Eternal Ltd (NSE: ETERNAL) Q2 2025 Earnings Call dated Oct. 16, 2025
Corporate Participants:
Albinder Singh Dhindsa — Founder & Chief Executive Officer, Blinkit
Akshant Goyal — Chief Financial Officer
Kunal Swarup — Head, Corporate Development
Analysts:
Garima Mishra — Analyst
Gaurav Malhotra — Analyst
Nikhil Choudhary — Analyst
Aditya Soman — Analyst
Manish Adukia — Analyst
Swapnil Potdukhe — Analyst
Ashwin Mehta — Analyst
Abhisek Banerjee — Analyst
Vijit Jain — Analyst
Manish Poddar — Analyst
Presentation:
Operator
Ladies and gentlemen, a very good evening and welcome to Eternal Limited’s Q2 FY ’26 Earnings Conference Call. From Eternal’s management team we have with us today Akshant Goyal, Chief Financial Officer; Albinder Singh Dhindsa, Founder and CEO of Blinkit; and Kunal Swarup, Head of Corporate Development.
Before we begin, a few quick announcements for the attendees. Anything said on this call which reflects outlook for the future or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance and actual results may differ from those statements. Additionally, please note that this earnings call is scheduled for a duration of 45 minutes and we will be starting directly with the Q&A section of the call.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Garima Mishra from Kotak. Please go ahead.
Garima Mishra
Hi. Thank you for the opportunity. My questions are on the quick commerce business. First this quarter witnessed a big increase in MTU addition for Blinkit. You did allude to higher ad spends and investments towards this in the letter. Is this set to continue and hence we should expect elevated ad spends going forward as well.
Albinder Singh Dhindsa
Hey Garima, this is Albinder. See what we are seeing right now is that there are new consumers out there in the market and if we are targeting them, we are able to onboard them at a reasonable marketing cost which is why we spent more on marketing this quarter as well. So till the point that we keep seeing this trend, I think we will keep investing however much that we can to basically power more growth. So you should expect this to continue in the next quarter as well.
Garima Mishra
All right. So in the same line in the last quarter you mentioned that every new customer cohort breaks even for you at CM level in month one itself, right? Is there any change to this metric especially since MTU addition has gone up so much?
Akshant Goyal
No. We haven’t seen that change yet, Garima. And that’s why I think just to add into Albinder’s point earlier, Akshant this side. I think that is why I think as long as we see a healthy CAC and a healthy LTV, we won’t shy away from spending more on marketing because we’re actually acquiring good quality customer base.
Garima Mishra
So Akshant just on this point, is this strategy sort of change or modification, whatever you might want to call it, is this anything to do with what you’re seeing from a competitive intensity perspective?
Akshant Goyal
Like, not really. I think it’s also a function of scale of the business. I think now that we are about 1,800 stores, it’s a much wider geographical footprint. So our addressable market has also expanded in the last few months and quarters. And as a result, the caps are not going up when we spend more because there is sort of operating leverage on the marketing costs now.
Garima Mishra
All right. So maybe last question and on this thread, how should we think about EBITDA break-even in the Blinkit business? I mean the general understanding was this should happen sometime in the second half of FY ’26. How should we think about it in this context?
Akshant Goyal
Garima that’s not really a milestone we are focused on. I think for us, the way we look at the businesses, there are parts of the business which are more mature, which are already EBITDA positive. And we have shared that in the past. We’ve mentioned that major cities already north of 3% adjusted EBITDA margin. So there is therefore a reasonable size of our business today which is already reasonably profitable. And then there is cost of expansion, opening new cities, new stores, acquiring new customers and eventually the adjusted EBITDA that we report is a weighted average of these two sort of parts of the business.
So I think this can keep changing depending on what kind of growth we see, what quality of growth we see and how much we invest. Also, it’s also linked to how competitive the market is and what the competition is doing. So we see the adjusted EBITDA margin or break-even more as an outcome of all of these things and not really something that we are chasing as a goal right now.
Garima Mishra
Got it. Thank you so much and wish you the best. I’ll come back in the queue.
Akshant Goyal
Thank you Garima.
Operator
Thank you. Next question is from the line of Gaurav Malhotra from Axis. Please go ahead.
