Eternal's Q2 FY26 Stunner: Is 90% Revenue Growth Worth the Hidden Costs?

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Executive Summary: A Quarter of Transformation and Torrid Growth 🚀

Eternal Limited (formerly Zomato) has just dropped its Q2 FY26 numbers, and at first glance, they are nothing short of spectacular. Consolidated revenue has skyrocketed by a staggering 90% quarter-on-quarter (QoQ) to ₹13,590 crores, while profit after tax (PAT) jumped 160% to ₹65 crores. But as any seasoned analyst knows, the headline numbers often hide the real story.

This quarter wasn’t just about business as usual; it was a period of profound strategic transformation. Two key events are reshaping Eternal’s financial landscape:

1. The Blinkit Metamorphosis: The quick commerce segment has aggressively shifted from a marketplace to an inventory-led (1P) model. This accounting change means Eternal now books the entire sale value as revenue, not just the commission, massively inflating the top line.
2. Entering the Entertainment Arena: The acquisition of the movie and events ticketing business from Paytm was completed this quarter, creating a new “Going-out” segment and adding another engine for growth.

While these shifts drove the headline numbers, the core India food delivery business showed signs of steady, profitable acceleration. However, this high-growth phase comes at a cost—a compression in overall profit margins and a significant drain on operating cash flow due to massive inventory build-up. Let’s peel back the layers to understand if this high-stakes bet is paying off.

Decoding the Business: More Than Just Food Delivery

Eternal’s business is rapidly evolving. Once synonymous with food delivery, it now operates across four distinct verticals, each at a different stage of its lifecycle:

• India Food Ordering and Delivery: The mature, cash-generating core of the business.
• Quick Commerce (Blinkit): The hyper-growth engine, currently in a capital-intensive expansion and business model transition phase.
• Hyperpure (B2B Supplies): A synergistic B2B segment supplying restaurants, which is also impacted by the Blinkit transition.
• Going-out: The newly acquired movie and event ticketing business, representing a fresh foray into the entertainment space.

This quarter’s results are the first to partially reflect the “Going-out” segment and more fully capture the impact of Blinkit’s 1P model, making year-on-year and even quarter-on-quarter comparisons tricky. The company itself has noted that the results are not directly comparable.

Sales Analysis: A Tale of Two Growth Stories

The consolidated revenue figures are, frankly, startling. A jump from ₹7,167 Cr in Q1 to ₹13,590 Cr in Q2 is almost unprecedented. But this isn’t pure organic growth.

The primary driver is the Blinkit 1P transition. As guided in the Q1 FY26 earnings call, this shift is now in full swing. Instead of booking a small commission, Eternal books the Gross Order Value (GOV) as revenue. This is an accounting reclassification, not a 90% increase in underlying business volume.

To find the real organic pulse, we must look at the standalone results, which largely represent the core food delivery business.

Here, we see a much more realistic—and still very healthy—9.8% QoQ growth. This validates the management’s commentary from last quarter about “early signs of better growth” and a recovery in Monthly Transacting Customers (MTC). Against a backdrop of strong domestic consumption and easing inflation in India, the core business is firing on all cylinders.

Earnings & Profitability: Growth’s Hidden Price Tag

While profits grew, the pace of growth lagged far behind the revenue explosion, pointing to margin dilution from the new business models.

Despite a 90% QoQ revenue surge, PBT only grew by 47%. This caused the consolidated PBT margin to shrink from 1.17% to 0.93%. The inventory-led model of Blinkit and the integration of the new entertainment business are clearly lower-margin operations at this stage compared to the mature food delivery marketplace.

However, the story for the core business is much brighter. Standalone PBT grew 13.2% QoQ (from ₹681 Cr to ₹771 Cr), outpacing its revenue growth of 9.8%. This indicates strong operating leverage in the food delivery segment, where incremental revenue is flowing more efficiently to the bottom line.

Verdict: Eternal is currently a Fast Grower. The core business is behaving like a stalwart with improving profitability, while the newer segments are in a hyper-growth, cash-burn phase.

The Cash Flow Conundrum: Where Did the Money Go? 📉

The most telling part of this quarter’s story lies in the cash flow statement. While the company is profitable, its operations are consuming cash.

For the first half of FY26 (H1 FY26), Net Cash from Operating Activities was a mere ₹38 crores, a steep fall from the ₹421 crores generated in H1 FY25.

What caused this drain? A quick look at the working capital changes reveals the culprit:

• Movement in Inventory: A massive -₹1,344 crores was blocked in inventory during H1 FY26.

This is the direct, tangible cost of Blinkit’s 1P transition. Building out an inventory-led model requires stocking up goods in dark stores and warehouses across the country, which locks up a tremendous amount of cash. The balance sheet confirms this, with inventories swelling from ₹176 Cr at the end of FY25 to ₹1,502 Cr in just six months.

CapEx and Balance Sheet: Fuelling the Expansion Engine

Eternal is stepping on the gas for expansion.

• Capital Expenditure: The company spent ₹788 crores on CapEx in H1 FY26, more than double the ₹361 crores spent in the same period last year. This investment is likely flowing into building more Blinkit dark stores and integrating the infrastructure for the new ‘Going-out’ business.
• Balance Sheet Strength: Fortunately, the company is well-capitalized to fund this aggression. It raised ₹8,500 crores through a QIP last year, and its balance sheet remains robust with total equity of over ₹30,800 crores. This financial muscle is crucial to sustaining the high-investment, high-growth strategy.

Looking Ahead: Key Takeaways for Investors

1. Execution on Display: Management is delivering on the strategic shifts it announced. The move to a 1P model for Blinkit, a key theme from the Q1 earnings call, is clearly underway. This demonstrates strong execution capability.

2. Focus on Underlying Growth: Investors should look past the headline consolidated revenue. The standalone numbers provide a clearer picture of the core food delivery business’s health, which remains strong and is improving its profitability.

3. Margin & Cash Flow are Key Monitorables: The big question is how quickly the newer, lower-margin businesses can scale and become profitable. The current strategy is a trade-off: sacrificing near-term margins and cash flow for massive top-line growth and market share. The path to improving contribution margins in the Quick Commerce and Going-out segments will be critical.

4. GST Overhang Remains: The contingent liability related to GST on delivery charges (₹420+ crores) remains a key risk that investors should not ignore.

In conclusion, Eternal is navigating a complex but exciting transition. It is leveraging the strength of its profitable core business to fund an aggressive, multi-pronged expansion. While the strategy is pressuring margins and cash flows today, it is building a much larger, more diversified platform for tomorrow. The coming quarters will be crucial to see if this colossal investment starts yielding profitable returns.

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