Eternal better placed than Swiggy post fuel hike, says Elara; check targets

Analysts at Elara Capital believe that Eternal is better placed than Swiggy to manage fuel-led cost pressures, while noting that the recent fuel price hike is a manageable near-term headwind for both companies, even if gig workers were to seek higher payouts.

 

The brokerage has, however, reaffirmed its ‘Buy’ rating on Eternal with a target price of ₹400 per share, and on Swiggy with a target price of ₹360 per share.

 

“Eternal’s customer base is more premium and less price-sensitive, which gives the company a higher propensity to recover cost increases through platform fees, delivery fee optimisation, and handling charges across both food delivery and quick commerce,” wrote Elara Capital analysts led by Karan Taurani.

 

 

Further, they noted that Eternal’s larger scale and stronger ad revenue base provide an additional margin cushion versus Swiggy. 

 

“Swiggy may face a higher impact, given a lower profitability cushion in quick commerce and a more sensitive customer base. Hence, while both platforms have pass-through levers, Eternal’s ability to absorb and recover fuel-led cost inflation is stronger,” said the analysts.   Check - TOP GAINERS NSE | TOP LOSERS NSE

Fuel price hikes pose near-term cost headwind

The brokerage noted that the recent fuel price hike of ₹4 per litre translates into an 4 per cent rise in petrol and diesel prices amid geopolitical tensions and elevated crude prices. On an annualised FY27E basis, Eternal/Swiggy are estimated to handle close to 2.7 billion/1.4 billion orders across food delivery and quick commerce platforms.

 

“Any increase in fuel cost can directly impact delivery economics by lowering delivery partner yields and potentially increasing the risk of payout-related pressure. However, the direct cost impact appears manageable in the context of overall Ebitda for both platforms, especially if the burden is shared across customers, platforms and delivery partners,” said Elara.

Per-order impact estimated at ₹0.44

The analysts estimate average delivery costs in the range of ₹35–50 per order for quick commerce and ₹55–60 per order for food delivery. On a blended basis, this implies an average delivery cost of ₹45 and ₹55 per order for Eternal and Swiggy, respectively.

 

“Assuming fuel accounts for 20 per cent of the delivery cost, the implied fuel cost per order would be ₹9–10 on a blended basis. A 4 per cent fuel price increase would therefore imply a negative impact of ₹0.44 per order. However, if fuel prices were to rise further to ₹10 per litre in the next 3–6 months, the blended per-order impact could increase to ₹1–1.2 per order. This impact is likely to be shared partly through customer pass-through, partly absorbed by the platforms and partly reflected in compression of delivery partner economics,” said the brokerage.  CHECK Q4 Results Today

Adjusted for EV/cycle penetration, impact limited

Elara further noted that even in a scenario of a ₹10 per litre fuel increase, the gross Ebitda impact, adjusted for EV/cycle penetration, could be higher in quick commerce at 30–40 per cent, while in food delivery it may be closer to 20 per cent.

 

On a blended basis, the brokerage assumes an effective fuel-linked impact on 70 per cent of total orders. Accordingly, even in a high fuel price scenario, the net Ebitda impact may be closer to ₹100–200 crore, implying a 4–5 per cent/10–12 per cent FY27E adjusted Ebitda downgrade for Eternal and Swiggy, respectively. Elara noted that the impact is higher for Swiggy, given its lower profitability cushion and ongoing path towards contribution break-even in quick commerce.

Monitor second-order impact

The brokerage cautioned that the bigger risk from sustained fuel inflation is the second-order impact on consumption and ecosystem spending.

 

“Higher fuel prices could reduce discretionary wallet share, potentially impacting order frequency in food delivery and impulse-led quick commerce. Smaller standalone restaurants and regional chains may face input cost pressures, which could weigh on expansion plans and advertising spends on aggregator platforms. Similarly, D2C brands may see pressure from higher logistics, packaging and input costs, potentially leading to lower marketing spends on quick commerce platforms,” said Elara.

 

It added that while the direct fuel-cost impact appears manageable on a first-order basis, the broader consumption and ad-revenue impact remains the key risk to monitor.  ========================================== 

(Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.)