Gaurav Malhotra
Yeah. Hi. Good evening, everyone. Just had two, three questions. So first, when I see the NOV to GOV for quick commerce that has sort of moved up — I think move down by a couple of percentage points. So is it more of the ongoing festive season and the ongoing, those different sales which everyone is doing or there is, there is an increased competitive pressure which you are seeing right now.
Albinder Singh Dhindsa
Gaurav, it’s mostly because of the mix change and mix of products. So JAS quarter has a couple of festivals as well. So we see primarily Rakhi being a big one. So that is one of the reasons that you will see that difference being there.
Akshant Goyal
And Gaurav, just to add directionally, I think as the share of general merchandise and non-branded products on the platform grows, we are likely to continue to see this trend. And therefore you can see in our data that we have shared over the past four quarters this metric has sort of consistently come down which means NOV is a smaller and smaller percentage of GOV, which is also why we’ve highlighted that we believe NOV is a more relevant metric to track versus GOV.
Gaurav Malhotra
Got it. Just following up on what Garima said and sort of linking it up with the, the 3,000 store you’ve now given us you know why, when you want to sort of go, go to that number. So is the higher marketing spend happening in the existing cities or because now you will be going to cities where there is no one else. Right. So. Or the marketing spend is more sort of skewed towards, towards those newer, newer markets and geographies.
Albinder Singh Dhindsa
See the marketing spend is still skewed towards the larger cities because we also have significant amount of non-serviceable area in the existing larger cities and that’s where the larger volume of the businesses. But we are also spending significantly now in the emerging cities as well and we have a significant footprint for those — for which we are…
Gaurav Malhotra
Sorry, if I would just interject, I meant like on a per acquired customer perspective, on a CAC perspective, is there more spending happening in the existing or you have to, you have to spend more in the newer markets where you have to sort of educate the people.
Albinder Singh Dhindsa
Are you trying to ask whether the CAC for consumers in Tier 1 markets is different than the CAC for…
Gaurav Malhotra
Yeah. Yeah.
Albinder Singh Dhindsa
This is not significantly different.
Gaurav Malhotra
And just last question, if you can just, you know, just help us understand how do we think about the revenue to — you have obviously given us a full detailing in the shareholder letter. But suppose next quarter when you go to say 90% then how should we sort of think of this revenue versus the gross profit versus the NOV sort of, that sort of formulation changing. If you can just give us some guidance on that please. Or not guidance, but just to understand how to sort of think about it.
Kunal Swarup
Gaurav, because of the step change of 80% you saw the revenue growth meaningfully increase. Right. So I think that one step change has happened. Now it should be incremental from here because 80% to 90% will result in some more dissonance in the comparable sort of revenue versus the past. But I think that step jump is behind us. Right. If that was your question.
Gaurav Malhotra
Yeah. And just last question if I may. So the remaining 10% inventory would be what, it’ll be like those higher ASP products or the low sort of frequency selling products. So how do we think about the the last 10% which you don’t want to sort of shift to inventory.
Albinder Singh Dhindsa
We still have sellers on the platform which are selling different products that we feel that the model is better for those products on a seller driven model and also the sellers also prefer that they would stay on that model. So I think that’s the difference which we will see. So it is what Kunal was saying the if you’re trying to estimate the percentage of NOV which comes across as margin I think that is going to be more impacted by mix change going forward rather than the change in the percentage of business which is on inventory versus not on inventory.
Gaurav Malhotra
Got it. Thank you so much.
Operator
Thank you. Next question is from the line of Nikhil Choudhary from Nuvama. Please go ahead.
Nikhil Choudhary
Thanks for the opportunity. My first question is on food delivery. Last quarter we called out that we’ll focus on driving growth and profitability will remain constant. But this quarter what we have seen that profitability actually improved while growth pickup is limited. So just wanted to understand was there is some change in strategy or the elasticity of let’s say additional spend is not leading to higher growth.
Akshant Goyal
So Nikhil hi. So I think like the the main delta here is increase in platform fee that happened in the middle of the quarter which we did not anticipate or estimate at the beginning of the quarter when we declared the last quarter’s result and our increase in platform fee was more a reaction to what our competitor did. So I think that’s why you see the growth in margin versus our earlier guidance of margin perhaps remaining flat.
Nikhil Choudhary
No, I understand that part. The point what I want to understand, let’s say if you would have invested those additional earning to acquire more user or get gain more market share, we could have done that. Right. So rather than let’s say absorbing or letting the profitability flow through, I mean that’s what we choose to do rather than focusing on growth. So that that’s the decision I want to understand. Yeah.
