DCF Valuation & Investment Analysis – Eternal Limited (Zomato)

Executive Summary

This repository contains a comprehensive three-scenario Discounted Cash Flow (DCF) valuation of Eternal Limited (NSE: ETERNAL, formerly Zomato). The model derives the intrinsic equity value per share as of 5 May 2026 using the Free Cash Flow to Firm (FCFF) methodology over a 10‑year explicit forecast (FY26E–FY35E) and a Gordon Growth terminal value.

Key Result:

• Probability‑weighted implied share price: ₹157.84 (vs. current market price of ₹251.00)
• Weighted upside/(downside): –37.1% → Recommendation: SELL

The market appears to price in an optimistic scenario that is significantly above the model’s probability‑blended intrinsic value.

File Structure

Model Architecture & Methodology

The valuation follows a standard FCFF → Enterprise Value → Equity Value framework:

1. Segment‑level revenue and margin projections for Food Delivery, Hyperpure (B2B), Quick Commerce (Blinkit), Going Out, and Others.
2. Derivation of unlevered free cash flows (NOPAT + D&A – Capex – Δ NWC).
3. Discounting explicit period FCFFs at the case‑specific WACC.
4. Adding a terminal value (Gordon Growth Model) discounted back to the valuation date.
5. Adjusting for net debt (debt – cash) to arrive at equity value; dividing by shares outstanding gives the implied price per share.

The model is built in three parallel, independent scenario engines: Base, Optimistic, and Pessimistic, each with its own set of drivers.

1. Key Drivers & Assumptions

Each scenario is governed by a distinct set of growth, margin, and capital‑efficiency assumptions. The most critical inputs are:

Assumption	Base	Optimistic	Pessimistic
Quick Commerce (Blinkit) revenue CAGR (FY25‑35)	~39%	~48%	~27%
Hyperpure (B2B) revenue CAGR	~30%	~38%	~21%
Food Delivery revenue CAGR	~14%	~17%	~10%
Blinkit terminal EBITDA margin	15.0%	19.0%	11.0%
Hyperpure terminal EBITDA margin	5.0%	7.0%	3.0%
Total revenue CAGR (FY25‑FY35)	27.3%	35.7%	19.6%
FY35E Consolidated Adj. EBITDA margin	14.0%	19.9%	11.0%

Other key drivers:

• Share‑based payment expense declines gradually as a % of revenue.
• Capex intensity decreases from 5.5% to 3.5% of revenue over the forecast.
• NWC investment is modelled as a % of incremental revenue.
• Effective tax rate ramps from 0% to the statutory 25.17% over the forecast.

2. Discount Rate (WACC)

WACC is built from a CAPM‑based cost of equity and after‑tax cost of debt, weighted by target capital structure:

Cost of Equity:

$$ \text{Cost of Equity} = R_f + \beta \times \text{ERP} $$

WACC Formula:

$$ \text{WACC} = (E/V) \times \text{Cost of Equity} + (D/V) \times \text{After-tax Cost of Debt} $$

Parameter	Base	Optimistic	Pessimistic
Risk‑free rate ($R_f$)	7.00%	7.00%	7.00%
Equity Risk Premium (ERP)	6.75%	6.75%	6.75%
Levered Beta ($\beta$)	0.90	0.75	1.10
Cost of Equity	12.40%	12.06%*	14.43%
After‑tax Cost of Debt	6.73%	6.73%	6.73%
Debt weight (D/V)	0.85%	0.85%	0.85%
WACC	13.02%	12.02%	14.36%

(Note: The Optimistic cost of equity in the model yields 12.02% WACC after weighting; the exact cost of equity rounds slightly differently due to internal cell precision – the final WACC is correct as per model.)

3. Terminal Value

Terminal value is calculated using the Gordon Growth Model applied to the final year’s FCFF (FY35E) grown at the perpetual rate:

$$ \text{Terminal Value} = \frac{\text{FY35E FCFF} \times (1 + g)}{\text{WACC} - g} $$

Scenario	Terminal Growth ($g$)	Terminal Value (₹ Cr)	PV of Terminal Value (₹ Cr)
Base	5.0%	1,72,186	50,629
Optimistic	6.0%	5,71,743	1,99,782
Pessimistic	4.0%	29,702	9,750

Terminal value dominates total Enterprise Value (typically 60–80%), making the valuation highly sensitive to both WACC and the perpetual growth rate.

Key Outputs

Scenario Valuation Bridge (INR Crores)

Valuation Component	Base	Optimistic	Pessimistic
PV of Explicit FCFF	17,974	58,700	(645)
PV of Terminal Value	50,629	1,99,782	9,750
Enterprise Value	68,603	2,58,482	9,105
Less: Total Debt	(2,045)	(2,045)	(2,245)
Plus: Cash & Investments	16,806	16,806	16,806
Equity Value	83,364	2,73,243	23,866

Per‑Share Results

Scenario	Implied / Share (₹)	Upside / (Downside)	Probability Weight
Base	87.61	–65.1%	40%
Optimistic	287.17	+14.4%	35%
Pessimistic	25.08	–90.0%	25%
Probability‑Weighted	157.84	–37.1%	100%

Investment Rule: BUY if weighted upside ≥ +15%, HOLD if 0% to +15%, REDUCE if –15% to 0%, SELL if < –15%.
→ Current recommendation: SELL

The active scenario toggle in the Excel model is set to Optimistic (hence the Cover sheet shows BUY), but the probability‑weighted view drives the final signal.

Sensitivity Analysis

The model includes two‑way data tables (Sheet: Sensitivity) that illustrate how the Base‑case implied share price changes with variations in WACC and terminal growth rate, and with WACC and terminal EBITDA margin.

Key observations:

• A 100 bps increase in WACC (from 13% to 14%) reduces the Base‑case implied price by ~13%.
• A 100 bps increase in terminal growth (5% → 6%) raises the price by ~9%.
• To justify the current market price of ₹251, the market must assume a WACC below 11%, a terminal growth rate above 7%, or a terminal EBITDA margin well above 18% — all well outside the Base‑case corridor.

How to Use the Model

1. Switch the Active Scenario:

   • Open Eternal.xlsx, go to the Summary sheet.
   • Change cell F5 to 1 (Base), 2 (Optimistic), or 3 (Pessimistic).
   • The DCF, Sensitivity, and Cover sheets recalculate instantly.

2. Customize Probability Weights:

   • On the Summary sheet, adjust cells B45 (Base), D45 (Optimistic), and F45 (Pessimistic).
   • Ensure the sum equals 100% (cell B46 checks this). The weighted equity value and implied per share update automatically.

3. Flex Assumptions:

   • Go to the Assumptions sheet.
   • Edit the case‑specific growth and margin drivers in the lower section (rows 56–107). The Scenarios sheet picks them up via the toggle.
   • Alternatively, change inputs directly in the Scenarios sheet for a quick over‑ride (not recommended for permanent changes).

4. Interpret Sensitivity Tables:

   • The Sensitivity sheet uses Excel Data Tables. After changing inputs, ensure they are recalculated (press F9 if needed). The interpretation notes at the bottom guide the user on what combinations justify the current market price.

Sources & References

• Eternal Limited (formerly Zomato) Annual Reports FY22–FY25
• NSE/BSE filings
• Management commentary (Q4 FY26)
• Brokerage and industry research
• Risk‑free rate: 10‑year Indian G‑Sec as of valuation date

Disclaimer

This model is prepared for educational and analytical purposes only. It does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security. All projections are based on subjective assumptions and may differ materially from actual outcomes