Zomato and Blinkit parent Eternal's board clears plan to cap foreign ownership at 49.5%

The board of food and grocery delivery company Eternal has approved a proposal to cap foreign ownership in the firm at 49.5%, it said in a notice to the stock exchanges. The move is aimed at providing “greater operational flexibility” to its quick commerce unit, Blinkit, by allowing it to hold inventory, rather than operate solely as a marketplace, as required under India’s foreign investment rules.

As of March 31, Eternal’s domestic ownership stood at 55%, the company said in a regulatory filing. “As a result, the company now qualifies as an Indian-owned-and-controlled company (IOCC) under applicable Indian foreign exchange regulations,” it said.

The IOCC status will enable Blinkit to improve its margins, particularly in fragmented or unbranded categories, as well as in the established fast-moving consumer goods segment, where owning inventory allows for better margins, it said.

The proposal is subject to shareholders’ approval.

In November 2024, Eternal (then Zomato Ltd) had raised Rs 8,500 crore through a qualified institutional placement (QIP), primarily from domestic mutual funds, a move that bumped up the proportion of Indian shareholding in the company.

Increasing domestic ownership

Blinkit’s rival, Zepto, is also working to increase its domestic shareholding. In November 2024, the company raised $350 million from Indian high-net-worth individuals, family offices and major financial institutions. It is currently in talks to raise an additional $250 million, which could further boost its domestic ownership.

Under India’s foreign direct investment rules, foreign-funded online marketplaces are not allowed to own inventory or control sellers on their platforms. Due to these restrictions, quick commerce platforms do not directly own the dark stores – micro-warehouses used for 10-minute deliveries – which are instead operated by separate entities.

In its exchange filing, Eternal said that the IOCC status would enable it to launch private labels across categories such as home décor, gourmet foods, toys, pooja items and seasonal merchandise. “By offering working capital support directly to small brands and manufacturers, and/or using our balance sheet to own inventory, Blinkit can help drive growth across many such product categories,” it said.

According to its latest shareholding pattern, as of March 31, Eternal's foreign shareholders include Chinese firm Ant Financial (1.95% stake), Singapore-based Temasek (4%) and Kuwait Investment Authority (1.08%).

On April 17, Eternal’s stock closed 4.4% higher at Rs 231.75 on the BSE. Markets were closed on April 18 on account of Good Friday.

For the quarter ended December 2024, Blinkit reported a gross order value of Rs 7,798 crore, marking a 120% year-on-year increase. The company accelerated its dark store expansion during the quarter, reaching 1,000 stores ahead of its March target. Blinkit has also announced plans to scale up to 2,000 dark stores by the end of 2025.

Inventory model play

Eternal said several Indian companies benefit from the IOCC status by owning inventory in their online commerce operations.

“For instance, FirstCry – a professionally managed, listed company – has already implemented a cap on aggregate foreign ownership at 49.5 percent, similar to what we are proposing,” it said.

Omnichannel beauty and fashion retailer Nykaa also has majority domestic shareholding.

Karan Taurani, senior vice president, Elara Securities said, "Structurally, the inventory-based model has some benefits over marketplace model as it allows better control over product quality and pricing, and improved consumer experience. This may also offer higher margins through bulk procurement, easier promotion of private labels and enhanced delivery lead time.”

He added, “However, the inventory model requires a stronger grip over operations, given its higher working capital requirement. It also comes with a risk of unsold or obsolete inventory, negatively impacting margins and profitability.”