Mint Explainer | How Zomato, Blinkit-parent Eternal makes a profit when its quick-commerce business is yet to break even
MUMBAI
: Flash trading company Blinkit helped parent firm Eternal almost triple its revenue from operations in the September quarter. However, looking at the background, it seems that Eternal’s earnings still do not come from operations. So where does the profit come from? So why are investors unhappy with Eternal’s performance? Mint explains.
Q: What did Eternal’s financial statements show in the September quarter?
Consolidated revenue for Eternal Ltd, the parent company of food delivery company Zomato and instant commerce service Blinkit, grew almost 3x year-on-year. ₹13,590 crore in the September quarter. But profit after tax fell ₹65 crore – just over a third of the figure a year ago.
This is because Blinkit has changed the way goods are purchased. The company transfers about 80 percent of net order value to its own inventory model, where it purchases and holds goods, it said in a note to shareholders. Instamart, owned by rival Swiggy, is also switching to this model; That’s why it spun off Instamart to a subsidiary last month.
Eternal’s revenue now reflects the price of goods sold, not just the business’s commissions and other income. But profits fell as the company spent more on opening dark stores and advertising flash trading services.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the gig trading sector remains negative; Adjusted EBITDA margin in the September quarter stood at -1.3%. Note that Adjusted EBITDA is not a standard accounting measure.
Q: What does Eternal say about its profits?
Blinkit is driving much of Eternal’s business growth; Therefore, how its revenue and net profit grow will determine the course of the parent company. Currently flash trading is not yet profitable, but its revenue this quarter has increased significantly.
However, most of this revenue increase was due to a change in business model. As Blinkit begins to hold more inventory, the company says it expects a 1% increase in net margins over 4-6 quarters.
Q. So where does Eternal’s net profit come from?
Some of this comes from other income, including gains from the treasury and other financial instruments. Zomato’s other revenues grew more than 60% YoY ₹352 crore in this quarter.
Cash from investments grew ₹69 crore against negative cash flow ₹205 crore. Additionally, Blinkit’s new business model has changed the way goods are accounted for in the company’s books.
Changes in trade stock inventories, a measure of how much inventory is bought and sold in a quarter, are a negative expense on Eternal’s books, changing the accounting math and contributing to the company’s bottom line. But this isn’t a change in Eternal’s profits, just a reflection of how it records the flow of goods through its business.
Q. When will swing trading become profitable?
Eternal said it would take 4-6 quarters for the company to achieve a 1% increase in net profit margin due to the change in Blinkit’s business model. However, analysts said: Mint Given the increasing competition in the flash trading business, they expect the business to continue for another 2-3 quarters beyond the company’s guidance.
Analysts said Eternal will be under pressure to increase investment in dark stores and advertise aggressively to stay ahead of the competition. Eternal spends roughly ₹A shareholder letter this month said there was ₹1 crore per dark store in fixed costs.
Q. How did investors understand Eternal’s complex numbers?
Investors were not happy. The company’s shares fell 1.47% on the National Stock Exchange on Friday, while the benchmark Nifty 50 gained 0.49%. Analysts say the company’s adjusted EBITDA loss ₹156 crore was higher than markets expected.
But they added that investors will likely be lenient on the company if it finds a way to become operationally profitable; They are more likely to demand a strong increase in revenue, especially as competition in fast-track trading shows no signs of abating.