Akshant Goyal
So I think like the decision on how much to invest for growth is a function of what kind of customer acquisition cost or reactivation cost for dormant users that we see. Right. So it’s more driven by that rather than the specific P&L budget. And till the time these costs are reasonable and they make sense from a long term LTV return perspective, payback perspective, I think we would naturally prefer to spend and grow the business. But we have to stop at a point where these numbers don’t make any sense anymore. Right. And typically that’s the zone. That’s the sort of threshold line that we operate with irrespective of how much budget or NL room we have to spend on growth. I hope that answers your question.
Nikhil Choudhary
Got it. Yeah, yeah, yeah, fair enough. The second one on Blinkit side, I think what you have called out that higher marketing spend is because of larger size. So is it fair to assume that this kind of elevated marketing compared to previous quarter will continue in future quarter as well?
Akshant Goyal
Yes, at least likely in the near term and that’s what Albinder mentioned in response to a previous question that we do expect these levels to continue at least for now.
Nikhil Choudhary
And it has no implication from higher competitive intensity, right?
Akshant Goyal
That’s another variable and we are assuming that to remain constant when we give this guidance. I mean if that changes meaningfully in one way or the other, then this outlook can change.
Nikhil Choudhary
Got it. That’s it for my side. Thank you.
Akshant Goyal
Thank you, Nikhil.
Operator
Thank you. Next question is from the line of Aditya Soman from CLSA. Please go ahead.
Aditya Soman
Yeah. Hi, good evening. Sir, two questions. Firstly on Blinkit. So you indicated that you’ve sort of plowed back some of the incremental contribution, if you were to call it that or incremental profitability back into marketing spend and would it also be fair to assume that some of it has gone into price as well to make your products more attractive or make the products on the platform? Yeah.
Albinder Singh Dhindsa
Yes, that was the first point in one of the answers.
Akshant Goyal
The question 7.1, essentially that’s what we mean there.
Aditya Soman
Absolutely. So then when I see the difference in obviously contribution per order has improved but EBITDA per order hasn’t. So that would be just a function of marketing spends and the gap between those two.
Albinder Singh Dhindsa
It is an interplay between some gains in operating leverage and increased marketing spend. Yes.
Aditya Soman
Understood, very clear. No, that was on Blinkit. And second question on District. Any sort of guidance on how you see the trajectory for sort of contribution or profitability playing out in District and how we should think of growth and profitability for that business.
Akshant Goyal
So Aditya, I think we should expect growth to be around the current levels of around 30% year-on-year. I think that is what we are expecting right now and profitability in percentage terms should improve. But I think as we mentioned also in question 11, we expect the absolute losses to sort of remain range bound around the current levels.
Aditya Soman
Fair enough. So around whatever INR60 crores, INR70 crores of losses and continuing under 30% growth trajectory even in this current quarter where the base I’m presuming is tough given that you have, I’m assuming it’s an important quarter for that business.
Akshant Goyal
You know, it’s possible. But I think our guidance is more at a maybe annual level because quarterly there can be seasonality on some of these events and concerts and movie releases or let’s say IPL event and so on. So there is a lot of seasonality in this business and a couple of weeks of swings can lead to one quarter not doing well versus same quarter last year. But if you, I think, I think what we are trying to guide is more year-on-year growth than quarter-on-quarter. So yeah, I think that’s, that’s, yeah.
Aditya Soman
Fair enough. No, that’s very clear. That’s it for me. Thanks.
Operator
Thank you. Next question is from the line of Ankur Rudra from JPMorgan. Please go ahead. Ankur, can you hear us? Seems like we have some technical difficulties. Moving on to our next participant. Next question is from the line of Manish Adukia from Goldman. Please go ahead.
Manish Adukia
Hi, good evening. Thank you for taking my questions. First question is again a follow up on food delivery. Now since you mentioned that some of the factors that are causing headwinds are largely macro. In your opinion, for you to reach your medium term 20% plus, is it just that macro has to get better or are there any other interventions that you could do to get to that higher number. And since one of the reasons that you called out is also expansion of quick commerce which may have impacted food delivery growth. So could we conclude that as long as quick commerce growth remains elevated, which may be for some time in the foreseeable future, food delivery in the foreseeable future is unlikely to see any meaningful improvement in growth trends. And 20% maybe a more longer term target than a medium term target.
