Macquarie has initiated an 'Underperform' rating on Meesho, setting a target price of Rs 125 per share, indicating a potential downside of nearly 25% from its last closing price of Rs 165.95 on the NSE. The brokerage cites concerns over Meesho's growth assumptions and platform monetisation strategies as key factors behind this assessment.
Meesho, India's largest value-focused e-commerce platform, has rapidly scaled to 26.5 crore Annual Transacting Users (ATU) in under five years, primarily serving a tier 2/3+ consumer base. Despite its expansion into 'Bharat,' the platform's engagement metrics have shown improvement. However, Macquarie points out that Meesho's lower average order values (AOVs) limit its addressable revenue pool.
The brokerage notes that while Meesho benefits from logistics savings through insourcing, the results from Valmo have been mixed. Contribution margin per order remains modest at approximately Rs 6, with expectations of a gradual increase to Rs 11–12 over the next five years. Significant EBITDA generation will require a rapid rise in both ATU and order frequency.
Macquarie's bull case assumes a stronger marketplace NMV growth of 25% CAGR over five years, assigning a 25% probability to this scenario. However, the brokerage believes the current stock price already reflects aggressive growth and higher margins, leaving little room for execution errors.
Meesho made a notable stock market debut in December, listing at Rs 162.50 per share on the NSE, a 46% premium over its IPO price of Rs 111. The stock initially surged, reaching a high of Rs 254.40, but has since lost momentum, declining around 10% in the last week and 19% over the past month.
Background
Meesho's rapid growth and significant IPO debut have positioned it as a key player in India's e-commerce sector. However, the company's focus on value-driven transactions and tier 2/3+ markets presents challenges in scaling revenue and profitability.
Investors should closely monitor Meesho's ability to enhance its per-order economics and sustain its growth trajectory. The company's performance in expanding its user base and increasing order frequency will be crucial in determining future stock movements.
