Eternal Limited ($ETERNAL)

Ladies and gentlemen, a very good evening, and welcome to Eternal Limited's Q4 FY '26 Earnings Conference Call. From Eternal's management team, we have with us today, Akshant Goyal, Albinder Dhindsa and Kunal Swarup. Before we begin, a few week announcement for the attendees. Anything said on this call, which reflects outlook for the future of which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements. Additionally, please note that this earnings call is scheduled for a duration of 45 minutes, and we will be starting directly with the Q&A section of the call.

[Operator Instructions] The first question is from the line of Gaurav Malhotra, from Axis.

I had 3 questions. So first question is on the overall EBITDA guidance of -- or indication of, say, $1 billion for FY '29. Now we do know that food is sort of at a steady [indiscernible], and it's also growing at that 19%, 20%. We do know about District EBITDA guidance of FY '30. So if I just take -- start to strip it back, right, then essentially -- and we know what is the NOV growth of CAGR of 60% for Quick Commerce, then the implied margin for Quick Commerce comes to around, say, roughly 3% -- 3%, 3.5%, give or take. So is that the number which we are expecting from a margin perspective in the, say, next 3, 4 years?

We are broadly, I think broadly, the math is fine. We're not giving any specific guidance, but -- and therefore, it could -- the numbers could move a little bit depending on how things pan out. But yes, broadly, the way you did the math broadly in line with how we're thinking about it.

Just 2 quick more questions. we see that your fixed cost in Quick Commerce has been sort of flattish this quarter. And yet the MTU numbers have been quite strong. So just wanted to get a sense as to how to sort of reconcile these 2 numbers. And the second question is just on the [ dark stores ]. I remember you had mentioned that maybe you will pick up the additions in this quarter, but sort of flattish again. So I just wanted to get a sense on the [indiscernible] guidance of [ 3,000 ] by March. These are the only 2 questions.

Yes. So Gaurav, the fixed costs, I mean, like the MTU addition remains strong because we continue to spend on marketing for new customer acquisitions. So I think those spends haven't come down in the last quarter. And hence, the overall fixed cost remains in line with the previous quarter, and the MTU addition also remained strong, right? So we are seeing, I think, a lot of our competitors in the market, we feel have pulled back on this. So we are seeing extremely low cost of customer acquisition, and we continue to see, therefore, value in keeping the marketing spends higher at this point. On the store addition, I think we are on track on our guidance for March for 50,000 stores. I think we remain firmly on track. And beyond that, like I don't think beyond that we're going to give any guidance or at least at this point, we don't think it makes sense. I think we've given overall guidance of 60% CAGR. And that would obviously mean some reasonable store expansion, but we are not planning to give out any specific number guidance on that.

So just a follow-up. So essentially, if 3,000 store happens, that means the general growth for FY '27 will not be 100%, as you had indicated earlier, we say, in the 70% to 80% print, right? Is the understanding correct?

Yes, it will not be 100%, but we are not guiding to a specific number. I think we need that flexibility in the medium term and short term to respond to how the market dynamics are. And hence -- but we know that Street is looking for some guidance. What we have done here is actually given a more longer-term 3-year guidance. And I think short term, we will respond to the market situation. And if there are opportunities for acceleration, we'll do that, right? So we're not closing the door on any options for us now in the next 12 months.

Next question is from the line of Manish Adukia from Goldman Sachs.

My first question is actually a follow-up from Gaurav's previous question. So Akshant, like Gaurav asked the 100% guidance now does not hold true for F '27 given what you saw in the market in terms of competition, et cetera. So now when you give your medium-term guidance of 60% CAGR, what margin of safety or room for error are you building in that guidance? I mean, if competition were to remain as is or were to get slightly worse from here? What are the range of outcomes for the 60%? And the reason I'm asking is that because from a near-term perspective, you could maybe help us understand the building blocks as to where you could see the next 3-year growth end up to get to that 60% that may help us to just build that number a little bit more conviction? That's my first question.

