Q2 earnings give contrasting narratives for Eternal and Swiggy

​ Eternal and Swiggy declared their second quarter results earlier this week. Both the companies seem to be following similar trends. Their core food delivery businesses are solid and showed signs of profitability. Similarly, the two companies have concerns over their quick delivery businesses, which are burning cash at a high rate. But despite these common trends, investors reacted differently to the two companies' financial performance. 

While the stocks reacted negatively to the results, the variance was high. Eternal, which disclosed its numbers on Wednesday, saw its stock fall by up to 4 per cent during market hours the next day. 

On the other hand, Swiggy's stock plummeted by up to 15 per cent on Friday, a day after it announced the Q2 numbers. It would seem that investors weren't amused by the larger picture emerging from Swiggy's numbers. 

First, a look at the results. Eternal saw a 77.6 per cent jump year-on-year in its revenues to ₹24,138 crore in the second quarter. It remained profitable on a consolidated level, with a net profit of ₹125 crore, which was up 92 per cent year-on-year. 

Swiggy's revenue also grew at a healthy pace, but a tad slower than its peer. The topline was up 36.1 per cent year-on-year at ₹7,571 crore. Its losses narrowed to ₹922 crore from ₹1,092 crore a year ago.

The food delivery business was the high point for the two companies. Eternal's food delivery business—under Zomato—posted an EBITDA of ₹627 crore. Swiggy's food delivery vertical posted a record EBITDA of ₹341 crore in the second quarter. EBITDA stands for earnings before interest, tax, depreciation and amortisation.

It is, however, when one comes to the quick delivery vertical that the difference is stark. Eternal's quick delivery arm Blinkit crossed a major milestone by turning EBITDA positive in the second quarter. But Swiggy's quick delivery arm Instamart continued to bleed and reported an EBITDA loss of ₹895 crore. The loss was higher than what analysts expected and spooked investors, driving down the stock. It's also a matter of concern that Swiggy's expenses in the quarter surged by 30 per cent to ₹8,703 crore. 

There is another concern that hovers over Swiggy. The company had launched its value-focused food delivery arm, Toing. The idea is that Toing will give customers an affordable option in food delivery. However, it's not yet clear what the new service brings to Swiggy's table. 

The company itself is optimistic. The company expects Toing to fuel its growth in food delivery and increase the growth guidance to 25-30 per cent from the earlier 18-20 per cent. But investors will only gain confidence once they see the results. 

As of now, the risk is of Toing eating into Swiggy's own core offering. Toing has scaled to 50 cities. 

That pressure is now visible in the way analysts have baked the second-quarter numbers into their outlook. Brokerages like CLSA have maintained a bullish call on Eternal. Most have given an OUTPERFORM call on Eternal. The tone is much sober in the case of  Swiggy. Though most of the brokerages continue to have a BUY call on the stock, they have reduced their target price by up to 30 per cent. 

The next two quarters are crucial for the two peers. Eternal would want to vindicate the street's confidence, whereas Swiggy will have to improve its performance considerably to change the investors' present stance.