Whalesbook
JM Financial Initiates 'Reduce' Rating on Meesho
JM Financial has launched coverage on Meesho Ltd. with a 'Reduce' recommendation, citing constrained upside potential following the significant surge in its stock price since its initial public offering (IPO).
The brokerage firm has established a target price of ₹170 for March 2027. This implies a mere 3% appreciation from Thursday's closing price. The valuation, derived from a discounted cash flow methodology, pegs the enterprise value to adjusted EBITDA at approximately 108 times for the financial year 2028. This multiple is considered in line with Meesho's long-term growth prospects, according to JM Financial.
Post-IPO Performance and Investor Concerns
Since its market debut on December 10 last year, Meesho's shares have seen a substantial increase of over 55%. However, the stock has recently retreated, trading near its listing price. JM Financial anticipates Meesho will maintain its position as a dominant player in India's e-commerce sector, serving as the primary digital platform for a large consumer base.
Despite its market standing, the current valuations are deemed stretched, limiting near-term gains. The brokerage also warned prospective investors about a potential influx of supply once the mandatory six-month post-IPO lock-in period concludes. This period prevents early investors from selling their shares.
Profitability Drivers and Business Model
JM Financial expects Meesho's profitability to be boosted by increased advertising revenue and better mark-ups, facilitated by falling logistics costs for sellers. The company's business model is characterized by its asset-light approach, which connects various stakeholders including sellers, buyers, logistics providers, and content creators, rather than investing heavily in inventory and warehousing. Meesho does not charge commissions, monetizing instead through fulfillment services, advertising, and data analytics.
While the e-commerce platform possesses unique strengths and substantial growth potential, JM Financial believes the current risk-reward profile is unfavorable for investors at existing price levels. The firm projects Meesho will solidify its cost leadership, establishing durable competitive advantages through its high-volume, low-cost operational strategy.
Recent Stock Volatility
Meesho shares experienced a 5% lower circuit for two consecutive sessions on January 7 and January 8. This follows an earlier announcement of the resignation of its general manager for business, marking the first senior management departure since the company's public listing. On January 7, the one-month shareholder lock-in period expired, making approximately 110 million shares, or 2% of the company's equity, available for trading.