Manish. So I think we will address that in question 3 of the letter. I think we've sort of tried to give you the building blocks of what, 60% CAGR guidance sort of is based upon. So it's a function of assortment expansion, geographical expansion as well as more demand densification in our cities of present today, and we might also get into newer cities right? So we think 3 years out, any sort of like increase or intensifying of competitive activity. I don't think -- we don't think it's going to last beyond the 3-year period that you have mentioned. So we feel fairly comfortable and confident that over a period, 3 years, we should be able to deliver this CAGR of growth.

Sure. And maybe where I was coming from also was the building blocks in terms of and I know you don't want to give like a 3-year store guidance. But if you were to think about user growth versus frequency versus average order value, if you can maybe give us a pecking order of what drives the most amount of growth versus followed by the second, followed by the third, that would also be helpful.

We don't -- we can't project with that actual this point unfortunately. So we are also learning as we build in this market, right? So these things might change. So we don't want to put out numbers here, which we then have to define in the next quarter.

Right. But maybe just last question on that topic. From a user number perspective, given that there is a fair bit of competition and there are like a few well-capitalized players in the market. And given as the market already is today, you don't see a concern in terms of MTU or user penetration reaching close to saturation levels in the foreseeable future?

No, we don't.

Very clear. Second question on the June quarter where you're seeing a meaningful expectation of acceleration in quarter-on-quarter growth. Outside of the reversal of average order value and the fewer days that you had in the March quarter, are there any other drivers that we need to be aware of, whether it's greater store or anything else or just these 2 factors of AOV and fewer days?

So the only other factor will be seasonality, right? So it's a different season. So we see different consumption patterns and summer drives growth in certain categories. So overall, that will also lead to a slightly higher growth other than the 2 you mentioned.

Next question is from the line of Aditya Soman from CLSA.

So two questions. So firstly, when we look at the contribution per order in the quarter, we've seen a slight dip. This is largely a function of AOV or which obviously falls seasonally or anything more to read in the sort of drop in contribution product? And then the second question is on the Food side, we've seen Swiggy sort of roll out toying quite aggressively. Which is is obviously a different model with a different sort of price structure. Any plans for Eternal to do the same? Or what do you think of Bistro to as being that option for affordability on the Food Delivery side? And as Bistro's the option is there any sort of updates on how that business is doing.

So on contribution, Aditya, I think the multiple things that changed sequentially quarter-on-quarter, yes. So you mentioned AOV, that is one, right? But I mean, I'm -- we're not saying -- I mean that was the key driver, but there are other things also which keep changing, last mile delivery is also seasonally in some ways, availability changes with -- the supplier delivery partner changes during different months in the year. And some of the other things like supply chain costs, et cetera, there could be efficiencies that we are banking in. But net-net, I think the movement is what you see in contribution. Overall, that doesn't change the trajectory of business like so more longer term, I don't think there's anything to call out here.

Understand. So in other words, the AOV goes up and some of the seasonality changes your contribution direction should be upwards for now, right?

As we move to 5%, 6% margin here that we are saying we will get to at some point, contribution margin will go up, right? And on a year-on-year basis, we'll see that trend consistently.

And if you were to help with that, I mean, so you said that in NCR, you're doing 5%, 6% margin. So which would imply like the contribution there is 8%, 9%, would that be the right assumption or even higher?

We are not sharing that data point. I don't think it matters also, but yes, broadly, it will be somewhere in that range.

I understand -- and then maybe on Bistro and [indiscernible]?

So I think so -- I mean, at this point, we don't have any plans to do what Swiggy is doing with [indiscernible]. We're not clear on what problem it solves for consumers or for [indiscernible], right? So till the time we don't get the clarity, I think we'll just stay put on our focus areas, which is Zomato. And I think Bistro is still a small experiment for us. So we're seeing early signs of a business model evolving there, but still very small and early. So I won't I want to showcase Bistro as a big bet at this point. But I think, yes, we are watching the space and we are seeing what competition is doing. And if at any point, we see a thesis there that makes sense, that unlocks a new market. Yes, we will follow suit.

Next question is from the line of Ankur Rudra from JPMorgan.

Firstly, in terms of the 6 growth guidance, and thank you for the color in terms of the building blocks. But in the more near term, are you seeing any signs of competitive activity or early signs of competitive activity easing, which gives you any kind of visibility of this starting to play out from the next couple of quarters?

