Quick commerce and delivery major Eternal Limited, analyzed by Geojit Investments Limited, has received a strong BUY recommendation with a revised target price of Rs. 350 from a current market price of Rs 306. The stock's recent performance is driven by robust revenue growth, primarily fueled by its quick commerce segment, which has excelled due to a strategic shift towards inventory ownership and rapid store expansion. Despite a contraction in EBITDA margins owing to increased costs, the company demonstrates strong operational leverage and improved scalability, paving the way for sustained value creation. Investors are advised to consider this stock for potential long-term gains, supported by a healthy growth trajectory and evolving market dynamics.

Geojit's BUY Call and Target Price

Geojit Investments Limited has upgraded its rating on Eternal Limited to a BUY, assigning a target price of Rs. 350, reflecting a projected upside of approximately 14% from the current market price of Rs. 306. This upgrade is supported by the company's impressive Q2FY26 results and strategic business model shifts improving profitability and growth prospects. The revised target is grounded in a sum-of-the-parts (SOTP) valuation approach, emphasizing the contribution of distinct business segments to the enterprise's overall value.

Revenue and Growth Dynamics

Eternal recorded a staggering 183.2% year-on-year increase in consolidated revenue to Rs. 13,590 crores in Q2FY26. This surge was primarily driven by: - Quick commerce revenue spiking 755.6% YoY, reaching Rs. 9,891 crores due to aggressive store additions and a shift to an owned inventory model. - Food delivery revenue expanding 23.5% YoY to Rs. 2,485 crores, aided by higher order volumes and enhanced monetization strategies. - The net order value (NOV) of B2C businesses jumping 57% YoY to Rs. 23,164 crores, demonstrating robust consumer engagement and operational expansion.

Profitability and Margin Outlook

While EBITDA grew modestly by 5.8% YoY to Rs. 239 crore, the EBITDA margin contracted by 290 basis points to 1.8%, mainly due to a 480.4% increase in cost of sales attributable to rising operational expenses. Nevertheless, tightening cost controls and operational leverage are expected to progressively restore margin health over the coming quarters. Adjusted PAT witnessed a significant decline (-63.1% YoY), reflecting short-term margin pressures but prospective earnings growth remains strong with a forecasted PAT of Rs. 2,331 crores by FY27E.

Strategic Operational Shifts and Market Expansion

Eternal’s strategy centers around quick commerce, with 80% of NOV shifting to a first-party owned inventory model, enhancing cost control and supply chain reliability. The company aims to reach 90% inventory ownership by Q3FY26, promising improved operational efficiency. Blinkit's aggressive store expansion to 2,100 outlets by December 2025, from a prior target of 2,000, underscores confidence in scaling and market penetration. This pivot enhances competitive positioning in the rapidly evolving quick commerce space.

Segment-Wise Valuation and Business Contributions

SOTP valuation reflects the value attributed to key business segments as follows:

This diverse business model underpinning Eternal justifies the target price and offers investors clarity on revenue streams contributing to growth.

Cash Flow and Balance Sheet

The company exhibits a solid financial footing with Rs. 3,055 crores in cash and cash equivalents as of FY26E and controlled debt levels (debt to equity ratio at 0.1). Working capital management reflects efficient receivable and inventory turnover despite scaling operations. The balance sheet strength supports sustained capital expenditure and store expansion plans without compromising liquidity.

Key Financial Ratios and Estimates

- Projected sales to accelerate from Rs. 20,243 crores in FY25A to Rs. 93,589 crores in FY27E, a CAGR exceeding 60%. - EBITDA margin forecast to improve post FY26E from 2.1% to 3.8% by FY27E, signaling margin recovery as economies of scale materialize. - Return on Equity (ROE) expected to jump to 7.0% by FY27E from a modest 1.8% forecasted in FY26E. - Price-to-Earnings (PE) and Price-to-Book (PB) ratios suggest considerable valuation contraction currently, positing the stock as attractively priced.

Investment Risks and Considerations

Investors must remain vigilant about the high volatility in quarterly earnings, attributable to aggressive growth investments and margin pressures. Additionally, the rapid store expansion and inventory ownership model are capital intensive and subject to operational execution risks. Market competition in quick commerce and food delivery sectors is fierce, requiring ongoing innovation and efficiency improvements.

Investment Recommendation by Geojit

Geojit Investments Limited’s research signals Eternal Limited as a compelling BUY for long-term investors, supported by strong top-line growth, improving profitability, and focused expansion strategies in quick commerce and food delivery. The Rs. 350 target price represents a 14% upside from the current price, with significant scope for further gains as business segments mature. Portfolio inclusion is recommended with a cautious eye on margin recovery and execution risks over the next few quarters. This stock exemplifies a growth-centric thematic within India’s evolving consumer internet ecosystem, inviting investors seeking exposure to high-growth digital commerce.