improved 20 bps to 6.6%, driven by higher revenue per order from the platform fee and ad monetization, partially offset by higher delivery costs from seasonal rains.
• Long-term margin ambition: Management wants to reach 4–5% EBITDA margins in the business, which translates to more than the current contribution margin, and stated they will look to expand margins.
• Growth vs. margin framing: Management pushed back on an analyst's interpretation that margins are "good" and the focus will shift to growth, calling it a theoretical statement. The actual position: at some point, ROI on every dollar spent increasing the profit pool should make sense, in which case margins may or may not go down.

Akshant: "Eventually, at some point, the ROI on every dollar that you spend on increasing the size of your profit pool should make sense. So, in which case, the margins may or may not go down, that's the only point we are saying."

Costs & Investments

• Employee costs stepped up: Annual increments were implemented in the September quarter, and the September run rate is representative of costs going forward.
• Marketing spend normalized: The prior quarter underspent on Blinkit marketing due to disruption; the current quarter reflects a normalization back to typical levels.
• Depreciation tailwind: A large component of depreciation from Blinkit acquisition intangible assets had a one-year cycle and has now rolled off.
• ESOP cost on track: Management broadly expects to end FY24 near the guided INR 450 crores in ESOP expense.
• Working capital swing: A reduction in net working capital was driven by a quarter-end day effect: September 30 fell on a Saturday, carrying one extra day of payables given the weekly settlement cycle.

Competitive Positioning & Market Structure

• Market share unmeasured: Management declined to offer a point of view on food delivery market share, calling it a highly competitive market that is very hard to measure.
• Quick commerce is not a one-player game: Management disagreed with a suggestion that competitive dynamics are easier because they might be the only player in many pin codes, stating there will be neighborhoods with four to five quick commerce players plus larger players like Amazon.
• Category creator stance: Management explicitly rejected benchmarking to existing heuristics, arguing that as the largest quick commerce player and category creator, their job is to create the market rather than skew the business toward someone else's benchmarks.

Akshant: "I think we are the category creators in this business. We are the largest quick commerce player, and I think it is our job to actually create this market. So, I don't think benchmarking to existing heuristic makes sense because that will make us skew our business towards that heuristic."

Guidance & Commitments

Key Metrics