Ankur, Albinder here. So competitive act hasn't meaningfully changed from when the last time we were on the call. And I think our stance about it is also the same that we will sort of keep an eye out for it, but do the right things for the business. And to the extent we've mostly delivered on what we thought we would be able to accomplish in face of whatever the competition is going on and whatever guidance you're giving, we are not really changing our outlook on that either.

Super helpful. In the -- you've given a 3-year guidance time. If I look at the last 2 to 3 years, there's been a significant amount of linearity between store additions and growth. Is there anything to suggest that, that will change over the next 3 years?

I mean it's not a straightforward comparison. I think we are still, in some parts, the network is still in a slow build-out phase. In some others, we just have to create supply in different ways to service customers when we are expanding assortment. So our job is to make sure that the supply is there, whether it's in smaller stores, bigger stores. I think that number becomes very complicated if you start doing the math that way. So it's hard to quantify it in that simplistic way.

Appreciate the color. Just finally, in terms of profitability for Blinkit, approximately 3% is what you you've said it seems broadly fine. What the biggest unlocks for you, either in terms of cost or monetization to get there on a 3-year basis?

I think so far, we are not really assuming any further unlocks, which would really do it. I think if we just keep doing our job and executing the way we are doing, we should be able to get there.

Next question is from the line of Abhishek Banerjee from ICICI Securities.

First on the growth in Quick Commerce, you seem to be still growing ahead of the market. So do you think that when you say about 60% NOV growth going ahead, are you actually happy to grow in line with the market in the future? And why is that? And I have another question, which is slightly backward looking. So now that you have achieved profitability rather steadily, so what do you think is the most nonnegotiable KPI that you have to crack in order to get to profitability in Q3? Is it orders per day per store? Or is it your NOV number?

So Abhishek, I think to your first question, right? I think we are in a fairly competitive market with a lot of different players. In that market, it is hard to figure out what is the actual market growth rate, apart from the 2 public players who actually have to share their numbers. So it's very hard to be able to say that this is where the market is growing at. Is it a healthy growth rate, or is it unhealthy growth rate. I think we are more concerned with whether our quality of growth is maintained as we grow. And I think that's our biggest that's actually something that -- the only thing that we worry about. And I think going forward also, I think quality growth, which actually meaningfully also takes the business towards profitability and sustainability, I think that is only nonnegotiable here. And I mean, there are multiple ways to get there, but I think that's the only nonnegotiable.

Next question is from an Swapnil Potdukhe, from JM Financial.

My first question is with respect to your warehousing capacity. You talked about [ $17 million ] of warehousing capacity spread across Dark Stores and supply chain, other hubs, et cetera. Can you give a sense to what was the number a quarter back or a year back? The reason I'm asking is it will help us understand like what kind of an outlay you can get from -- by just utilizing the capacity or even if the additions slow down going ahead?

Swapnil, we don't disclose that. So you don't find it in a letter. It's not a miss.

But the other number I was tracking was your orders per day per store. I mean that number has been broadly flat for a long period of time. Any sense as to when we can see some uplift in that number? Because I mean presumably, that is where you will get a decent bit of operating leverage.

So see Swapnil, as Albinder mentioned, I think like the contours of the business may keep on changing, right? So we are not hung upon like certain metrics going in a certain way for the business to work, right? So I think there could be arguments to be made on why that number -- I mean, for that number to not go up and still the business might deliver 5%, 6% margin, right? That's also possible. So I think -- so we're not, therefore, constraining ourselves into a certain way of thinking about the business. I'm not saying that this metric will not go up. What I'm saying that the reason we're not providing a guidance for this metric and how this will [indiscernible] instead we're giving the guidance of the overall growth of the business is because these variables and the building blocks of how we look at the business might evolve as we go along, right? So it's a good number to track, and that's why we close it. But we are not sure of like how this will trend and therefore, we don't want to give a guidance on it, right?

Got it. This one another metric that I track is customer retention, the number of orders that every customer gives you. That number seems to have come down off for the last couple of quarters. It used to be around 3.6. Now it is around [ 3.3 ], is that to do with some retention getting impacted because of high competitive intensity? Or is it a function of a significant addition in new customers and your order equipment as being lower?

