Urban Company gets 'Sell' from Ambit; 'messy' growth, competition key risks

Ambit Institutional Equities has initiated coverage on Urban Company with a 'Sell' rating, projecting a 12 per cent downside on the stock. The bearish forecast stems from the brokerage's belief that the company's growth outlook looks 'messy', given high competition along with core business expansion reaching saturation point. The brokerage has a target price of ₹97 for the stock. 

 

Following the development, Urban Company's share price fell 1.06 per cent to an intraday low of ₹112.99 per share on the National Stock Exchange (NSE). The scrip was quoting at ₹113.42 per share, down 0.68 per cent as of 1:41 PM. 

 

 

Urban Company's share price was underperforming the Nifty50 index, which was up 2.24 per cent. 

Here's detailed view of Ambit Institutional Equtities on Urban Company

Core business penetration hits saturation 

So far, Urban Company has been able to report a 20 per cent compound annual growth rate (CAGR) in its India business from financial year 2023 to 2026 due to high-service quality and a loyal customer base, Ambit Institutional Equities said in its note. Going ahead, though, clocking growth could be difficult as core business penetration has hit saturation in major markets. 

 

Notably, Urban Company's core business penetration in the top eight cities has reached 51 per cent and the company needs to tap cities beyond the top-eight to keep growing. Now, this will demand investments in marketing and service professionals, which may limit India's business margin uptick.

 

"Service professional growth of just 5% over FY23-26 and lower marketing spends have improved margins, but both will be difficult to sustain," Ambit said.

 

Top eight cities contribute 85-95 per cent of the online home services market, Ambit Institutional Equities said.

 

The brokerage estimates an 18 per cent and 14 per cent net transaction value (NTV) CAGRs for the period between financial years 2026-28 (FY26-28) and 2026-2042 (FY26-42) for this segment. It assumes the company to have a terminal adjusted Ebitda margin of 10 per cent.

 

Instahelp faces intense competition

 

That apart, Ambit Institutional Equities believes Urban Company’s nascent on-demand house-help offering, Instahelp, faces intense competition from Snabbit and Pronto, while seeing a significant cash burn, which is unlikely to ease in the medium term. It believes Instahelp will break even by the financial year 2031 as it deals with the high competition.

 

However, there is scope for expansion in Instahelp. The brokerage estimates a 6 times scale-up over the financial years 2026 and 2028 for this segment. Instahelp may deliver 40 per cent NTV CAGR from financial year 2026 to financial year 2042.

 

Overall, for Urban Company, Ambit Institutional Equities sees 17 per cent revenue CAGR between financial year 2026 and 2042, while the current market price builds 20 per cent revenue CAGR. The adjusted exit Earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin is expected to be at 10 per cent during the same period, according to the brokerage.

 

Further upside is possible if the competition is softened in the Instahelp category and the core business margin expands, Ambit Institutional Equities said.

   

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(Disclaimer: View and outlook shared belong to the respective brokerage/analysts and are not endorsed by Business Standard. Readers' discretion is advised.)