Quick commerce enters a new phase as Blinkit prioritises returns over discounts

Eternal has made a strong case for why quick commerce should no longer be viewed as a cash burning business, arguing that sustained investments in stores, warehouses and inventory ownership are creating a platform capable of delivering healthy returns even as growth normalises.

The company said the economics of the business have strengthened significantly since it shifted to a first party inventory model a year ago, giving it greater confidence to continue investing.

Chief executive officer Albinder Dhindsa said competitive intensity remains high but has become "more predictable". Rather than relying on discounting, Blinkit is "the only player" investing simultaneously in assortment, geographic expansion and supply chain infrastructure. He argued that pricing led growth requires sustained cash burn, whereas infrastructure investments create operating leverage by allowing each additional store and city to serve more customers at lower marginal costs. 

Dhindsa added that each new store, category and city expands capacity and enables the company to serve more customers at lower marginal cost, allowing Blinkit to grow while improving profitability.

"This is different from traditional e-commerce, where discounting can be weaned off gradually, without hurting the business (much). Infrastructure-led growth, on the other hand, builds operating leverage - each new store, each new category, each new city adds capacity that serves more customers at lower marginal cost. That's why we can grow rapidly and improve profitability at the same time," the CEO said.

Karan Taurani, executive vice president at Elara Capital, believes Blinkit's performance reinforces the view that Indian internet platforms have entered a profitability inflection point. While he expects the quick commerce arm's growth to moderate to around 65% year on year over FY27 to FY29 as annual store additions slow after the aggressive rollout of more than 2,000 stores over the past few years, he said profitability should continue improving through advertising monetisation, lower promotional spending, operating leverage and higher order frequency.

Blinkit continued to outpace the market in the June quarter. The quick commerce business reported an 86% year on year increase in net order value (NOV) to ₹17,132 crore, while adding 200 net new stores to take its network to 2,443 locations. Adjusted EBITDA turned positive for the fifth consecutive quarter at 0.6% of NOV, translating into a profit of ₹102 crore against a loss of ₹162 crore a year earlier.

Infrastructure remains the core investment

"Quick commerce is not asset light, unlike our other businesses," Eternal's chief financial officer Akshant Goyal said in the shareholder letter. The company now operates around 19 million square feet of store and warehousing space across more than 300 cities and has invested about ₹3,000 crore in capital expenditure over the past four years to build the network. 

As of the end of the June quarter, Blinkit's net working capital stood at ₹2,545 crore, equivalent to roughly 14 days of annualised NOV. According to Goyal, inventory ownership is a deliberate strategic choice because it makes the business "more durable in the long term", while future investments will continue as long as the company sees healthy returns on capital employed. 

Under its updated operating assumptions, Eternal now expects capex of ₹2.5 crore per store, net working capital equivalent to 12 days of NOV, daily NOV of ₹11 lakh per store and an EBIT margin of 4% of NOV. Based on these assumptions, the company estimates a pre tax return on capital employed of 41.7%, materially higher than the framework it outlined last year. 

"Our confidence in continuing to invest in capex and NWC is driven by expected ROCE. The math keeps evolving as we learn more about the business, but as long as a healthy ROCE remains in sight, we will continue to invest," the CFO added.

Customer retention remains the key indicator for the company. According to Blinkit, fourth quarter customer retention across all cohorts averages 46%, with newer cohorts touching 50%. Spending by customers also rises sharply over time, with NOV retention reaching 279% by the twelfth quarter, implying customers spend nearly three times what they did in their first quarter on the platform. 

Taurani also noted that Blinkit's adjusted EBITDA margin of 0.6% of NOV demonstrates improving execution and estimated that the platform's advertising business alone could contribute around ₹20 billion to EBITDA by FY28 without any change in current unit economics. He added that management's expectation of nearly 40% pre tax return on invested capital from mature stores further strengthens the long term investment case for the business.

On impact of the fuel and raw material price inflation, the company disclosed that inventory losses currently stand at about 1.8% of NOV, largely because of perishable categories such as fruits and vegetables, but expects these to improve through better replenishment planning and supply chain efficiencies. It added that it has not yet seen any meaningful disruption from raw material inflation or supply constraints.