It's largely the later. Swapnil, I think we haven't seen too much impact on customer retention despite us being sort of more competitive -- I mean, like more expensive for customers in certain geographies. So I think most of this is on account of the acceleration in new customer addition that we have seen in the last couple of quarters.

And just on your food delivery commentary. Now you did say that you have been offering lower MOEs of around 99 to make food more affordable. But at the same time, you have been consistently increasing your platform fees, those kind of things. So how does that tie up? I mean, if you were to make it affordable, you should not be increasing platform fees.

So I think what we mean by that is at the platform fees is applicable to all customers, but the offers or discounts can be targeted to a certain cohort of customers who are more price-sensitive, or in certain locations and geographies where the subsidies actually deliver growth right? So that doesn't work for all customers or all geographies. But I think what we're doing -- trying to do essentially is increase the overall revenue per order, by increasing the platform fee and then the channel that revenue will select cohort of customers in select geographies, where we have seen growth.

Okay. And just a last one quickly on the District also. I mean there have been constant media reports that there are some events getting canceled because of inability of certain artists not coming to India because of the war. Any sense as to like will the business still continue to deliver strong numbers despite all this macro challenges on the business?

I don't think this will impact the overall broad growth path of the business. Events is just a part of the business, and we have multiple categories now. So I don't think a few concerts getting delayed or postponed or even canceled will impact the outlook on the business.

Next question is from the line of Ashwin Mehta from Ambit.

One question. So, if I look at your consolidated financials, your advertising promotion cost in absolute terms was flat sequentially. So any sense that you can give in terms of what proportion of this goes to to Blinkit? And the follow-up to that is philosophically, how are you thinking in terms of reacting to competition? Because newsflow seems to suggest that one of your competition seems to be growing much faster sequentially at least. So are you okay to let go of some market share near term and still focus on profitability? Or or you will possibly react to some of them given the guidance of 60% plus growth.

Ashwin, this is Kunal here. So your first question of consolidated ad promotions includes multiple things across our multiple businesses, right? So there is promotional spend. So let's say, on the Food Delivery side, like Akshant said, we channelize some of our incremental revenue per order to a certain cohort of value-conscious customers that would sit there. There are obviously customer acquisition spends for our Quick Commerce business, marketing spend for Food Delivery. So it's I think each business is also -- has its own nuances and dynamics. So I don't think we can strip that apart and get into each of those. I think broadly, the commentary we've given for each business kind of reflects our strategy for each business there.

And yes. And I'll answer the question on growth, Ashwin. See, I think the best of our knowledge, we are growing as fast as we can in the market adhering to the principle that the growth actually has to be meaningful, and it has to be healthy for the business, both in the short term and in the long term. Of course, you can always make the argument that we can grow a lot faster by opting for unhealthy growth right now. We just don't think that is the right thing to do and that, that growth will eventually turn into healthy growth just by magic. So as far as we know, this is the fastest that we've been able to grow this quarter in a very -- in a way which still adheres to our core principles.

Next question is from the line of Jignanshu Gor from Bernstein.

I have 2 questions. One is, as a large part of our growth narrative from here on depends in some sense on either growing the non sort of grocery assortment and going deeper into outside of the metro cities. Two questions related to these. One, is there possible to give some quantitative understanding of how some of the non-metro cities are doing in terms of size of business per store? I understand the profitability margin metric, which was in the letter, but in terms of size, either revenue or order per day, what kind of ratio can we expect in metros versus Tier 1 or Tier 2 town? I think that's question one. And let me ask the second one so that if there is an interdependence. The second is we see that inventory days seem to have gone up over the last few quarters after the transition as well, right, to 1P. So what would be the driver for this? And where would we feel comfortable, not from a working capital deployment, but just from a risk perspective, what would be comforting for us?

Again, so we don't disclose the breakup intentionally for whatever our business is in the larger cities versus emerging speeds. And on the second part, I think before we give more color, I don't think it is related -- the inventory days are not related to, in any ways to the split that we have between tier Tier 1 and Tier 2 or Tier 3 cities.

And Jignanshu, just on that inventory build, when you say last few quarters, of course, we are aware that last few quarters from Q2 -- Q3, especially, we saw the shift to 1P, right? And the share of 1P also increased during that time. But Q3 to Q4, there hasn't been any meaningful increase apart from the increase expected because of the growth and the scale of the business, right?

