Neutral Urban Company Ltd for the Target Rs.165 by Motilal Oswal Financial Services Ltd
Core growth structurally higher; InstaHelp in the investment phase Consolidated adj. EBITDA breakeven guidance for 3QFY28 maintained
* Urban Company (URBANCO)’s 2Q consolidated Net Transaction Value (NTV) stood at INR14.3b, rising 39% YoY (largely in line with our estimate of 38% YoY).
* India consumer services NTV stood at INR9.6b, growing 26% YoY vs. our estimate of 26% YoY. Native Business NTV stood at INR1,320m growing 35% YoY vs. our estimate of 40% YoY. InstaHelp NTV stood at INR710m vs our estimate of INR742m.
* For India consumer services, adjusted EBITDA as % of NTV margin was down 340bp QoQ at 3.5%, vs our estimate of 3.4%. For InstaHelp, adjusted EBITDA losses stood at INR1.74b in 2QFY27 (vs our estimates of INR1.75b loss). Adj. loss came in at INR1.8b (est. loss of INR1.3b).
* For 1HFY27, URBANCO’s revenue grew 42.7% YoY, while operating loss widened to INR2,099m (vs. INR130m in 1HFY26). Adj. loss widened to INR2,700m from INR516m in 1HFY26. Reiterate Neutral with a revised TP of INR165.
Our view: InstaHelp's FY31 breakeven target leaves a long investment period
* Core business growth has stepped up, with operating leverage driving margin improvement: India Consumer Services NTV grew ~26% YoY in 2QFY27, despite a tougher base and the festive season shifting entirely to 3Q. Growth is being supported by faster new user acquisition, better repeat behavior, and micro-market densification, with Tier 2 cities emerging as a second growth engine.
* Penetration in the largest categories remains below 10% in the top eight cities, leaving room for further growth. Adjusted EBITDA margin improved 110bp YoY to 3.5% of NTV, while management expects the move towards 9-10% margins to be driven largely by operating leverage. We build in India Consumer Services NTV growth of 28.5%/25.9% and adjusted EBITDA margin of 5.3%/6.4% for FY27/28E.
* InstaHelp growth remains strong, but pricing is key to long-term profitability: InstaHelp orders grew 63% QoQ to 6.2m, while loss per order declined 19% QoQ to INR279 as order density improved. The focus remains on building market leadership rather than near-term profitability.
* However, NOV continues to dip, and steady-state economics require pricing of ~INR200 per hour and NOV of ~INR300, against a worker payout of ~INR150 per hour. We believe the key monitorable is the pace of pricing normalization, as higher order volumes at current pricing may not translate into sustainable unit economics. InstaHelp is targeting breakeven by FY31, and we factor in continued investments over the next few years.
* The company ended the quarter with ~INR19b of cash and treasury investments and plans to raise up to INR25b to fund long-term growth and retain flexibility for selective acquisitions. The existing balance sheet is sufficient for current organic plans, while the proposed fundraise provides capital for opportunities over the next 5-10 years.
* The company is targeting consolidated adjusted EBITDA breakeven by 3QFY28 and INR10b of adjusted EBITDA by FY31. We estimate consolidated adjusted EBITDA margins of -8.3%/-5.1% for FY27/28E.
* Native is nearing profitability; AC entry adds a long-term growth opportunity: The business is nearing profitability, with R&D expenses accounting for the bulk of current EBITDA losses. The proposed entry into residential AC is a long-term opportunity, given the category's larger addressable market and URBANCO's existing experience in servicing and repairs. However, the next 1-2 years will focus on product learning, with distribution largely through its own app.
Valuation and changes to our estimates
* Core business growth has improved, with margin expansion supported by supply densification, better partner utilization and operating leverage. Our FY28E estimates factor in a step-up in InstaHelp investments, with an operating loss of INR8.5b vs. INR4.1b earlier, leading to a revision in our EPS estimates. We also revise our valuation methodology for the international business from EV/NTV to EV/EBITDA, assigning a multiple of 35x. We continue to build in consolidated adjusted EBITDA breakeven by 3QFY28.
* While URBANCO remains well positioned to benefit from the long-term growth of home services, we believe the core business is largely reflected in current valuations. Continued investments in InstaHelp and limited visibility on the pace of profitability through FY31 keep the risk-reward balanced, in our opinion. We reiterate Neutral with a revised TP of INR165.
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