Akshant Goyal
That’s right, Manish. I think that’s how I would also characterize the current situation. I think in terms of your first part of the question, whether we’re totally macro dependent or can we do something else for the growth. I think — so I think we, and it’s not like I think that those attempt to expand the market have not been done in the past, but I think the headwinds have been strong including the soft discretionary demand in India in the last few months. But I think from our side we’ll continue to focus on creating newer use cases to order food from restaurants. And hope think that the macro environment improves which will bring the growth back in the business to the levels that we think it should grow at.
Manish Adukia
Sure. Thanks Akshant. And sorry to push you on this one, but why keep that 20% plus guidance? Like why not make it like 15% plus? I’m just trying to think that what gives you confidence that this is a 20% plus market and not a 15% market or like a whatever low teens or mid teens market?
Akshant Goyal
I mean like so guidance can — I mean guidance cannot be always close to the current growth levels. Right. Then it’s not really a guidance. So the reality is the current growth rate number which is around 15% but whether you give a guidance of 10% or 20%, you will have no basis for that. Right. It’s a judgment call. And I think, I mean in the last letter we did say that this financial year we are unlikely to be at 20% and we are expecting a 15% sort of year-on-year growth. But longer term our view on 20% remains as of now and if that changes, we’ll communicate. But that’s where we are right now.
Manish Adukia
No, sure, appreciate it, thank you. And maybe just a couple of questions on the quick commerce business. I think again in the previous call you’d called out that as you transition to 1P, the benefit of that also should be immediate. But now given your focus on growth, I think or focus on growth was always there. But this time you’ve mentioned that it’ll take four to six quarters. So again, what has changed between let’s say last three months for you to change that view on immediate translation of margin versus four to six quarters on 1P transition.
Akshant Goyal
So what we mean by four to six quarters is the time frame to fully realize it. Right? What we meant last time and maybe we can clarify if there was a confusion is that the realization of the margin gains will start happening immediately, which has happened even in this quarter. But the overall margin accretion of 1% will take some while. Right? Because it requires you to negotiate with brands. We’re signing contracts directly with brands and that process cannot happen at one shot. Right? So.
Manish Adukia
Right. Very clear. A follow on, on that. I mean your gross margin 300 basis points of expansion in the QC business and I think contribution about 70. So that what he explained in the Shareholder Letter, that incremental 230 basis points of cost was all linked to the first mile bit and some bit of let’s say gross differential, I don’t know, in mix etc. Just if you can explain that differential as to what drove that 230 basis point incremental cost. Was it all first mile or was it something else?
Akshant Goyal
So the entire margin expansion is not just on account of this business model change. Right? So there is actually a meaningful margin expansion outside of that also. So, so the — right now I would say therefore in in with respect to this 3 percentage point top line into the gross profit increase, the cost side increase is on account of the supply chain costs that moved from the sellers to us. Right? And so we’re not giving a split of how much of the contribution margin gain is because of the business model change and how much is because of other efficiency and operating leverage. But I think that’s what I wanted to highlight that it’s a combination of both.
Manish Adukia
Thank you so much. Last question from me. Of course overall growth profile of the business, especially in the quick commerce side continues to be extremely strong. If you can [Indecipherable] you’ve shared this data in the past, you can give us some color as to let’s say your most penetrated or mature city. What is the growth looking like there would just help us build confidence as we think about in the next couple of years because your store rollouts will aid overall growth but would love to understand how maybe your top one or two mature cities are doing internal growth.
Akshant Goyal
Manish, we do keep sharing these data points from time to time and what I can say right now is I think nothing material has changed for us to highlight at this point. So if you had good confidence on the business last quarter, I think that should continue.
Manish Adukia
Thanks a lot. All the best.
Operator
Thank you. Next question is from the line of Swapnil Potdukhe from JM Financial. Please go ahead.
Swapnil Potdukhe
Hi, thanks for the opportunity. I have two or three questions. First on your storage expansion strategy and related to that. So obviously you have mentioned that you — as you you plan to add around — you plan to operate around 2,100 stores by the December quarter and 3,000 by March ’27. Now if I were to just extrapolate that and ask you what would happen to your NOV growth because you had earlier guided for 100% GOV growth this year. But the kind of accelerated investments that you are doing on store side, will it be fair to assume that we could be at a very if not 100% but close to 100% kind of a growth rate on FY ’27 as well.