That doesn't change the inventory days, anyways. So I think the inventory days are fairly steady. And we are not seeing that increase unlike what you're suggesting.

Okay. Cool. Just then maybe a follow-up, just one small point. On the -- if we look at the stand-alone business, my understanding is that includes -- and specifically looking at ad spends, it includes basically Food Delivery plus District ad expense? Is that the right assumption?

It's not the entire District, but a part of the Going-Out business, likely the Dining-Out business, yes.

Okay. So even for dining-out, it's a small part.

The businesses are spread across multiple entities. So, generally speaking, I think it's hard to reconcile our MIS the way we reported to our audited financials unless you have more data.

Got it. I was trying to reconcile your statement that you are seeing a low CAC on the Quick Commerce business and hence, trying to reconcile that with the MTU addition.

Yes, that's correct. So I think for the same marketing dollars, we are seeing more new customer addition, right? So that's how -- that's what I meant when I said the CAC for us is reducing.

Next question is from the line of Gaurav Rateria from Morgan Stanley.

I have 2 questions. My first question is on your comments around competition, which probably hasn't changed much in the last couple of months. And still you expect a 60% plus CAGR in the Quick Commerce business. So is it that you're not changing your stance and you still expect this healthy growth to continue at 60%? And at what point in time you need to kind of relook at the stance on your certain thresholds of NOV or other things? What is the North Star metric that you focus on, whether it is MTC addition, a number of order growth, NOV growth, et cetera, to be -- or market share to be able to understand that at what point in time you need to change your stance to react to the competition?

I think we keep reacting according to what we feel is right and it all depends on micro markets. So I don't think our stance is more around the principles that we have around building a healthy business. And there are places that are NOVs are also lower. There are places where we also offer free delivery. And I think these are not unit dimensional calls for us, and we keep taking them.

Largely, Gaurav, I think we look at customer retention and the customer frequency on our own business, right? I think as long as we don't see that being impacted in a meaningful way of why or what everyone else is doing. I think then the choice to stick to the principles as Albinder mentioned is still there, right? So we haven't over the last few months seen our customers turn away from our platform too much, right? And hence, I think at this point, we don't see the need to react more than what we've already done.

Got it. My second question is on your tier top cities. You did give a very good data point on geographic coverage of 80%, 90% coverage in [ codes ]. Does it mean that now from here on, incrementally growth will be less led by the customer addition in these top 8 cities and more by the wallet share and the average spend per customers? And hence, the growth rates -- when we look at the MTC addition, it is going to be largely, largely driven by the non-top 8 cities.

Partly true. But I think even in these cities where we have high [indiscernible] coverage, it doesn't mean that we have maxed out on potential customers in the neighborhood, right? So while assortment expansion will drive higher wallet share for existing customers, but I think equally or maybe even larger portion of growth will continue to be customer addition given the low penetration that we have within the in PIN codes that we cover.

Next question is from the line of Garima Mishra from Kotak.

First question on Blinkit, how should we think about the discounting, which is prevalent in the Quick Commerce market today? And how confident are you of maintaining our pricing discipline as well as a 60% growth CAGR in the business?

We are very confident of maintaining our pricing discipline. We're not sure what competition will do. I think the -- it is very hard to estimate what is happening in the market. How much of the market is froth, how much of it is artificially inflated by discounts? It's very hard to actually tell. So very hard to comment on that.

But you remain confident in that you'll be able -- you are already retaining that customer, who you think is the more profitable customer and sort of sits well within what Blinkit stands for? Is that the right understanding?

Yes.

Got it. Second question was on District. You are already present in different verticals pertaining to the broad going out category. What new categories are you looking to add within District and particularly within Travel?

So Garima, I think no plans to add any more category to District than we already have. And I don't think Travel is a focus area for us at this point.

Got it. And last question maybe. Hyperpure reported a small margin in the quarter. You have, however, not included this segment when you talk about your future profitability. How should we read this? And should we assume that this business remains insignificant from an overall profitability perspective?

Not -- I think I don't know why you are saying that we haven't included this business when we were talking of -- I mean, the overall $1 billion profit statement that you made includes all the businesses that we are in today, including Hyperpure. It will, of course -- it might be the smallest, but it will still be meaningful and relevant.

