On Thursday, Eternal said that it will cap foreign shareholding at 49.5%. Based on the recent shareholding pattern, the current shareholding of Foreign Institutions in Eternal at 44.88%.
Brokerage firm Morgan Stanley remains “overweight” on Eternal with a price target of ₹330. The brokerage said that the move to cap foreign shareholding will further strengthen its business moat over competition. However, this could also increase capital intensity in the business, which can be offset by potential margin expansion.
CLSA retained Zomato in its list of “high-conviction” outperformers with a price target of ₹375. With foreign shareholding capped below 50%, Eternal will now qualify as an Indian-owned and controlled company and will retain that qualification as well, according to the brokerage.
Jefferies has a “buy” rating on Eternal with a price target of ₹255. It said that the capping of shareholding is to protect from potential regulatory risks, even while Quick Commerce models conform to the current law.
The brokerage also said that the move will result in a cut in Eternal’s weightage on the MSCI index and it is also unsure of what happens if foreign shareholding crosses the cap limit in the interim.
ICICI Securities believes that Eternal’s move would pave the way for the company to gradually move to an “owned inventory” model, which could aid in adjusted EBITDA margin improving between 100 to 150 basis points in the quick commerce business over the next one to two years.
The brokerage estimates an additional working capital requirement between ₹1,000 crore and ₹2,000 crore at the current scale, which is well below the company’s ₹19,000 crore cash pile.
“While there is likely to be some outflow, it may not lead to a material correction,” ICICI Securities said in its note.
Aside of the 24 analysts that have a “buy” rating on Eternal, two of them have a “hold” rating, while four have a “sell” recommendation on the stock.
Shares of Eternal ended 2.3% higher on Thursday at ₹214.55. The stock is down 22% so far this year.
