Buy Meesho Ltd for the Target Rs.240 by Motilal Oswal Financial Services Ltd
Democratizing value e-commerce for Bharat
* Meesho operates a multi-sided marketplace, connecting consumers, sellers, logistics providers, and content creators, creating a self-reinforcing flywheel that drives platform adoption and sustains its cost advantage.
* Meesho has achieved a vast scale (274m ATUs, 2.8b+ LTM placed orders) and industry-leading unit economics, while improving affordability through its lowcost logistics, zero seller commissions, and reducing onboarding friction for the first-time internet users as well as sellers on its platform.
* Unlike traditional retailers and other internet platforms, Meesho’s business model is truly asset-light requiring limited capex on physical infra or inventory. Further, it operates on a negative working capital (~25 days of NMV), which provides large float income and enables significant FCF generation.
* We expect Meesho to deliver a 25% CAGR in marketplace NMV over FY26-31, driven by customer acquisition and rising platform adoption. Higher ad monetization and normalization in logistics spread should drive ~400bp expansion in contribution margin to ~7.5% by FY31, while ~255bp operating leverage should drive adj. EBITDA of ~INR48b by FY31 (at ~3.75% margin). * We initiate coverage on Meesho with a BUY rating and a TP of INR240, premised on 30x FY31E adj. marketplace EBITDA, discounted to Sep’28E. This implies ~1.4x FY28E EV/NMV, ~10% premium to Eternal’s FY28 multiple. However, we believe a higher multiple could be justified for Meesho, given its truly asset-light model, negative working capital, and likely significant FCF generation starting FY27 and rising to 4%+ of NMV by FY31.
India remains at the nascent stages of e-commerce adoption
* India remains one of the least penetrated e-commerce (e-com) markets globally, with online retail accounting for only ~7% of total retail sales in CY24, significantly below markets such as China (~34%), the US (~17%), and even Indonesia (~15%).
* Despite rapid growth since 2016, India’s unique internet user penetration of ~50% remains well below the 80%+ penetration in the US and China.
* Rising smartphone penetration, the introduction of UPI, and affordable data have enabled India’s e-com user base to double over FY19-26 to reach ~270m.
* However, it remains well below the ~550-600m users of OTT platforms and digital wallets in India. In more developed markets, e-com adoption typically converges with OTT users, implying significant headroom for growth even in the existing internet user base.
* As penetration deepens, the next phase of e-com growth is likely to be driven by value-conscious consumers, who prioritize affordability, assortment, and accessibility over brand affinity.
* Meesho's value-led assortment, low-ticket purchases, and vernacular shopping experience are designed to address the India-specific challenges, positioning it to capture a disproportionate share of incremental e-com adoption, particularly across Tier 2+ markets.
Valuation and view: Initiate coverage with a BUY rating and a TP of INR240
* We believe Meesho’s asset-light model with negative working capital and improving unit economics makes for a unique combination of a scaled platform business with a long runway for growth and potential margin inflection.
* We build in ~25% NMV CAGR over FY26-31 for Meesho with likely adj. EBITDA and PAT breaking even by FY28-exit. We expect ~660bp adjusted marketplace EBITDA margin expansion over FY26-31, which, along with rising float, is likely to help generate significant FCF starting FY27 and reach 4%+ of NMV by FY31.
* We initiate coverage on Meesho with a BUY rating and a TP of INR240, premised on ~30x FY31E adj. marketplace EBITDA, discounted back to Sep’28E. This implies ~1.4x FY28E EV/NMV, ~10% premium to Eternal’s FY28 EV/NMV. We believe a premium could be justified, given the truly asset-light nature of Meesho’s business model.
* Meesho’s valuations are highly sensitive to NMV growth and CM expansion. We believe at CMP, the stock is pricing in ~25% NMV CAGR over FY26-31 (similar to our estimate) and ~6.7% contribution margin by FY31 (~80bp lower than our base case estimate of ~7.5%).
* Stronger-than-expected NMV growth and/or sharper expansion in CM could fuel further upside risks to our TP, while lower NMV growth and/or weaker-thanexpected CM expansion pose downside risks(bull case: INR335; bear case: INR140).
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
