Eternal share price target cut by JM Financial, who still sees 40% upside potential

Shares of Eternal Ltd. gave up early gains on Wednesday, December 17, as brokerage firm JM Financial cut its price target, but retained its optimistic stance of the stock doing well going forward.

JM Financial maintained its "buy" rating on Eternal but revised its target price from ₹450 apiece to ₹400 per share. The revised price target still implies an upside potential of nearly 41% from Tuesday's closing levels.

The brokerage believes Eternal's quick commerce division, Blinkit, is likely to see growth moderate in the December quarter on a sequential basis, mainly on account of high competitive intensity and an unfavourable base, with an early festive benefit for the second quarter.

As a result, the sequential net order value in the December quarter could remain in the low-teens around 13% (which would be 120% more than last year) compared to 25% and 27% in the first and second quarters this fiscal, respectively, JM Financial said.

However, this slight moderation in sequential trends do not change JM Financial's medium- to long-term investment thesis for Eternal, as it continues to see continued structural shift in retail ordering from behaviour from traditional e-commerce as well as offline retail.

Also, Blinkit's profitability trajectory is likely to improve in the near-term on the back of take-rate expansion, operating leverage and it benefits from the inventory-led model, the analyst said.

JM Financial said it believes growth trends in food delivery business are improving, as it expects the net order value to expand 16% from the previous year compared to 13% and 14% in the first and second quarters of this fiscal, respectively. Margins are also likely to remain stable at 5.3%, which is in-line with the second quarter, it said.

Overall, despite the softening of near-term growth expectations for Blinkit, Eternal remains JM Financial's preferred pick as it is the best-positioned player across its B2C businesses on account of market leadership, superior unit, economics and healthy balance sheet.

Of the 33 analysts who have coverage on Eternal, 29 have a "buy" rating and four have a "sell" rating.

Shares of Eternal are off the highs of the day, currently trading 0.6% higher at ₹286.1. The stock is down 22% from its record high of ₹368.

Also Read:Stock Crash: Akzo Nobel shares tank 14% after equity worth ₹1,640 crore traded in block deal