Akshant Goyal
Yeah, Swapnil, yes, I agree. I think currently if you look at the growth rate it’s much higher than 137%. So I do expect therefore the year-on-year growth to remain about 100% for the next one or two years at least.
Swapnil Potdukhe
Got it. And the second question is with respect to your — the contribution margin not improving meaningfully despite the fact that your gross margins expanded 300 basis point and then you alluded to the fact that there is some first mile related investments that you have done. Now my question over here is like, like if, if you’re getting into those first mile at some point of time you will also probably see some benefits of doing first mile on your own. Right. And in that context will it be fair to say that the 100 basis points of benefit that you are suggesting on because of the inventory related model that could actually be much higher than that over a period of time. Not necessarily now, but one year, two years later.
Albinder Singh Dhindsa
Swapnil, the overall percentage of our cost which resides in the first mile for brands is way too small to make a significant dent here. So it will not change.
Swapnil Potdukhe
Okay, got it. And the second question is on parties on your food delivery growth. So obviously that 40% growth could have been much higher in my opinion given the changes that you have done on the minimum order value side. I mean is there anything else you could have done or is it because of the fact that you made that change in the mid of the August if I’m not wrong. The full benefit of that is yet to be realized and possibly in the December quarter we would see that benefit coming in. And apart from that is there any other trick up your sleeve that you can use to accelerate growth in the food delivery business?
Akshant Goyal
Yeah. So you’re right Swapnil, I think that full impact of that change will appear in the December quarter. And outside of that, as we also mentioned in the letter that we only expect a slow uptick in growth rate in the near term and there is no silver bullet that we have as of now.
Swapnil Potdukhe
Got it. And just on the District business. So we have been in this INR50 crores to INR60 crores of loss range for the last couple of quarters. When exactly will we see these losses coming down? I mean you, you have suggested around a similar kind of losses for in the near term at least. But from a medium term perspective at what will — where will be the inflection point where we will start seeing some improvement in the losses in that business.
Akshant Goyal
So I think from a, I think financial year ’27 will be, should be better than financial year ’26 in terms of the losses in the business. Right? That’s how I would put it without really pinpointing a particular quarter. But I think it should happen in the next few quarters.
Swapnil Potdukhe
Got it. Got it. Good. So those were my questions. So thanks a lot for the opportunity and all the best.
Akshant Goyal
Thank you.
Operator
Thank you. Next question is from the line of Ashwin Mehta from Ambit. Please go ahead.
Ashwin Mehta
Yeah, hi. Thanks for the opportunity. Just one question. So Akshant we’ve added almost 1,200 odd dark stores over the last year. Any sense that we can give either over the last two quarters or last four quarters in terms of where these dark store additions have happened, whether it’s been what’s the proportion towards Tier 1, Tier 2, Tier 3, and is the skew towards say Tier 2, Tier 3 increasing in the recent times?
Akshant Goyal
So Ashwin, I think majority, more than 70%, 75% of our store addition continues to be in the top 10 cities. Right? And while the number of city count seems to be exploding, but number of stores in these long tail cities are really small. Right? So majority of the business and the success of the business is still linked to how well we do in the top eight to 10 cities and that remains the focus.
Ashwin Mehta
Okay. Perfect. So do you envisage, as you possibly densify some of these tail cities as well, that the middle mile or the warehousing related expenses also start to kick in at this point in time if we are just kind of testing waters here, then maybe that is on a lower keel at this point in time. Would that be a fair assessment?
Akshant Goyal
Not really, Ashwin, because most of these tail cities are being serviced by warehouses which are also serving large cities. Right? So there have been only very few locations or states where we did not have that backend and where we had to open a cluster a bunch of cities and then a warehouse to service them. But I think our network design on stores already takes into account the fact that we have to be mindful of the backend warehousing cost and in locations where that doesn’t make sense because you don’t have a large city that is already being serviced, we have sort of stayed away from expanding into those markets. So therefore I think the cost of expansion into these tail cities is not very high at this point in time for us from a mechanic supply chain cost perspective.
Ashwin Mehta
Okay, fair enough. And the last one is in terms of there’s this other segment where we put in our new initiatives The losses there are now comparable to the losses on the going outside. So any outlooks here? What is the area where bigger investments are going and how should these trend?
