Eternal Caps FPI Shareholding at 49.5%, Brokerages Optimistic About Margin Growth

Importance of IOCC Status for Blinkit’s Growth

Eternal, formerly known as Zomato, has proposed a move to cap foreign ownership in the company to 49.5%, a decision that is being closely watched by investors and analysts. This strategic shift comes as part of Eternal’s efforts to meet the criteria required to achieve the Indian-Owned-and-Controlled Company (IOCC) status. This move is expected to facilitate the company’s transition to an inventory-led business model for Blinkit, its quick-commerce platform.

Highlights:

• Proposal to cap foreign ownership to 49.5%.

• Efforts to achieve Indian-Owned-and-Controlled Company (IOCC) status.

• Strategic shift to an inventory-led business model for Blinkit.

Importance of IOCC Status for Blinkit’s Growth

The IOCC classification is crucial for Eternal as it seeks to move Blinkit from its current marketplace model to an inventory-based model. Under Indian Foreign Direct Investment (FDI) policy, only IOCCs are allowed to operate inventory-based business models, while marketplace models can allow up to 100% foreign ownership. As of March 31, 2025, the company’s Indian shareholding stands at 55%, which is above the threshold of 51% required to secure the IOCC status.

Highlights:

• IOCC status essential for Blinkit’s transition to an inventory-based model.

• IOCCs allowed to operate inventory-based business models under FDI policy.

• Indian shareholding stands at 55%, above the 51% threshold for IOCC.

Impact on Blinkit’s Business Model

The shift to an inventory-based model would also allow Blinkit to introduce new product categories that are underserved by third-party sellers. This could enable the company to offer high-quality, competitively priced products under its own brand names. Additionally, as Blinkit would own its inventory, the company would gain better leverage in negotiating commissions with manufacturers, further expanding its operating margins.

Highlights:

• Shift to inventory-based model to introduce new, underserved product categories.

• Ownership of inventory allows better control and negotiation power with manufacturers.

• Potential for expanded operating margins through direct product sourcing.

Brokerage Views on the Move

Analysts are optimistic about the implications of this strategic shift. Kotak Institutional Equities, in its report, highlighted the potential for margin expansion, estimating a 40-50 basis points improvement in Blinkit’s operating margins due to the transition to the inventory-led model. While the new model will increase the company’s working capital needs, the potential for better return on capital employed (ROCE) and long-term value creation is seen as a key positive for the business.

Highlights:

• Margin expansion expected with the shift to an inventory-led model (40-50 bps).

• Increased working capital needs but improved return on capital employed (ROCE).

• Long-term value creation seen as a key positive by analysts.

Regulatory Considerations and Future Outlook

The proposal to cap foreign ownership is seen as a necessary step for Eternal to meet the IOCC requirements and expand its operational footprint under a new business model. The shift to an inventory-led approach will make Blinkit more competitive against other large retailers like Reliance and Dmart, as well as e-commerce platforms such as Swiggy, Zepto, Flipkart, and Amazon, which have lower levels of domestic ownership.

Highlights:

• Foreign ownership cap seen as necessary for IOCC requirements.

• Inventory-led approach positions Blinkit against large retailers like Reliance and Dmart.

• Competitive advantage over other e-commerce platforms with lower domestic ownership.

Should government regulations evolve in favor of IOCCs, Blinkit’s strategic positioning could become even more advantageous. However, if the requirement for IOCC status becomes less critical in the future, Eternal may revisit the foreign ownership cap with its shareholders.

Highlights:

• Potential regulatory changes could further benefit Blinkit’s position.

• Future flexibility if IOCC status requirement is relaxed.