Quick Commerce 1P Model Will Harness Global Urbanization

Key Takeaways

• Moving to a full inventory-ownership model and operational efficiencies are set to improve margins, cash flow, and returns.
  
• Growth in mature markets, strong digital adoption, and customer loyalty position Eternal to benefit from urbanization and changing consumer behaviors.
  
• Heavy geographic concentration, rising competition, costly expansion, increased inventory risk, and slowing food delivery growth all threaten profitability and sustainable long-term growth.

Catalysts

Primarily operates as an online food delivery company in India and internationally.

• Acceleration to a full inventory-ownership model (1P) in Quick Commerce is expected to drive immediate and material margin expansion by capturing the full gross margin and reducing administrative and compliance burdens, which will directly flow through to improved net margins and earnings over the next 2-3 quarters.
  
• Significant growth in existing mature markets (e.g., 70% YoY in Delhi despite high penetration) and continued expansion toward 3,000 stores indicate the company is well-positioned to capture rising demand from global urbanization and middle-class affluence, supporting sustained revenue growth.
  
• Increasing operational efficiencies-such as faster inventory turns and JIT supply chain models-are enabling lower days of working capital and greater throughput without corresponding increases in capex, which boosts free cash flow generation and return on invested capital (ROIC).
  
• The company's readiness to respond to competitive intensity while maintaining customer leadership, combined with improved category expansion and brand partnerships, point to enhanced customer loyalty and potential for higher average order values, ultimately driving both top-line and bottom-line growth.
  
• Broader consumer adoption and behavioral shifts toward tech-enabled, convenience-heavy services (Quick Commerce, seamless digital experiences) align with Eternal's highly digitized, platform-first approach-positioning the company to participate disproportionately in the fast-growing structural trend, with upside to both long-term revenue and margin trajectories.

Eternal Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Eternal's revenue will grow by 40.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 8.3% in 3 years time.
• Analysts expect earnings to reach ₹53.8 billion (and earnings per share of ₹5.74) by about July 2028, up from ₹3.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹100.1 billion in earnings, and the most bearish expecting ₹21.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 68.3x on those 2028 earnings, down from 915.3x today. This future PE is greater than the current PE for the IN Hospitality industry at 36.6x.
• Analysts expect the number of shares outstanding to decline by 4.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.99%, as per the Simply Wall St company report.

Eternal Future Earnings Per Share Growth

Risks

• The majority of Eternal's Quick Commerce business growth is still concentrated in top 20 cities, signaling a heavy reliance on a limited geographic footprint that exposes the company to potential regional saturation, localized downturns, or regulatory developments-threatening long-term revenue growth.
  
• Management commentary repeatedly acknowledges intense and dynamic competition across both Quick Commerce and food delivery; escalation in competitor activity or increased capital raises by rivals could compress margins and force Eternal to increase promotional expenses, undermining net earnings and margin expansion.
  
• Rapid store expansion into new cities entails higher upfront investments and greenfield supply chain costs, especially in Tier 2/3 cities with lower initial utilization, leading to persistent losses and potential pressures on cash flows and operating margins if scaling efficiency is not rapidly achieved.
  
• The company's shift toward owning more inventory (1P model) involves increased balance sheet risk, including potential for higher working capital requirements and inventory obsolescence, particularly during market slowdowns or unforeseen consumption shifts-negatively affecting profitability and return on capital.
  
• Slowing sequential growth rates in food delivery (NOV growth down from 27% to 13% YoY) alongside possible cannibalization from Quick Commerce, coupled with broader industry headwinds such as changing consumer food consumption patterns (e.g., potential GLP-1 adoption), may depress long-term revenue and earnings growth for Eternal's core business lines.

Valuation

• The analysts have a consensus price target of ₹306.433 for Eternal based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹400.0, and the most bearish reporting a price target of just ₹150.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹646.1 billion, earnings will come to ₹53.8 billion, and it would be trading on a PE ratio of 68.3x, assuming you use a discount rate of 15.0%.
  
• Given the current share price of ₹302.05, the analyst price target of ₹306.43 is 1.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.