Akshant Goyal
So Ashwin, most of these losses are on account of our expansion in the bistro business which is a 10 minute food delivery service that we are building. And I mean I will try and give some update on that business in the next quarter maybe and I think we’ll get some clarity on that.
Ashwin Mehta
Sure, Akshant, thanks and all the best.
Akshant Goyal
Thank you.
Operator
Thank you. Next question is from the line of Abhishek Banerjee from ICICI. Please go ahead.
Abhisek Banerjee
Hi sir. Thanks for the opportunity. My first question is with regards to the new MTU additions which have happened in this quarter. You mentioned that you’ve gotten some high quality customers. So are these new customers into the segment or are they coming from one of your competitors?
Albinder Singh Dhindsa
I think Abhishek, it’s hard for us to clearly demarcate where the new customers are coming from. We just know whether they’re new to platform or not. But we would think that for the majority of the customers that we are talking about they would be new to quick commerce in general because one, we have the largest network of stores so we are targeting the biggest geographies and also we are spending for growth in the segment and targeting new customers. So that is, that gives us a confidence that most of them are new to QC in general.
Abhisek Banerjee
Got it. So you also mentioned that the steady state proportion of insourcing will be about 90%, right, inventory. Now what, what is the 10% that you are kind of keeping outside? Are they the fast moving items or the slow moving items? Any color on that?
Akshant Goyal
Abhishek, there are some categories where I think it’s operationally easier for us to work with sellers than actually directly source it from the manufacturer. Right. So I think those are the few categories which are a bunch of actually there’s no large categories there with a bunch of small products and SKUs that I think this operationally doesn’t make sense for us to own directly and that’s why we’re going to let sellers run that business.
Abhisek Banerjee
Got it. Now, so we have obviously built a positioning which kind of positions us as the player where customers pay for convenience. Right. Now that you have, you have competed a little bit on the pricing front, does, I mean, does that in any way impact our positioning in the customer’s mind? I mean, how to kind of look at that?
Albinder Singh Dhindsa
Abhishek, I think our positioning is that we want to be a customer first organization and do what is in the best interest of the customer. I think as we get larger and you get more efficiency benefits, what we would continue to do is also give our customers a confidence that Blinkit will also be the best price platform for them, right which basically means we have to run our operations a lot more efficiently. We have to pass those benefits on to the customer. And we think that that is the right thing to do for our customers. So we don’t think of it as positioning it one way or the other. Right? Customers are willing to pay us convenience fee because they value the service that we provide. And part of the value that we also want to provide them so that they continue to value us even more is the confidence that we are also the platform which gives them the best access to products at the best possible prices.
Abhisek Banerjee
Understood. So this is very helpful and I’m just kind of reiterating a point which some of the fellow participants also raised before this. If you can provide some color on the large cities and the smaller cities in terms of AOV etc., that would be high appreciated.
Albinder Singh Dhindsa
Abhishek. It’s not that different, I would say.
Akshant Goyal
We mentioned last time. I think the, the AOVs are not very different. The margins may be slightly lower in smaller cities as of now, but that’s also because they don’t have that kind of assortment that we are able to provide in larger cities in most cases. So, so yeah, so I think that’s, that’s all that we want to share at this point. But we’ll try and see if we can include more details in the future shareholder letters.
Abhisek Banerjee
Understood. And finally, one last question on the food part of the business. Are we seeing a sequential improvement here beyond what we have seen in the last quarter? So as in, are we less upbeat on, on the recovery here, which is what the Shareholder Letter kind of gives gives the impression. So just trying to understand that a little more.
Akshant Goyal
Yeah, Abhishek, I think we have said that we expect a slow uptick in growth rate, but do we do expect that growth rate will keep going up from here?
Abhisek Banerjee
Thank you so much. Appreciate it. You’re welcome.
Operator
Thank you. Next question is from the line of Vijit Jain from Citigroup. Please go ahead.
Vijit Jain
Yeah, hi, thank you for the opportunity. My first question is, the take rate commentary that you have, the 300 bps Q-o-Q, some part, maybe nearly half seems to be coming from that first mile change. I wanted to understand if the majority of the rest came from advertising. There has been a lot of industry commentary recently around FMCG companies significantly raising advertising budgets on QC. And I’m just wondering if that is true and if you’ve reinvested those advertising revenues into customer acquisitions. Is that reasonably accurate way of looking at this?