Next question is from the line of Rishi Jhunjhunwala from IIFL.

A couple of questions. Firstly, see, if we look at our order growth in Food Delivery as well as in QC. So in Food, order growth was 15% Y-o-Y but active delivery partners on a monthly basis went up by 30%. In QC also, the order growth was slightly above 90%, but the rider growth was 120%. While in QC, I can still understand that you're expanding rapidly and probably adding a lot more there. But in Food, what explains this gap, given that effectively, if I calculate right in number of orders per rider per month, it has come down by 10% to 15% in both the businesses over the last 2 year?

Rishi, the nuance over here is the changing nature of how much people work every day on these platforms. So we are seeing more and more part-timers also delivering and that actually increases the active partners but reduces the number of orders they do per shift per day.

Understood. The second question is on Food Delivery, right? So we close to that 20% mark from a growth perspective, we are at 5.5% from a margin perspective. We had taken a mid-quarter hike in platform fee, probably next quarter, it slows down completely to the bottom line. So how do we think about incremental operating leverage that you would get in the business as well as some of these increase in monetization to flow through the Food Delivery P&L.? Do you intend to utilize that incrementally in some sort to increase growth? And if yes, how or otherwise, do you believe there is actually -- there could potentially be upside risk to that NOV margin guidance that you have provided in the past?

Rishi, I think this is -- I mean -- this has always been the case that we are more leaning towards growth, right? So if we can find ways of effectively reinvesting an incremental margins that we get in our business, any business, right? I think we would do that because the objective is to optimize for growth of absolute profit and not the profit margin percentage, right? So that's always been the principle and it will remain that way. I think what we are seeing now in the last 2, 3 quarters, especially in the Food Delivery business, is a good ROI on these investments for growth, right, that -- and that's a function of like also like us us innovating on how we look at these investments, right? And what -- and how we implement, so it comes out in execution also. And it's also a function of like market-readiness, consumer readiness and so on. So at this point, therefore, we are seeing that if we reinvest in growth, we are getting outcomes and that growth quality is good. So we'll continue doing that without worrying about what it does to the margin. I think net-net, they should ensure that our absolute profit continued to grow at the fastest pace possible Food Delivery business, right? But in future, again, applying the same principle if that stops happening, right, we could see some of this incremental revenue flowing down to profitability, and that's also fine, right? So I think I just -- that's the sort of framework that we follow and outcome could be either a percentage margin increasing or growth going up, both of them will actually optimize for the absolute dollar EBITDA.

Ladies and gentlemen, in the interest of time, we will now take the last 1 to 2 participants. Next question is from the line of Vijit Jain from Citigroup.

My first question is, so within that guidance of 60% plus CAGR on Quick Commerce, the top 20 cities that you call out, would this still be above 40% within that? Any kind of broad assessment of what that embeds for top 20 cities you could give would be helpful. That's my first question. My second question is within QC in terms of the ad monetization, I just want to get a handle on is -- in terms of demonetization, is it mostly driven by the SKUs that you stock and that you are able to surface to the customers or the ad loads at checkout and top of the funnel adds are meaningful? That's the second thing I wanted to ask. And third, if you could give more color on where -- how you think about the whole supply chain automation? You talked about it, I think, in 3Q, and I just wanted to get a sense of, are we looking in the next 2 to 3 years at more of the automation CapEx for your business? And any sort of guide you can give on how you're thinking about CapEx beyond the store additions that you would do? Those are my 3 questions.

So Vijit, the first one, we don't give that breakup. And I think we won't be able to give you that color. I didn't understand the second question. I think...

So I just wanted to understand the Ads business, right, the Ad monetization that you achieve, my guess would be the -- the biggest chunk of that is the brands themselves advertising on your first stock that you actually hold on the platform. But there will also be ads related to -- that you show on checkout or ads, which are more like the brand page that you have? And I wanted to get a sense of what the composition of your ad revenue looks like between these 2, 3 different kinds of categories?

So non-paid ads, basically ads by brands or platforms which don't sell on the Blinkit platform. That's insignificant for us.

