Internet · investment research
Eternal (Zomato)
ZOMATO
Verdict
AVOID
low confidence · 3-5 years
Composite score
34/100
Weighted across all eight pillars
Business quality
38/100
Moat, returns, balance sheet, cash, management
Valuation score
28/100
At 43.8x against a sector median of 43.8x, the price embeds roughly 29% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
Avoid for now — the business or governance risk outweighs the opportunity.
WHY
- • Balance sheet scores 12/100 (improving) — Leverage is high enough that a demand shock becomes a solvency question.
- • Growth quality scores 17/100 (deteriorating) — Top-line compounding over the reported history.
- • Profitability & returns scores 28/100 (improving) — ROCE was 11.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Cash conversion scores 72/100 (stable) — Reported profit is backed by operating cash.
WHERE
Internet · Mid cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 9% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹251 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Leverage — Debt is 6.6x EBITDA.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check GDP growth — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Eternal (Zomato) is a competitively exposed internet business compounding revenue at 3.6% and profit at 0.6%, earning 12.5% on capital. Quality scores 38/100 and valuation 28/100 at 43.8x. The decision is therefore avoid with low confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Eternal (Zomato) operates in the Indian internet sector with a mid-cap footprint and a listed market value of about ₹231k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 44/100
Brand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
Segment mix
Growth 7.2% · margin 14.6% — Growing broadly in line with the overall business.
Growth 1.9% · margin 19.3% — Flat to declining; drags the consolidated growth rate.
Growth 5.8% · margin 29.9% — Growing broadly in line with the overall business.
Growth 7.2% · margin 28.3% — Growing broadly in line with the overall business.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
39/100Trend: deteriorating · weight 14%
- MoatBrand & distribution
Shelf presence and recall let the company hold price through input cost cycles.
- Segment concentrationFood delivery is 28.5% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin14.0%
Margin moved from 26.0% to 14.0% year on year.
Profitability & returns
28/100Trend: improving · weight 16%
- ROCE12.5%
ROCE was 11.4% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE11.9%
Return on equity after leverage — read alongside debt levels.
- Net margin9.9%
Share of every rupee of revenue that reaches reported profit.
Growth quality
17/100Trend: deteriorating · weight 15%
- Revenue CAGR (4y)3.6%
Top-line compounding over the reported history.
- Profit CAGR (4y)0.6%
Profit lags revenue, so growth is being bought with margin.
- Growth sourceCapex-led (organic)
Capex is 13.0% of revenue this year.
Balance sheet
12/100Trend: improving · weight 12%
- Debt / EBITDA6.56x
Leverage is high enough that a demand shock becomes a solvency question.
- Debt / equity0.97x
Capital structure relative to shareholder funds.
- Working capital92 days
Long cycle: each rupee of growth locks up more cash.
Cash conversion
72/100Trend: stable · weight 13%
- OCF / PAT109%
Reported profit is backed by operating cash.
- Free cash flow₹-1,183 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
40/100Trend: deteriorating · weight 14%
- Guidance delivery39% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding42% (-2.13 y/y)
Promoters have been reducing ownership over the last year.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII -1.08 · DII +1.64
Direction of institutional ownership over the last year.
- Capital allocationMost operating cash is reinvested into the core …
Most operating cash is reinvested into the core business.
Industry & macro
36/100Trend: deteriorating · weight 8%
- Demand trenddeteriorating
Internet (India) demand is deteriorating.
- StructureFragmented
Fragmented — share shifts are possible but price competition is real.
- Competitive intensitylow
How hard it is to keep pricing and share.
- Macro driversGDP growth, Inflation, Interest rates
Variables that move the earnings base regardless of company execution.
Valuation
28/100Trend: stable · weight 8%
- P/E vs sector43.8x vs 43.8x
At 43.8x against a sector median of 43.8x, the price embeds roughly 29% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted43.80 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield-0.51%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹47,433 Cr | ₹13,281 Cr | ₹5,312 Cr | ₹5,365 Cr | ₹-327 Cr | 8.2% |
| FY2023 | ₹49,236 Cr | ₹15,756 Cr | ₹10,399 Cr | ₹10,711 Cr | ₹7,757 Cr | 9% |
| FY2024 | ₹51,038 Cr | ₹16,843 Cr | ₹7,579 Cr | ₹7,958 Cr | ₹4,896 Cr | 9.5% |
| FY2025 | ₹52,841 Cr | ₹13,739 Cr | ₹8,518 Cr | ₹9,114 Cr | ₹4,358 Cr | 11.4% |
| FY2026 | ₹54,643 Cr | ₹7,650 Cr | ₹5,432 Cr | ₹5,921 Cr | ₹-1,183 Cr | 12.5% |
- ⚠ Working capital cycle is long; growth consumes cash.
Ownership & management
Who owns it, and have they delivered?
Promoter
42%
-2.13 y/y
Pledge
None
No disclosed pledge
FII
19.1%
-1.08 y/y
DII
19.7%
+1.64 y/y
Guidance delivered in 39% of the last eight quarters; average leadership tenure 14 years.
Most operating cash is reinvested into the core business.
- ⚠ Guidance met less than half the time over the last eight quarters
Industry & macro context
Internet (India)
Demand trend
deteriorating
Cyclicality
low
Competition
low
Regulatory pressure
high
Fragmented — share shifts are possible but price competition is real.
Macro drivers: GDP growth · Inflation · Interest rates
Valuation
fair versus the sector
P/E
43.8x
Sector median P/E
43.8x
P/B
5.66x
Earnings yield
2.28%
FCF yield
-0.51%
PE / growth
43.8
Estimated fair-value band ₹251 – ₹321 , built on FY2026 EPS of ₹6.2. Gap to the current price: +9.2%. Ranges are a modelling output, not a target price.
At 43.8x against a sector median of 43.8x, the price embeds roughly 29% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Leveragehigh
Debt is 6.6x EBITDA.
Monitor: Quarterly gross debt and interest coverage.
- Governancehigh
Guidance met less than half the time over the last eight quarters
Monitor: Annual report disclosures and auditor commentary.
- Accounting qualitymedium
Working capital cycle is long; growth consumes cash.
Monitor: Cash-flow statement versus P&L each quarter.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 12.5% | stays above 10% | falls for two consecutive years |
| Cash conversion | 109% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 3.6% CAGR | tracks the 29% priced in | slows for two quarters with no margin offset |
| Promoter holding | 42% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 58/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.
- • Accounting flags reduce the reliability of the reported profit base.