Eternal shares jump over 17% this month as investors react to proposal to cap foreign ownership; check complete details

Last week, Eternal put forward a proposal for shareholder approval to cap its foreign ownership at 49.5% from 75% earlier. If this proposal gets shareholders' nod, then Eternal will become a majority Indian-owned company and will be classified as 'Indian-Owned-and-Controlled Company (IOCC)'. Foreign ownership in Eternal stood at 44.88% as per the latest shareholding pattern.

Why is Eternal increasing its domestic ownership?

As per experts, high domestic ownership is crucial for the company’s quick commerce business, Blinkit. Currently, Blinkit operates under a marketplace business model wherein it sells products made by third-party sellers via its platform. However, high domestic ownership could help the business switch to an inventory-based business model.

As per India’s Foreign Direct Investment (FDI) regulations, e-commerce platforms with majority foreign ownership are restricted from an inventory-based business model to avoid price and supply chain manipulation.

However, a domestically owned firm can hold inventory directly, allowing better control over supply chains, pricing, and customer experience. Also, the company could be able to launch new product categories and improve its profit margins. This move can help Blinkit to compete better with its competitors like Zepto and Swiggy, as most competitors today continue to have a majority foreign ownership.

Eternal proposal to restructure its shareholding pattern is likely to protect the company from potential regulatory risks in future. Experts believe this could improve the EBITDA margin in the quick commerce business over the next 1 to 2 years.

On the flip side, Eternal stock could see passive outflow of up to $600 million in the short term due to reduced weightage in the MSCI Standard index because of a change in shareholding structure.

On April 11, the company said it is proceeding with the liquidation of its subsidiary Zomato Netherlands B.V. According to the exchange filing, Zomato Netherlands' turnover, as well as its contribution to total turnover and the worth of the company, was nil. Experts believe this liquidation will consolidate business, and more focus will be on domestic business.