Why Kotak’s Buy Rating On Eternal, Swiggy Hides A Bigger Problem

Every quarter, a familiar ritual plays out on Dalal Street. A brokerage publishes a note on Eternal and Swiggy, reiterates its Buy rating, sets a fair value a comfortable distance above the current price, and the market nods along. Kotak Institutional Equities has just done exactly this again, retaining its Buy call on both stocks and declaring Blinkit the best placed operator in Indian quick commerce. What almost nobody asks out loud in these notes is the more uncomfortable question sitting underneath all of it: why does an industry that is still collectively losing close to a thousand crore rupees a quarter keep attracting unanimous bullishness from the very analysts whose job is to be sceptical.

Start with the numbers Kotak itself is projecting, not the framing around them. Blinkit is expected to post an eighty eight percent jump in net order value to Rs 17,277 crore, and its adjusted EBITDA is projected to rise to around Rs 102 crore, up from Rs 37 crore in the previous quarter. On the surface this reads like a profitability inflection point. Sit with the ratio for a second though. A hundred and two crore rupees of profit against seventeen thousand crore of order value is a margin so thin it barely survives contact with a single bad month of fuel prices or delivery incentives. To sustain that number, Blinkit is expected to add roughly 225 new dark stores in just three months, each one a fresh fixed cost commitment in rent, staffing and inventory before it has proven it can generate a single profitable order. This is not a company printing cash. It is a company running extremely fast to keep a wafer thin margin from turning negative again.

Instamart’s picture is starker still, and this is where the sell side’s habit of selective emphasis becomes obvious. Kotak expects Instamart to hit contribution margin breakeven this quarter, and that phrase, contribution margin breakeven, gets repeated in nearly every bullish note on Swiggy as if it settles the matter. It does not. Contribution margin breakeven only means that the direct cost of fulfilling an order no longer exceeds the revenue from that order. It says nothing about the enormous fixed cost base sitting above it, the warehousing, the technology, the corporate overhead, the marketing spend required to keep customers from switching to Blinkit or Zepto. That is precisely why, in the same note, Kotak still projects an adjusted EBITDA loss of around Rs 730 crore for Instamart this quarter, an improvement from Rs 858 crore previously, sure, but still a number large enough to erase most of the goodwill generated by Swiggy’s food delivery business, where revenue is expected to grow twenty five percent to roughly match a twenty percent rise in gross order value.

Put the two businesses side by side and a pattern becomes obvious that the Buy ratings tend to gloss over. Sequential growth, the quarter on quarter number that actually reflects current momentum rather than a low base from a year ago, shows Blinkit expanding twenty percent against Instamart’s 4.1 percent. That gap is not a rounding difference, it is the difference between a business compounding its lead and one that is barely holding position. Yet both stocks carry the same rating, the same broadly optimistic language, the same fair value logic built on a multiple of future revenue rather than any near term cash generation. Kotak’s fair value of Rs 385 for Eternal and Rs 370 for Swiggy both implicitly assume that today’s losses are temporary bridges to tomorrow’s profits. That assumption has held for Blinkit so far. It has not yet been proven for Instamart, and the widening gap between the two makes that proof harder to deliver with each passing quarter.

The part of this story that deserves far more scrutiny than it gets is what happens to this entire equation once Amazon and Flipkart get serious. Both companies have been expanding aggressively into quick commerce through micro fulfilment centres and urban fulfilment hubs, and separate brokerage analysis has already flagged that this competitive pressure could force both Blinkit and Instamart to spend more heavily just to defend market share, delaying the very profitability timelines that current Buy ratings are priced around. UBS has already trimmed its FY27 to FY29 quick commerce estimates for Blinkit by seven to eleven percent and for Instamart by seventeen to twenty two percent, citing exactly this risk. That is a meaningfully larger cut for Swiggy’s business, which makes sense given it has less margin cushion to absorb a prolonged price war. None of this appears as a headline caveat in most Buy notes. It shows up, if at all, in a paragraph near the bottom, after the fair value target has already anchored the reader’s expectations.

None of this is to say Kotak’s underlying operational read is wrong. Blinkit almost certainly is executing better than Instamart right now, and the brokerage’s granular store count and order value estimates look grounded in real data rather than wishful extrapolation. The issue is structural rather than analytical. Sell side coverage on high growth, loss funding consumer businesses tends to reward the appearance of a widening competitive moat over the actual arrival of sustainable profit, because a growing moat is a story that can be extended quarter after quarter, while a genuinely profitable business eventually has to be judged on cash flow alone, a much less forgiving standard. Both Eternal and Blinkit, and Swiggy and Instamart, are still, at a consolidated level, businesses that lose money to gain market share. Kotak’s note does not hide these losses, to its credit, the actual numbers are all there in black and white. What it does do, like most sell side research on this sector, is frame those losses as evidence of strength, a company spending its way to dominance, rather than what they equally could be, a company whose dominance still depends on spending it cannot sustain indefinitely.

For investors reading past the headline rating, the more useful exercise is not asking which company Kotak prefers, it is asking what has to be true for either fair value target to hold. For Eternal, it requires Blinkit’s razor thin margin to widen meaningfully even as it keeps opening new stores at pace, and even as Amazon and Flipkart escalate their own spending. For Swiggy, it requires Instamart’s Rs 730 crore quarterly loss to shrink fast enough to reassure a market that has already watched that number improve only marginally, a hundred and twenty eight crore rupees, over the prior quarter. Buy ratings are not predictions of certainty, they are bets on management execution continuing along its current trajectory in an industry where the competitive ground is shifting underneath everyone at once. That nuance rarely survives the trip from a forty page brokerage note to a one line market headline, and it is exactly the nuance investors in India’s quick commerce story most need to hold onto.