The share price of Eternal, formerly known as Zomato, has been under pressure recently. As of today, Wednesday, May 21, 2025, the stock is trading around ₹228 on the BSE, reflecting a decline over the past few trading sessions. This note aims to analyze the key factors contributing to this downward trend, providing investors with a clearer understanding of the current situation.
Recent Price Fluctuations
Over the last couple of weeks, the share price of Eternal has exhibited some volatility with a general downward bias. Early May: Following the release of the Q4 FY25 results around May 2nd, the stock saw an initial dip of over 5%. While revenue from operations showed a significant year-on-year growth of 64% to ₹5,833 crore, the net profit experienced a sharp decline of 78% to ₹39 crore compared to the same period last year. This fall in profit was primarily attributed to increased expenses related to the expansion of Blinkit and higher infrastructure costs, as well as rising customer acquisition costs.
Mid-May: There were some recovery attempts, but the overall sentiment remained cautious.
Recent Days (Last 2-3 days): The stock has again witnessed a notable fall. On Tuesday, May 20, 2025, it dropped over 4%, and this downward trend has continued into today.
Key Events Affecting the Share Price
Several factors and recent events appear to be influencing the falling share price of Eternal:
Concerns over Foreign Ownership Cap and Potential MSCI Exclusion: A significant trigger for the recent decline is the shareholder approval for a proposal to cap aggregate foreign ownership in the company at 49.5%. While this move is framed as a step towards becoming an ‘Indian owned and controlled’ company, it has sparked concerns among foreign institutional investors (FIIs).
Potential FII Outflow: Jefferies estimates that if this ownership cap is enforced, global passive funds could potentially pull out nearly $1.3 billion from the stock. This anticipated large outflow is naturally creating selling pressure.
Possible MSCI Exclusion: More critically, this move could lead to Eternal’s exclusion from the MSCI indices or a reduction in its weightage within these indices. MSCI rules suggest that if the foreign portfolio investor (FPI) holding is within 3% below the maximum permissible limit, the stock could be placed on a red flag list, potentially leading to exclusion or a decreased index weight. Exclusion from MSCI indices typically results in further selling as funds that track these indices are forced to reduce their holdings.
Declining Profits and Increased Expenses: As highlighted in the Q4 FY25 results, the sharp fall in net profit due to increased expenses, particularly related to the aggressive expansion of the quick commerce business (Blinkit), is weighing on investor sentiment. While revenue is growing, the bottom line is under pressure. The management’s focus on growth over immediate profitability in the short term, especially in the competitive quick commerce space, is being viewed with some caution by the market.
Intensifying Competition: The quick commerce sector is becoming increasingly competitive with the aggressive expansion of players like Reliance Retail. This heightened competition could put further pressure on margins and profitability as companies invest in customer acquisition and market share gains.
Brokerage Concerns: Some brokerage firms have expressed concerns about the intense competition in the quick commerce space, leading to potential pressure on profitability due to discounting. This has resulted in some downgrades and reduced target prices for the stock.
Analyzing the Stock from Different Perspectives
To provide a comprehensive view for investors, let’s consider a few angles:
Fundamental Perspective: Eternal has shown strong revenue growth, and its market position in the food delivery sector remains dominant. The quick commerce segment (Blinkit) is also exhibiting high growth. However, profitability remains a concern due to the ongoing investments in scaling Blinkit and the competitive landscape. The company’s fundamentals, as per Value Research, indicate a mixed picture with a high Price-to-Earnings (P/E) ratio of over 420, suggesting a rich valuation despite recent price corrections.
Technical Perspective: The recent price action indicates a bearish trend in the short term. Investors might be observing key support levels to gauge where the selling pressure might subside.
Market Sentiment: The news around the foreign ownership cap and potential MSCI exclusion has clearly dampened market sentiment towards the stock in the immediate term. Investors, especially foreign ones, are likely reassessing their positions.
Advice for Investors
For investors in Eternal, it’s crucial to consider the long-term potential of the company versus the short-term headwinds.
Long-Term Believers: If you believe in the long-term growth story of India’s food delivery and quick commerce market, the current dip might present an opportunity to accumulate the stock, if you have strong risk appetite and a longer horizon of investment. The company’s strong market share in food delivery and the high growth potential of quick commerce cannot be ignored.
Short-Term Traders: Short-term investors should be cautious given the negative momentum and the overhang of potential FII selling and MSCI exclusion. It would be prudent to monitor the developments regarding these events closely.
Focus on Fundamentals: Keep a close eye on the company’s operational performance, particularly the profitability of Blinkit and the food delivery business in the coming quarters. Successful cost optimization and improved margins in the quick commerce segment will be crucial for a positive re-rating of the stock.
In conclusion, the recent fall in Eternal’s share price appears to be primarily driven by concerns related to the proposed foreign ownership cap and its potential implications, including exclusion from MSCI indices, coupled with existing worries about near-term profitability due to investments in growth and competitive pressures. Investors should weigh these factors along with the company’s long-term growth prospects before making any investment decisions.
It is recommended that investors consult with their financial advisors to understand the risks involved and make decisions aligned with their individual investment goals and risk tolerance.