Akshant Goyal
So Vijit, I think what we are saying is that a large part of this 3 percentage point increase is on account of business model change. However, business model change is also leading to the cost going up and first increase in first mile cost is only a part of the reason of the cost going up. Right. So when we move this business from sellers to directly on our platform, the bunch of supply chain cost, which includes first mile cost, went up and hence that entire, gain on the top line margin because of the model change will not flow through to the contribution margin, right, which is also consistent with what mentioned in the past.
Or net flow through eventually should be 1% out of which we have realized this quarter and the balance will I think keep flowing through in the, over the next four or five quarters. Right. So I think just to be clear, this is the position on the impact of business model change on the top line and the margin. Outside of that I think we haven’t seen any major bump in ad revenue in the last quarter, right, which we won’t talk about in sort of business as usual on that front.
Vijit Jain
Okay, got it. And my second question is, in question 7.1, you’ve said that the QC marketing spend went up 4 times Y-o-Y and I think 40% Q-o-Q. And obviously your user growth has also been pretty high to I think 2.3 times, 25% quarter-on-quarter. So my question, I suppose is when you say that your marketing spend will remain elevated, is that going to be proportionate to new user additions or are you having to see incrementally as well, some spends for retention work as well.
Albinder Singh Dhindsa
It’s mostly new user acquisition.
Vijit Jain
Got it. So in that sense, if you add another 3 million or 4 million, let’s say users in, in Q3, the absolute spend on marketing, you know, just goes up, you know, commensurate with what you’ve seen in Q2 versus Q1. Is that, is that, is that accurate?
Albinder Singh Dhindsa
Ideally there should be some operating leverage there.
Vijit Jain
Yeah, right, got it. And my second question is in terms of these store editions that you’re doing right, 250 odd stores that you say, you’ll add in 3Q and then pretty similar, maybe 200 average beyond that. Should we think about this as you know from here on pretty steady or will there be some spurts here and there? I mean I’m just trying to understand if if you’re looking at it in terms of specific spots or specific just a steady cadence based on plans you’ve made.
Albinder Singh Dhindsa
I think it’s very dependent on what we learn over the next few months as well. This is our current view.
Vijit Jain
Okay.
Albinder Singh Dhindsa
Right. But if we find opportunity to grow even rapidly, we have a store opening in which can possibly open a lot more stores every quarter as well and we will take that opportunity if it comes.
Vijit Jain
Got it. And my last question, the cost related to the inventory model change that you mentioned. Right. So are they all mostly above gross profits line or rather above contribution line or is there some additional costs between CM and adjusted EBITDA as well in quick commerce?
Albinder Singh Dhindsa
Everything is above CM.
Vijit Jain
Correct. Thank you. Those are my questions.
Operator
Thank you. Ladies and gentlemen, in the interest of time, we will now take the last one to two questions. The next question is from the line of Manish Poddar from Invesco. Please go ahead.
Manish Poddar
Hi. Thanks for taking my question. First of all I think a great job in terms of executing lot of variables. As customers we don’t see the difference in terms of delivery when you would have migrated 80% or 90% of the system. I think it’s a great job on that front. I just have three questions. So the first one is any idea you would have on the quick commerce side of the business. Let’s say now how would your market share be versus let’s say three or six months back on NOV basis then versus now.
Akshant Goyal
Hi Manish. Thank you. So yeah like we do internally have a sense on market share. We do try and track it basis some sampling data that we do but we’re not sure about it because all our competitors are private companies. So I would not want to conjecture on therefore numbers around market share unless they’re public.
Manish Poddar
Okay. And you know my understanding was that this marketing intensity given you said that on the earlier question that you’re M3 retentions are good on the quick commerce side. I thought the marketing intensity of peers is going down so your marketing cost or this CAC should come down but this is not seeming to be the case. So what am I missing here?
Albinder Singh Dhindsa
I think the understanding of this might not be correct because it typically if a space is growing and multiple people are spending, then everybody usually has access to a wider chunk of customers that they can target for conversion. And you will see lower caps even if the other folks are not spending we might be taking 80% or 90% of the overall growth in the segment, but that doesn’t necessarily mean that we will get the lowest CAC. That’s not how digital marketing works, which is the largest predominant portion of our marketing.
