Buy Urban Company Ltd for the Target Rs 200 by Emkay Global Financial Services Ltd
Urban Company (UC) delivered a healthy 2QFY27 performance, with the India Consumer Services (ex Instahelp) (ICS) NTV growing 26.3% yoy on a higher base, while International NTV increased 66.9% yoy. InstaHelp orders grew 63.0% qoq to 6.23mn. The Board granted in-principle approval for exploring residential air conditioners under Native and a fund-raise of up to Rs25bn to support organic growth, strengthen InstaHelp’s market leadership, and pursue selective acquisitions. With cash and equivalents of Rs19bn sufficient to fund InstaHelp, the management positioned the proposed raise to provide strategic flexibility while retaining its profitability targets. We revise our NTV (ex KSA) estimates up by 3-5% to incorporate the NTV beat. Each of UC’s segments has a long growth runway, given strong local network, a monopoly core business, and higher margin relative to other internet businesses. We maintain BUY while revising up our TP by ~5.3% to Rs200.
Core and International margins improve; InstaHelp investments remain elevated
ICS NTV grew 26.3% yoy to Rs9.63bn, led by 37.0% NTV growth in Tier 2 cities. Revenue rose 28.0% to Rs3.36bn, with ATUs up 22.4% and spend-per-user up 3.2%. Adj EBITDA grew 85.0% yoy to Rs340mn, with margin expanding by 110bps to 3.5% of NTV; the management remains focused on growth, while progressing toward its 9-10% steady-state adj EBITDAM target. InstaHelp orders rose 63% qoq (43% in 1Q) to 6.23mn, while adj EBITDA loss per order reduced to Rs279 from Rs346, while absolute adj EBITDA loss increase to Rs1.74bn amid expansion; investments remain elevated, with breakeven targeted for FY31. International NTV grew 66.2% yoy to Rs2.67bn, with margin expanding by 190bps to 2.0%. The Kingdom of Saudi Arabia (KSA) JV’s NTV grew 153% yoy to Rs930mn, with adj EBITDA margin improving to -17.3% from -55.3% and breakeven expected over the next few quarters.
Product expansion in Native; Rs25bn fund raise adds flexibility
Native NTV grew 35.4% yoy to Rs1.32bn, with revenue of Rs1.05bn and adj EBITDA of Rs(90.0)mn. The management guides for 50–55% yoy 2Q+3Q NTV growth and breakeven over the next few quarters. The Board granted in-principle approval for exploring residential ACs under Native. While expansion in the AC segment will entail initial cash burn, UC has, in the water purifier segment, demonstrated it can deliver differentiated product offerings and gain market share at profitable unit economics. The proposed fund raise of up to Rs25.0bn would support core and Native growth, InstaHelp leadership, and selective acquisitions.
Outlook and valuation – Core healthy; InstaHelp execution key
Low core penetration, Tier 2 expansion, improving International profitability, and approaching KSA breakeven support the outlook. Native offers further growth opportunities, while InstaHelp drives higher engagement. Pricing recovery and unit economics remain key monitorables. The management retained consol adj EBITDA breakeven guidance for 3QFY28 and the Rs10.0bn FY31 target. The fund raise strengthens investment capacity, although deployment and dilution remain valuation considerations. We maintain BUY while raising TP by >5% to Rs200, valuing ICS at Rs110/sh, implying 38.6x FY29E EV/EBITDA, and InstaHelp/International/Native/KSA businesses contributing Rs28/Rs27/Rs17/Rs5/sh to our TP, with net cash of Rs12/sh.
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