Got it. Perfect. And the last question was on CapEx and how much of what CapEx you plan to do over the next 3 years is related to automation that you might do? I'm just trying to get a sense of whether automation -- all the automation that I think you guys have shown in some videos as well, how much of that is scalable? And is that something that you're planning to do across all of your warehouses and so on and so forth?

Yes. So Vijay, we keep testing for that. I think like we are not we don't want to pursue automation for the sake of it. I think the framework is that the CapEx should have ROCE that we can track and that is visible, right? So that's the fundamental principle. But directionally, yes, I think what we are seeing is that more and more -- I mean, directionally, we are seeing the automation increasing in both our warehouses -- in all our warehouses. So we will see that happening over the next few years as well, but how much of it is automated, is a function of, again, the framework on ROCE, right? So it's all a function of the cost and the efficiency uplift we get because of automation.

Last question is from the line of Sachin Salgaonkar from Bank of America.

First question is on competition. Just wanted to understand, is competition also intense in Tier 2 to 3 cities? Or is it that there are a few operators and hence, competition is reasonably lower out then?

I think the competitive intensity is fairly high, pretty much wherever everybody is...

I think a different kind of -- I mean, different set of players in different markets, right? Someone is aggressive somewhere at this point, right? So for us, it's competitive everywhere.

Got it. In terms of darkstore additions, when we think about it, is the mix still 80% urban and 20% Tier 2, 3 or that has changed over a period of time?

That's changing Sachin. And I think -- I mean, we're not giving a specific guidance as we mentioned. But increasingly, I think, as we've also mentioned in the letter, a large part of our growth will come from geographic diversification. So we will see that mix change over time.

Okay. And [indiscernible] you mentioned earlier later is obviously assortment expansion. So does that mean we are looking to upgrade some of the darkstores to bigger sized darkstore to now add more darkstores in the vicinity?

I think that means we are going to expand our assortment by whichever way we can.

So for us, it's like square foot space, right? So size of the store is a function of a lot of factors, availability, a specific neighborhood, be urban infrastructure in that neighborhood. So it's a very hyper local call. There is no sort of one single sort of answer for this. That applies to every city and every locality.

Got it. Pretty clear. Next question is on AI on ads. We're seeing multiple platforms globally actually now seeing that the ceiling on ad revenue as a percentage of GOV has now started to move up, because AI does allow them to do a lot more things than push ad per se from that point of view. You clearly are doing a lot on AI. So does that mean that at some point in the future also, what are we expecting as a sort of a cap on ad as a percentage of GMV that might move up? And hence, there's room for your steady-state margins also to move up in both Food as well as with Quick Com?

Generally, we don't operate like with a cap in a mine, right? I mean we don't know what GAAP is like, honestly, right? So I think we'll respond to the realities of the situation around us in the business, right? And that means that we have an opportunity to to have higher income in our business, so be it, right? And same framework. And if we have that, we have more margins, can we invest in growth and that would drive more profit. So that's the mental model, which is fairly fundamental and simple. But we don't operate with a set of metrics with some ceilings or targets or goals in mind. So I don't have like any other color to share on this.

Got it. And Akshant, when we talk about quick commerce margins at steady state being at 5% to 6%. Is there an implied assumption in terms of how much ad out here is in terms of that 5% to 6%?

No, no. As I said, I mean, like we don't know we're discovering that, like we haven't -- I mean like Quick Commerce is a much younger business than Food Delivery, it's already doing more in terms of ad as a percentage of NOV, right? So we don't -- I mean, we don't -- necessarily don't have a number in mind here on where does it land and finally go to.

Got it. And last question is, if there is any sensitivity on higher fuel prices to demand on food, historically, have you seen anything when fuel prices have increased, there has been an impact in demand?

So it depends on the quantum. Generally, increase in fuel prices will lead to higher cost of delivery. The last mile cost goes up, right? So now what percentage of that we decided to pass on to consumers is something that we'll decide when the time comes, right? So it all depends on that quantum. In the past, if you see going by the last 12, 18 months experience even examples like the GST hike happened, we were fairly easily able to pass it on to consumers without too much impact on demand. So unless it's a drastic increase, I don't expect fuel price increase to have a meaningful impact on margins on our business.

Thank you. Ladies and gentlemen, we will now conclude this conference call. Thank you for joining us, and you may now disconnect your lines.