Eternal Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Blinkit expansion is the entire margin story: Absolute losses are expected to rise over the next one to two quarters, driven almost entirely by the accelerating pace of new store additions, not competition.
• Quick commerce take rate is a mix shift, not a trend: The quarterly decline reflects a seasonal lift in lower-take-rate electronics and general merchandise sales during the festive OND quarter, with a healthier overall revenue profile.
• Food delivery faces a broad-based slowdown: Management declined to predict the recovery path, calling it a function of variables outside its control, while noting no material impact yet from new 10-minute delivery competitors.
• Competitive intensity is high but market share is holding: Despite the most competitive quarter in two to three years, GOV market share hasn't changed meaningfully, and customer retention for older cohorts actually improved by one percentage point.
• What to watch next quarter: Whether the food delivery slowdown stabilizes or deepens, the trajectory of Blinkit's absolute losses as store additions continue, and any new disclosures on customer-paid AOV versus gross AOV.

Blinkit Expansion & Unit Economics

• Store additions accelerating: The faster pace is not a sudden decision but the outcome of months of built-up organizational bandwidth and increasing confidence in the business model. The majority of new stores remain densification in existing cities, though a larger portion will shift to smaller cities over the next year.
• New stores drag profitability: Newer stores have lower utilization, and as the pace of additions outpaces prior periods, aggregate capacity utilization declines every quarter. This is the near-100% driver of increasing losses, not competitive pressure.
• Densification creates short-term friction: Opening a store in an existing area slows the ramp-up of nearby stores and reduces network utilization, slightly dragging margin. However, it builds capacity for future expansion and assortment growth.
• Same-store sales healthy at polygon level: Most of the network is still underutilized, and penetration remains low. As more categories are added and marketing reach extends, healthy same-store growth continues at the neighborhood level. [7-8]
• Mature store margins not at peak: The top 50 mature stores reached a 6.4% contribution margin, with further expansion possible as sourcing margins improve, ad income grows, and competitive pressures on delivery fees ease.
• Breakeven unchanged: Stores still reach breakeven in around two to three months, with no material change from earlier disclosures.

Akshant Goyal: "We're not operating with a fixed budget for expansion at this point, given that the market is very large, and we clearly see a first-mover advantage in reaching consumers first. Therefore, we'll scale as fast as we can." [15-16]

Quick Commerce Revenue & Take Rates

• Take rate decline is seasonal mix: The OND quarter sees higher sales of electronics, general merchandise and other categories where percentage take rates are lower, but the overall revenue profile is healthier. No significant trend exists in core or non-core categories.
• AOV lifted by festivals and category mix: The Diwali season is becoming a larger portion of the business, and higher-ASP categories like electronics are growing. This is not a secular quarter-on-quarter trend and is better viewed year-on-year.
• AOV disclosure gap emerging: Outside of fruits and vegetables, AOV is calculated at MRP, not the customer-paid price. As the share of products with a delta between MRP and selling price increases, management is considering disclosing both actual customer-paid AOV and gross AOV from next quarter.
• Commission renegotiation is routine: Renegotiation happens every day and every quarter; nothing special occurred this quarter.

Albinder Singh Dhindsa: "The take difference that you see every quarter-on-quarter is usually just a mix of the product mix itself. OND is typically a quarter where we also see more sales of electronics products, general merchandise and some of the other categories, where percentage wise take rates are lower, but overall revenue profile is healthier."

Food Delivery: Slowdown & Competition

• Broad-based slowdown underway: The deceleration is consistent with trends seen across other consumption-oriented companies. Management declined to predict whether it would moderate further before recovering, calling it a function of variables outside its control.
• 10-minute delivery not yet material: Initiatives like Bistro remain at a very early stage and are not likely to move the needle even if aggregated. Zomato continues to improve its existing restaurant delivery model.
• Margin expansion paused, not reversed: Margins in the older food delivery business are broadly intact and haven't fallen, but the expansion trajectory has paused. Management cited multiple small optimization levers but declined to detail them, citing competitive sensitivity. [10-11]
• Market share is the primary goal: Optimization efforts are not coming at the cost of market share, which management confirmed remains the focus.

Akshant Goyal: "I don't think any of this has had a material impact on Zomato restaurant aggregation food delivery business so far. All these initiatives, are still at a very early stage and are not likely to move the needle at all, even if you aggregate and put them together."

Competitive Dynamics & Customer Retention

• GOV market share holding steady: Despite the most competitive quarter in two to three years, GOV market share hasn't changed meaningfully. Management tracks GOV share, not order share, calling the latter manipulable.
• Older cohorts getting stickier: Customer retention for the December 2022 cohort increased by one percentage point. Core customers who have been on the platform for over two years are paying a INR 20 delivery fee.
• No retention subsidies: The company does not offer subsidies to retain customers; it invests in service quality instead. Newer cohorts are tracking broadly in line with expectations and better than anticipated a couple of years ago.
• Marketing costs rising: Digital marketing spend increased and is expected to rise further due to heightened competition. Spending was backloaded in Q3 because the first half was festival season when capacity was near full and marketing wasn't needed.

Albinder Singh Dhindsa: "Despite the increasing level of competition over the last six quarters, we have maintained or even increased our market share. So, that is a strategy that is working for us, and we will stick to it."

Smaller Cities & New Initiatives

• Smaller city push ahead: Over the next year, a larger portion of new stores will be in smaller cities compared to last year. These cities directionally carry lower profitability due to additional logistics like warehouses and lower initial AOV and frequency, but they remain a very small fraction of overall expansion today.
• Data commitment on smaller cities: Once sufficient density is built, management will publicly share data on how these cities differ from larger ones.
• Less-than-15-minute delivery scaling: Launched on Zomato in the December quarter in select locations, with plans to scale going forward. Bistro by Blinkit is one format being tested.
• No shift to inventory-led model: Management sees no need to move away from the marketplace model in quick commerce.

Guidance & Commitments

Key Metrics