Competition, store expansion likely to weigh on Eternal's margins

Zomato reported operating profit of Rs 239 crore and operating profit margins of 1.8 per cent, down 295 basis points Y-o-Y, due to higher operating costs on account of rapid store expansion

Growth accelerated for Zomato operator Eternal in the second quarter of financial year 2026 (Q2FY26). Zomato’s business to commerce (B2C) operations delivered a strong 57 per cent year-on-year (Y-o-Y) rise in net order value (NOV) to ₹23,164 crore while consolidated revenue soared 183 per cent Y-o-Y (90 per cent Q-o-Q) to ₹13,590 crore during the period, with like-for-like (LFL) growth of 65 per cent, and acceleration in the quick commerce (QC) segment, which recorded NOV growth of 137 per cent Y-o-Y (27 per cent Q-o-Q). Zomato reported operating profit of ₹239 crore and operating profit margins of 1.8 per cent, down 295 basis points Y-o-Y, due to higher operating costs due to rapid store expansion. Net profit dropped 63 per cent Y-o-Y to ₹65 crore.

 

The revenue jump was due to a shift towards inventory-led operations within quick commerce. Zomato’s Q2FY26 food delivery gross order value (GOV) growth came in at 18.0 per cent Y-o-Y, though NOV growth of 14 per cent Y-o-Y was weaker. The food delivery contribution margin improved to 8.6 per cent (versus 8.2 per cent in Q1FY26) and was ahead of expectations. Blinkit’s GOV grew 152 per cent Y-o-Y (31 per cent Q-o-Q). Blinkit added 272 stores sequentially and will reach 3,000 stores by March 2027. It is also adding users quickly.

 

About 80 per cent of Blinkit’s NOV was already on its own inventory, and this is expected to reach a steady-state level of 90 per cent in Q3FY26. Net working capital (NWC) in QC rose to 12 days of annualised NOV, and the management is guiding for this to stay below 18 days (5 per cent of NOV) once the transition stabilises. Management reiterated that net margin gain will be about 100 basis points to be realised over the next 4-6 quarters (earlier expectations were of 2-3 quarters). Capex per store (including backend warehousing) will be at ₹1 crore.

 

The FD growth was driven by monthly transacting users (MTU) growth of 16 per cent Y-o-Y. The restaurant take-rate was around 21.7 per cent in Q2FY26 versus 20.8 per cent in Q2FY25 and customer delivery take-rate was 3.3 per cent in Q2FY26 (versus 3.4 per cent in Q2FY25).

 

Adjusted operating profit (as a percentage of GOV) was at 4.4 per cent, an expansion of 20 bps Q-o-Q. Quick commerce GOV grew 31 per cent Q-o-Q, driven by 26 per cent Q-o-Q growth in orders and 3.6 per cent QoQ increase in AOV.

 

Blinkit added 3.9 million MTUs (net) in Q2, higher than 3.2 million MTUs added in 1Q. The dark store footprint increased to 1,816 stores from 1,544 stores in Q1. Profitability improved sequentially with contribution margin (as a per cent of GOV) rising to 3.5 per cent in Q2FY26 versus 3 per cent in Q1FY26. The adjusted operating loss was ₹160 crore in the July-September period. Management is guiding for a network of 2,100 stores by December 25 and 3,000 stores by March 27.

 

Faster store addition has resulted in higher upfront costs. Blinkit’s gross merchandise value will be upgraded by most analysts as a result of the faster rollout and customer acquisition and this could translate into better margins in future. FD growth rates seem to be recovering with 14 per cent Y-o-Y NOV growth, while profitability has improved Q-o-Q to an all-time high of 5.3 per cent of NOV (5 per cent in Q1FY26). Management expects the food business to grow by 15 per cent in FY26 and by above 20 per cent in FY27.

 

GST rate cuts have lowered the average tax on Blinkit’s typical basket by 3 per cent, which may support demand. However in Q2FY26, growth and margins were muted as customers delayed purchases in anticipation of GST change.

 

Zomato looks to be playing for the long-term building a business model with several verticals. But challenges like rising competitive intensity, and costs associated with rapid store expansion are likely to keep margins under pressure. Break-even in quick commerce may be visible only in Q1FY27. Analysts will be looking at a sharp margin improvement in FY27.