NYU Stern School of Business' Professor of Finance, Aswath Damodaran, believes investors in Eternal might not be factoring in the eventual fall of the margins as the company looks to pivot more towards the grocery delivery business.
"Investors are excited about the growth in the business, but I doubt if they are factoring in the coming down of margin that is inevitable when you leave these spaces where you can get 22% margin," he said in an exclusive conversation with NDTV Profit.
Damodaran, who has been a professor at NYU Stern for almost 40 years, said that Zomato is taking advantage of a very real problem in India.
"It's taking advantage of a real problem in India - infrastructure constraints in big cities, which leads to transportation woes. It takes an ample amount of time to go from point A to point B. Therefore, India is a perfect target for a company that can offer that convenience," he said.
Apart from being a renowned professor at the NYU Stern, Damodaran is also known as the 'Dean of Valuation' and is the author of several widely used academic and practitioner texts. He has written several books on equity valuation, corporate finance and investments.
Damodaran added that companies like Swiggy and Zomato are leveraging that opportunity, which has been central to the growing demand in food & grocery delivery services.
"Companies are arbitraging the fact that your time is more valuable than the person who is going to do that job for a lower cost. That is something that's driving the demand in the market," he added.
Talking about the growing investor demand in Eternal, especially in light of the company's focus on Blinkit, Damodaran argued that investors might be missing a key factor.
"People might not be factoring in that when Zomato was delivering restaurant meals, they were keeping a 20-22% margin. But when you are delivering groceries, you hardly get 6-10%. It's a low-margin and high-growth business," he said.
As of FY25, Eternal's Blinkit or Q-commerce business has contributed 27% to the company's revenue compared to the food delivery business, which still enjoys a 73% share. However, the Blinkit business grew 110% on a year-on-year basis vs 30% growth in food delivery segment.
Damodaran warned investors that as the share of Blinkit grows in Eternal's pie, a margin contraction is almost inevitable.
Watch the full interaction here:
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