Eternal Shares Surge on Fee Hike; Elara Sees 82% Upside

Introduction to the Market Movement

Shares of Eternal Ltd., the parent company of Zomato, experienced a sharp rebound in Tuesday's trading session, driven by a positive broader market and improved investor sentiment following a strategic fee adjustment. The stock climbed 5.9% to reach an intraday high of ₹240.29 on the National Stock Exchange (NSE). By 1:45 pm, the shares were trading at ₹237.20, a 4.51% increase, making it a top gainer in the Nifty50 index.

This surge comes despite a challenging year for the stock, which has declined 16.3% year-to-date, compared to the Nifty50's 12.3% fall. The renewed buying interest is primarily linked to an enhanced growth outlook for its food-delivery business.

Zomato's Platform Fee Hike Explained

The primary catalyst for the stock's advance was the decision by its food-delivery arm, Zomato, to increase its platform fee by 20% to ₹15 per order. This move aligns Zomato's fee structure with that of its main competitor, Swiggy, which also charges a ₹15 fee. Analysts view this as a critical step towards strengthening the company's financial metrics without creating a competitive disadvantage.

Elara Capital's Bullish Outlook

Following the announcement, brokerage firm Elara Capital reiterated its 'Buy' rating on Eternal Ltd., setting a target price of ₹415 per share. This target suggests a potential upside of 82% from the stock's previous closing price of ₹226.96. The brokerage noted that the fee hike is consistent with Eternal's long-term strategy to achieve an adjusted EBITDA margin between 5-6% by the fiscal year 2028. Currently, the company's adjusted EBITDA margin stands at 5.4%, and Elara Capital projects it will reach 6% by FY28.

Financial Impact of the Fee Increase

Elara Capital provided a detailed analysis of the financial benefits. According to their estimates, every ₹1 increase in the platform fee translates to a 26-basis-point positive impact on the company's take rate and an incremental adjusted EBITDA of approximately ₹120 crore.

In a base-case scenario where the new ₹15 fee is implemented in 50% of its operational markets, Elara projects a 40-basis-point gain in the take rate. This would lead to a 7.5% uplift in the estimated adjusted EBITDA for FY27, amounting to an additional ₹180 crore.

Will Higher Fees Deter Customers?

A key concern with any fee increase is potential customer attrition. However, Elara Capital believes the risk is minimal. The ₹15 platform fee constitutes only 3.1% of Zomato's average order value (AOV) of ₹475. This level is considered too low to significantly influence consumer behavior or trigger a drop in order volumes.

Historical data supports this view. Zomato began charging a platform fee of ₹2 in August 2023 and has increased it gradually since. This phased approach has not negatively impacted the Gross Order Value (GOV) growth rate. In fact, GOV growth rebounded sharply in the third quarter of FY26 as the number of monthly transacting users accelerated.

A Buffer Against Rising Costs

The increased fee also provides a valuable cushion against operational cost pressures, particularly fluctuating fuel prices. Elara Capital estimates that a 10% rise in fuel prices could reduce food delivery EBITDA by nearly ₹90 crore. The additional revenue from the platform fee acts as a partial hedge against such cost shocks, which is crucial given the low penetration of electric vehicles among delivery partners.

Broader Analyst Consensus

While Elara Capital's target is among the highest, the positive sentiment is shared across the market. Out of 33 analysts tracking Eternal, 30 have a 'buy' recommendation. Other major brokerage firms have also issued positive ratings, with CLSA setting a target of ₹506 and Jefferies at ₹480, citing the strong performance of its quick-commerce arm, Blinkit, which recently turned EBITDA positive.

Conclusion

The recent platform fee hike by Zomato is a calculated move to enhance profitability and strengthen its market position. The positive reaction from investors and analysts, led by a bullish forecast from Elara Capital, underscores confidence in Eternal's strategy. The ability to increase fees without disrupting order growth demonstrates the platform's strong value proposition and sets a positive course for future margin expansion and shareholder value.