Manish Poddar
Okay. And the final bit, let’s say short term message is, let’s say this 3,000 store target, let’s say by next year, how should we think about store reach let’s say two, three, four years out. Let’s say if I had to think about it, how should one think of it from that lens? I’m just trying to think let’s say generally FMCG companies have there about 8 million to 9 million outlets. Even if you think about, let’s say when we think about direct reach for a lot of FMCG companies, that’s about 1 million, 1.5 million, 2 million outlets. Some companies also do 3 million outlets. I’m just trying to think, how should we think of this 3,000 number let’s say two years out or three years out.
Albinder Singh Dhindsa
I think currently our viewpoint is that our current geographical footprint helps US cover about 20% of the overall targetable retail market that we’re looking at. Right? Of course we are looking at a geographic footprint, not at a store level footprint. And we believe that most of the profits and the high quality profits that we can target reside maybe in the top 40% of the targetable market. So I think that’s where we are. But even with this 20%, I think we don’t have the kind of coverage that would help us to cover the entire geography. We’ve just gone and put a single store in a city like Asansol. We’ll have to let it mature, see where that market goes.
And if it goes in the same proportion of population and DDB per capita that some of the largest cities have gone, then of course that city has a potential to be like, you know, multiple times bigger than where it currently is. But that is something we will only take a call on once we have the proof point. So we want to be conservative in this expansion because our cost of supply chain expansion, building the footprint, going deeper into those locations, making a lot more products available is substantial. So we will take a call on this once we have more and better information.
Manish Poddar
But then just Akshan, if I had to just think about it. When you’re thinking about, let’s say 1,000 stores, let’s say in the next 15 months post December. I’m just trying to think, can this thousand, you know, is that just a number? And then probably six months out you realize that, you want to do 2,000, so you might actually do 2,000 also. Because I’m just trying to think if the product fitment is right, balance sheet cash is there. There’s an opportunity which is seeming to be in place given what you mentioned on the earlier questions on unit economics in Tier 1 and Tier 2. Then I’m just trying to think, how do you think about 1,000 stores? I’m just trying to think how, how does that number come across? Why can’t put 2,000 or 1,500? I’m just trying to gauge your mind just on that perspective.
Akshant Goyal
No, so I think you’re right. I think, you know, we are also early in the business so we’ll respond to what we learn as we go along. I think this size is very clear to all of us that the opportunity is large. Right. But how large it is is still unknown. It’s a function of like how many categories become big in quick commerce. It’s a function of, how the business shapes up in the smaller cities. And as far as the pace of expansion is concerned, it’s also a function of the bandwidth and prioritization that we do internally. Right?
So there may be a situation when, yes, the market is looking big and we have an opportunity to expand and we have the cash, but we can take a call to prioritize, let’s say efficiency improvement and so that the cost of expansion or the profits we get from expansion goes up. Right? So I think there are multiple dynamics at play in terms of choosing the pace of expansion and I would say because of that we’ve been slightly conservative right now in our guidance in terms of timeline of getting to 3,000 so that we have some room to actually make changes to how we want to grow if we have to.
Manish Poddar
Akshant, can I squeeze in one more if that’s fine?
Akshant Goyal
Yeah, sure.
Manish Poddar
So if I had to just think about let’s say inventory, let’s say SKUs available, how many SKUs would be available, let’s say in a city, let’s say like Bombay or Delhi versus let’s say, you know, a Tier 2 city and you know, is the, let’s say the hero SKUs or the core cohort materially different? I’m just trying to think in terms of adoption of these categories in these cities is what I’m trying to think of. I understand probably shorter on time on a call, but I’m just trying to get some glimpse of that.
Albinder Singh Dhindsa
So obviously when we think of, you know, Tier 2 and Tier 3 cities, the availability of assortment to customers is multiple times lower than the larger cities. The primary reason for that is that the supply chain depth needed to make those products available is not there and we have to build it from scratch. And that’s a process which we are going through and we have found reasonable success doing it so far. But you can be assured that that number is multiple times lower than what it is in Delhi or Bombay or Bangalore. A Tier 3 city would not even be close to the overall number of SKUs there.
Manish Poddar
Got it. Great guys. Thank you. And Happy Diwali.
Albinder Singh Dhindsa
Thank you. Thank you, Manish. Happy Diwali to all of you.
Operator
[Operator Closing Remarks]