The sell-off in shares extended into a second day on Friday, October 24, as the stock dropped another 5% to hit a new low of ₹145 per share. Investor sentiment turned negative after global brokerages Morgan Stanley and Goldman Sachs signaled a potential sharp correction, citing the stock’s premium valuations.
While both brokerages remain optimistic about the company’s long-term growth prospects, they noted that these factors are already priced into the current valuations. Morgan Stanley initiated coverage with an ‘Underweight’ rating and a target price of ₹117 per share, whereas Goldman Sachs started coverage with a ‘Neutral’ rating and a target price of ₹140 per share.
Even after the recent correction, the brokerages’ target prices suggest a further downside of up to 24% from current levels.
Goldman Sachs views Urban Company’s business model as defensible and highlighted the company’s strong execution track record. It expects a 24% revenue CAGR over FY25–30E and a 35% EBITDA CAGR for India services (excluding InstaHelp), placing the company at the higher end of India internet coverage.
However, the brokerage also noted that the strength of Urban Company’s business model and growth outlook are already reflected in its premium valuations. The stock currently trades at 9x FY28E EV/Sales and 64x FY28 EV/EBITDA for India services (excluding InstaHelp), representing a significant premium to internet peers, though broadly in line on a growth-adjusted basis with a PEG of 1.4x.
Morgan Stanley added that Urban Company operates in a sizable online home services market with strong competitive advantages. However, the firm emphasized that the company’s growth prospects are largely priced into the stock’s current valuation.
On profitability, the brokerage expects India consumer services to reach an adjusted EBITDA margin of 30% in the medium term, while valuation multiples are likely to remain broadly aligned with established Indian internet peers.
Urban Company shares pull back from recent highs
The stock made a strong market debut in mid-September, listing at ₹162.3 per share, 57% higher than its issue price of ₹103, and maintained the momentum in the subsequent sessions, reaching ₹202 per share.
However, the recent sell-off has caused the stock to give up the majority of its earlier gains, falling 28% from its recent highs. Nevertheless, it still trades around 40% above its issue price.
The company raised ₹1,900 crore through the IPO, which was a combination of a fresh issue and an offer for sale (OFS). During the bidding period from September 10 to 12, the IPO received a strong response, getting subscribed 109 times.
It plans to use the proceeds from the issue for new technology development and cloud infrastructure, lease payments for offices, marketing activities, and general corporate purposes.
About Urban Company
Urban Company operates a technology-driven, full-stack online services marketplace providing quality services across various home and beauty categories. As of December 31, 2024, it operates in 59 cities across India, the United Arab Emirates, Singapore, and the Kingdom of Saudi Arabia, with 48 cities in India.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.