Eternal shares: Ambit sees over 40% downside potential; warns on cash burn, rising competition

Eternal Ltd (formerly Zomato) shares fell 1.31 per cent on Monday to close at Rs 338.20. Ambit Institutional Equities projected over 40 per cent downside potential in the stock over the next 12 months. The brokerage retained its 'Sell' rating with a target price of Rs 202, flagging concerns over rising costs, slower growth in food delivery and elevated expectations from Blinkit.

Ambit noted that Eternal posted its fifth consecutive quarter of below-consensus consolidated adjusted EBITDA. Although food delivery profitability improved due to a higher take rate and strong growth in Quick Commerce (QC) -- up 137 per cent year-on-year (YoY) versus an estimated 123 per cent -- the gains were offset by weak food delivery recovery, persistent losses in the going-out and other segments, and rising operational costs.

The report highlighted a cash burn of Rs 1,100 crore in the first half of FY26, including lease payments, driven by higher capital expenditure and working capital requirements. Marketing and discount spending surged nearly four times year-on-year and 1.4 times quarter-on-quarter (QoQ), indicating increased costs of maintaining market share.

Ambit also cautioned that competitive intensity could rise further, with potential fund-raises by Zepto and Rapido and renewed focus by Amazon and Flipkart on the food and quick commerce space. This, it said, could delay Eternal's profitability trajectory.

The brokerage described QC as a utilisation-based model that is neither low-capex nor working-capital-light. While Blinkit continues to show strong growth momentum, Ambit believes expectations are already elevated, with the current market price implying a 27 per cent compounded annual growth rate (CAGR) in gross order value (GOV) over FY25–FY40 and an eventual adjusted EBITDA margin of 32 per cent.

Despite robust topline expansion, Ambit concluded that heightened competition could limit upside for the stock.