Buy Urban Company Ltd for the Target Rs 190 by Emkay Global Financial Services Ltd
We initiate coverage on Urban Company (UC) with BUY and DCF-based SOTP TP of Rs190 (implying 19.5% upside). UC is the leader of India's online home services market, whose large TAM and highly unorganized nature provide the company with a long growth runway. Increasing demand density in micromarkets is driving consumer satisfaction as well as partner wages, thereby reinforcing the flywheel. This has led to accelerating growth, and we build in 19.8% FY26-29E net transaction value (NTV) CAGR for India consumer services, ex-InstaHelp (ICS). With high operating leverage, we build in 47.4% adjusted EBITDA CAGR over FY26-29E for ICS. While the street is concerned about UC’s InstaHelp foray given the upfront cash burn, we believe this is the right playbook to improve platform stickiness and drive cross-sell. UC has the opportunity to capture a large TAM and increase frequency of platform use, which should create a sticky business. Considering the company is incubating InstaHelp and Native, and international business profitability is suboptimal, we expect UC to turn profitable only in FY30. The stock trades at 10.4x/8.3x FY28E/FY29E revenue.
ICS - a hyperlocal network, with a trust layer on top of it
UC operates a two-sided hyperlocal network, with a trust layer built on top, for various services across multiple micro-markets. The network compounds its utility with densification, as it cuts fulfillment times, drives better partner utilization, and increases partners’ earnings. This has been demonstrated by rising NTV growth (29.4% in 1QFY27, from 10.3% in 1QFY26) and expanding adjusted EBITDA margin. The trust layer is foundational in the UC business model, wherein the consumer is willing to pay 27.5% take rate to the platform for the peace of mind offered by the verified supplier, training, in-service control, and warranties
InstaHelp offers large TAM, and will enhance frequency and stickiness
UC is leading in the emerging, highly competitive instant help segment. With productmarket fit established, companies in this segment are aggressively expanding to maximize market share, which is accelerating cash burn. While we expect FY28E adjusted EBITDA losses for InstaHelp to increase to Rs9.4bn, and narrow thereafter, we expect the higher frequency of usage to increase the consumer stickiness and aid ICS.
Outlook and valuations: Long growth runway and category leadership
We initiate coverage on UC with BUY and DCF-based SOTP TP of Rs190. We value ICS at Rs167.2bn (Rs107 per share), which implies 57.3x/40.5x FY28E/FY29E adjusted EBITDA. Our valuation for the InstaHelp business is Rs42.9bn (Rs28 per share), which implies 7.1x/3.4x applied to FY28E/FY29E InstaHelp NTV. We value its International, Native, and KSA businesses at Rs66.3bn (Rs42 per share). The remaining value (Rs20.2bn, Rs13 per share) is contributed by cash on books.
Key risks:
1) Intense competition in the InstaHelp segment
2) legal or regulatory changes for service professionals/gig workers
3) litigation risks;
4) service partner availability and cost inflation.
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