Business
Eternal stock could see 30% upside even as new labour rules lift gig costs: Elara Capital
Eternal stock could see 30% upside even as new labour rules lift gig costs: Elara Capital
About this update from Eternal Limited
The new, simplified labour codes are expected to create a small but manageable cost impact for food-tech and quick commerce platforms, and Eternal ( formerly Zomato) could offer nearly 30% upside from current levels, according to Karan Taurani, Executive Vice President at Elara Capital. Taurani estimated that companies dependent on gig workers may see a 30–50 basis-point hit to Gross Order Value (GOV). "On a per-order basis, this number is around ₹2.5–3," he said. Many platforms already offer medical insurance that costs around 1% of revenue, and the new code could push this towards 2%. The rule allows up to 2% of revenue or 5% of a worker's payout as contribution. Even then, he added, the impact remains contained: "The worst-case impact is not more than ₹2.5–3 on a per-order basis." He said the combined annual effect for both Eternal and Swiggy works out to roughly ₹250 crore. Taurani does not expect a meaningful medium- or long-term drag. As revenue expands, he said the cost impact will shrink, and platforms can gradually pass this on to customers. With an average order value of ₹450 for food delivery and ₹600 for quick commerce, the incremental ₹3 is a very small component. This reduces the risk of any hit to demand. On valuations, Taurani said "the worst seems to be largely over". Zepto’s recent funding round valued the company at 0.6–0.7x market cap-to-GMV, which he sees as a benchmark for the sector. Using a sum-of-the-parts (SOTP) approach for Eternal, Taurani said that, after adjusting for the food delivery business, cash, and Hyperpure, Blinkit is currently valued at about 0.6x market cap-to-GMV, similar to Zepto. But he argued Blinkit deserves more: "Because Blinkit is better in terms of growth rates, better in terms of scale, better in terms of profitability… we see Blinkit trading at least at a 50% premium." Since Blinkit accounts for around 60% of Eternal’s SOTP value, a premium would translate to a "straight 30% upside from here on" for the stock, he said. Taurani noted that the intense discounting seen earlier this year has cooled. He said Eternal, Swiggy and Zepto are now prioritising profitability, especially with Zepto preparing for a possible IPO. He clarified that Swiggy’s recent QIP was aimed at changing its inventory model, not at funding discounts. New players like Amazon and Flipkart, he added, are focused on execution rather than ...