Macquarie Assigns ‘Underperform’ Rating on Meesho, Predicting 25% Downside Amid Market Concerns.
Macquarie’s initiation of coverage on Meesho with an ‘Underperform’ rating introduces a discerning outlook on the e-commerce platform, primarily influenced by declining order values impacting unit economics. Despite showcasing robust order growth and focussing on free cash flow generation, the brokerage set a target price of Rs 125 per share, indicating a potential downside of approximately 25% from the recent closing price of Rs 165.95. The analysis posits that current market perceptions may overly factor in continued exponential growth for Meesho over the next five years, alongside aggressive platform monetization strategies.
Meesho has positioned itself as India’s largest value-focused e-commerce platform, successfully amassing 26.5 crore Annual Transacting Users (ATUs) in under five years, and targeting primarily tier 2 and 3 consumer bases. While the company’s expansion into smaller markets shows promise, Macquarie points out that its value-oriented strategy results in lower average order values (AOVs), which inherently limits the potential revenue pool. Furthermore, although logistics savings achieved through insourcing may enhance margins, the contribution margin per order remains modest at approximately Rs 6, with gradual improvement anticipated over the next half-decade.
Macquarie highlights that for Meesho to significantly enhance EBITDA performance, both the ATU and order frequency must grow concurrently and rapidly. The report suggests a bullish scenario with a potential for 25% compound annual growth rate (CAGR) in marketplace net merchandise value (NMV); however, it assigns only a 25% probability to this optimistic outcome. This assessment indicates that the stock may already be reflecting the ambitious growth and margin targets, thus presenting limited room for operational missteps that could impact investor confidence moving forward.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)