Meesho shares nearing 100% returns from IPO price, close to UBS' 'buy' target

Shares of e commerce player Meesho Ltd. jumped 20% to hit an upper circuit on Wednesday, December 17, after Swiss investment bank UBS initiated coverage on the stock. The stock has nearly doubled from its IPO price.

UBS has started coverage with a 'Buy' recommendation and a price target of ₹220 per share, implying a potential upside of 22% from current levels.

The brokerage wrote in its note that Meesho's asset light and negative working capital business model, which has enabled the company to generate positive cash flows, unlike many other internet based businesses.

UBS expects Meesho's net merchandise value to grow at a compounded annual growth rate of 30% between FY25 and FY30. It estimates contribution margins and adjusted EBITDA margins, measured as a share of NMV, to improve steadily and reach 6.8% and 3.2%, respectively, by FY30.

The brokerage expects this growth to be driven by a sharp rise in annual transacting users, which it sees increasing from 199 million to 518 million over the same period.

It also estimates an improvement in annual ordering frequency from 9.2 times to 14.7 times. However, average order values are expected to decline from ₹274 to ₹233 as the company passes on logistics efficiency gains to the broader ecosystem.

Meesho made its stock market debut on December 10, listing at a premium to its issue price and closing 53% above the ₹111 IPO price on the first day. After witnessing a decline over the next two sessions, the stock rebounded with gains of over 3% on Monday and 12% on Tuesday.

With Tuesday's rally, the stock is now up more than 70% from its issue price of ₹111. Meesho's market capitalisation currently stands at over ₹86,000 crore.

Analysts have also flagged the limited free float in the market, which could exaggerate price movements in either direction.

The company's three day IPO, with an issue size of over ₹5,000 crore, saw strong demand across investor categories. The overall issue was subscribed 79 times, with the retail portion subscribed over 19 times. The quota reserved for qualified institutional buyers was subscribed 120 times.

Shares of Meesho closed 5.70% higher on Tuesday at ₹180.50, after hitting an intraday high of ₹193.44.

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