Zomato Parent Eternal’s Slide A Buying Opportunity, Says Morgan Stanley — Check Revised Price

Zomato parent Eternal Ltd.’s shares have fallen 14–15% since the last quarterly results, even as the Sensex has risen 2% and peers such as Swiggy have declined about 12%. However, Morgan Stanley has reiterated its Overweight rating while raising its price target to Rs 427 from Rs 420, arguing that the recent correction offers an attractive entry point into what it sees as the best risk-reward play in the sector.

According to Morgan Stanley, the weakness stems from two factors: stretched valuation multiples heading into earnings, and concerns that losses in Quick Commerce may increase as the company prioritises growth over margins. The brokerage believes these worries are overdone.

Morgan Stanley backs Eternal’s decision to push aggressively for customer market share, even if this delays near-term profitability. Quick Commerce is still in a high-growth phase, similar to the early years of food delivery, where user acquisition should outweigh efforts to deepen customer wallet share.

With delivery radius acting as a structural constraint on order volumes, long-term customer growth hinges on the pace of dark store expansion. Eternal has opted to go wide by scaling stores aggressively, effectively maximising its future profit-share potential.

In contrast, Swiggy has focused on increasing basket sizes and average order values by slowing expansion, an approach that, Morgan Stanley notes, has hurt market share.

The brokerage argues that Eternal’s strategy positions it to capture a disproportionate share of the profit pool once growth normalises into a linear phase over the next 1–2 years.

Recent announcements of capital raising by competitors may intensify promotional and pricing aggression in the short term. Eternal’s own temporary moves, such as waiving surcharges, reflect the shifting landscape. However, Morgan Stanley stresses that increased competition will not materially alter the industry’s long-term trajectory, nor does it threaten Eternal’s positioning.

Even under a stress scenario, where aggressive expansion pulls forward industry GOV growth estimates by a year, and delays adjusted Ebitda margins by a year, the brokerage believes the downside is limited. It expects the stock to bottom out in the Rs 280–285 range, implying only modest risk from current levels.

The central concern among investors is whether capital-fuelled aggression could derail Eternal's path to profitability. Morgan Stanley models a conservative scenario where Eternal maintains a minimum cash buffer of $1 billion to avoid any existential threat. Even then, the firm believes the long-term value creation opportunity remains intact.

Across its broader coverage universe, Morgan Stanley highlights Eternal as offering the best risk-reward, particularly given the steep correction and the underlying strength of the company’s strategy.