Blinkit's Q3 Profit: A Closer Look at the Numbers
The December quarter (Q3FY26) results of Eternal Ltd have brought a wave of optimism, particularly from its quick commerce arm, Blinkit. The company reported a small profit of ₹4 crore, a remarkable turnaround from the ₹156 crore loss in the previous quarter. This achievement is even more notable considering Blinkit's strategic shift to an owned-inventory-led model, which now accounts for nearly 90% of its net order value (NOV), up from 80% in Q2.
Drivers Behind the Profitability Surge
The key to Blinkit's improved financial performance lies in the sharp enhancement of contribution per order. Essentially, Blinkit earned ₹30 per order in Q3, which is 25% higher than in Q2. This boost can be attributed to several factors:
- Sales Mix Change: Adjustments in product offerings and pricing strategies.
- Operating Leverage: Benefits from scaling operations and fixed cost absorption.
- Seasonality: Favorable demand patterns during the quarter.
Despite a slight contraction in gross profit margin by 20 basis points to 26.6%, the overall contribution improvement was substantial. Additionally, Blinkit's NOV grew by 14% sequentially to ₹13,300 crore, even though GST cuts in September trimmed growth by about 3 percentage points.
Store Expansion and Future Targets
Blinkit's expansion strategy remains aggressive, though it fell short of its December target of 2,100 dark stores, ending the quarter with 2,027 stores after adding 211 net new ones. Management cited pollution-related construction delays in Delhi NCR and a focus on optimizing order volumes as reasons for the moderated pace. Looking ahead, the company is confident of reaching 3,000 stores by March 2027, requiring approximately 200 new stores per quarter from now on.
Potential Hurdles to Sustained Profitability
While Blinkit's profit is a positive development for Eternal's shareholders, two significant challenges could impede future profitability:
- Delivery Fees Waiver: In response to heightened competition, Blinkit has waived delivery fees in some markets. This move, aimed at retaining market share, could pressure margins if rivals continue to offer similar incentives.
- Accelerated Store Expansion: Management has hinted at possibly increasing store targets to 3,500-4,000 by FY27, up from the current 3,000. This would necessitate adding around 300 stores per quarter, with initial setup costs potentially denting EBITDA.
Broader Business Performance
Eternal's food delivery business also showed growth, with NOV increasing 17% year-on-year to ₹9,846 crore. However, a faster rise in monthly transacting customers (21% to 24.9 million) suggests a decline in average order value per customer. The take rate improved by 243 basis points to 31%, but EBITDA margin growth was slower at 40 basis points to 5.4%, due to rising operational expenses.
Leadership Transition and Valuation Concerns
Amid these financial milestones, Eternal's founder CEO, Deepinder Goyal, has decided to hand over leadership to Albinder Dhindsa, Blinkit's current CEO. While this transition may not unsettle investors, the stock's valuation remains a point of caution. Despite a 23% drop from its October peak of ₹368, Eternal trades at an EV/EBITDA multiple of 40 based on FY28 estimates, indicating premium pricing relative to earnings prospects.
In summary, Blinkit's Q3 profit represents a significant step forward, but its sustainability hinges on navigating competitive pressures and expansion costs. Investors should watch for management's execution on store targets and margin preservation in the coming quarters.
