Eternal Limited’s Shift to Inventory Control in Quick Commerce

Eternal Limited, the company that was previously known as Zomato, is preparing to implement a significant strategic change in its quick commerce division, Blinkit. This change involves directly owning inventory, a transition made possible by the company’s recent designation as an Indian-owned and controlled company (IOCC), as outlined in a letter to shareholders.

This strategic shift aims to bolster operations and enhance profit margins as Eternal faces escalating competition from both established enterprises and new players in the quick commerce sector.

Financial Implications of the Inventory Model

Eternal anticipates that the implementation of a full inventory model will necessitate less than Rs 1,000 crore in working capital. This figure constitutes merely about 5% of Blinkit’s projected Net Order Value (NOV) of Rs 22,000 crore for FY25.

When queried about how a completely inventory-based model could be executed with Rs 1,000 crore, Eternal’s CFO Akshant Goyal clarified that in the fast-paced world of quick commerce, inventory circulation occurs swiftly. Consequently, the company expects working capital expenditures, in relation to the overall business scale, to remain relatively minimal.

Expansion and Challenges Faced by Blinkit

The initiative to manage inventory for Blinkit coincides with the firm’s aggressive growth in Q4 FY25, during which the company added 294 new stores and expanded warehouse space by over 1 million square feet, reaching a total of 1,301 stores. However, this rapid expansion resulted in increased EBITDA losses for Blinkit, rising from Rs 103 crore in Q3 to Rs 178 crore in Q4 of the previous fiscal year (FY25).

Despite the rise in short-term losses, Eternal maintains an optimistic outlook regarding the long-term profitability of the quick commerce sector. The company is not currently planning to introduce private labels but has suggested that better inventory management could potentially elevate EBITDA margins beyond the existing target of 5-6% of NOV.

Zomato Invests in Blinkit for Quick Commerce Expansion

Food tech leader Zomato has put in a significant investment of Rs 1,500 crore (approximately $178 million) into its quick commerce subsidiary, Blinkit. This investment comes just a month following the completion of a Rs 500 crore funding round.

The Blinkit board approved a special resolution allowing the issuance of 7,612 equity shares at an issue price of Rs 19,70,181 each, aimed at raising the mentioned Rs 1,500 crore (or $178 million), as detailed in a regulatory filing obtained from the Registrar of Companies (RoC).

This fresh influx of capital into Blinkit follows closely on the heels of Zomato’s successful raising of Rs 8,500 crore through a Qualified Institutions Placement (QIP) three months earlier. The primary aim of this capital acquisition was to bolster Zomato’s financial footing and support its business expansion along with strategic initiatives, especially in the quick commerce sector.

In the third quarter of the current financial year, Zomato recorded an impressive 64.4% year-on-year increase in operating revenue, climbing to Rs 5,405 crore from Rs 3,288 crore in Q3 FY24. However, during this same timeframe, profits for the company based in Gurugram saw a decline of 57.2%, dropping to Rs 59 crore.

In Q3 FY25, Blinkit reported a stunning 117% growth in revenue from operations, reaching Rs 1,399 crore compared to Rs 644 crore previously.

Recently, Zomato’s main competitor, Swiggy, injected Rs 1,000 crore ($117 million) into its supply chain division, Scootsy Logistics, to enhance its quick commerce venture, Instamart.

A recent report from Citi noted that Swiggy Instamart is currently lagging behind in the quick commerce competition. Zomato’s Blinkit and Zepto are gaining greater market shares in India’s fast-paced delivery domain, with Swiggy holding 23% of the market and Blinkit commanding 41%.