Eternal Ltd, formerly known as Zomato, reported a 90% year-on-year (YoY) decline in net profit for the first quarter of FY26, landing at ₹25 crore, compared to ₹253 crore in the same quarter last year. Despite this sharp drop, the company's shares surged, reflecting investor confidence potentially fueled by upbeat management commentary and strong revenue growth.

The revenue from operations surged 70% YoY to ₹7,167 crore. This growth was primarily driven by the company's quick commerce segment, Blinkit, which saw its net order value (NOV) increase by 127% YoY. For the first time, Blinkit's quarterly NOV surpassed that of the food delivery business, reaching ₹9,203 crore. The B2C net order value (NOV) of Eternal's businesses grew 55% YoY to ₹20,183 crore in Q1 FY26.

The decline in profit is attributed to ongoing investments in the quick commerce segment (Blinkit) and the "going-out" business. These investments include the expansion of Blinkit's dark store network and increased spending on marketing and discounts in new markets.

Despite the profit decline, Eternal's management expressed optimism about the company's future prospects. CEO Deepinder Goyal stated that the YoY growth is likely to bottom out as the company recovers from the demand slowdown seen in late 2024. While a 20%-plus NOV growth for FY26 seems unlikely, he anticipates growth to be north of 15% and trending towards 20% in FY27.

Several factors contributed to the positive sentiment surrounding Eternal's stock despite the profit dip. The company's food delivery margins remained healthy at 5% of NOV, despite seasonal pressures. CFO Akshant Goyal noted that margins in both food delivery and quick commerce typically face pressure in Q1 due to lower delivery partner availability during festivals and adverse weather. However, he also pointed out that these pressures were partially offset by improvements in other areas.

Blinkit's growth is a major highlight, with the addition of 243 new stores during the quarter, bringing the total count to 1,544. The company is on track to reach 2,000 stores by December 2025. Blinkit is also transitioning to an inventory-led model, which is expected to boost margins and revenue. Moreover, Blinkit's adjusted EBITDA losses narrowed to ₹162 crore in Q1 FY26 from ₹178 crore in Q4 FY25, with EBITDA margin improving from -2.4% to -1.8%. The company expects both percentage margins and absolute losses to improve, contingent on the competitive intensity remaining at current levels.

Eternal is also seeing promise in its 'District' business, an in-house private label offering fresh, ready-to-cook, and ready-to-eat food products, with the expectation that it will become a profitable business. The 'going-out' segment is now an ₹8,000 crore annualized NOV business, growing at over 30% YoY.

Eternal closed Q1 FY26 with a strong cash balance of ₹18,857 crore. Overall, while the profit decline is a concern, the strong revenue growth, particularly from Blinkit, and the positive outlook from management appear to be driving investor confidence in Eternal's long-term potential.