Urban Company's Growth Engines Are Firing, But Kotak Initiates Bearish Call — Here's Why

Kotak Institutional Equities has initiated coverage on full-stack home-services platform Urban Company Ltd., on a bearish note. The brokerage has ascribed a 'sell' rating on the firm, with a target price of Rs 120 apiece.

The brokerage sees steady growth ahead in both India and overseas markets and expects the core India consumer services business to deliver strong improvement in profitability over the next few years. However, it notes that the newly launched Insta Help vertical will need meaningful investment.

Urban Company’s platform today spans everything from cleaning, painting and appliance repairs to skincare, hair grooming and massage therapy, delivered through independent service professionals.

The company has also expanded into products with water purifiers and electronic door locks under the Native brand, and more recently launched Insta Help, its on-demand home-assistance service. In the latest fiscal year, the India business recorded several million completed service orders, with a smaller but fast-growing international base.

Kotak describes the India business as the largest of its kind, with significant room to scale as household spending on outsourced services rises. It expects better operating leverage to steadily expand margins from current levels as the platform scales and take-rates improve.

Urban Company today accounts for only a small share of household service spending, a gap Kotak believes will narrow as hyperlocal supply of service professionals becomes more efficient.

The brokerage notes that UC’s three other businesses — international markets, the Native product line and Insta Help — are all in expansion mode. The overseas business in Singapore and the UAE is expected to grow rapidly and turn modestly profitable over time.

Native is projected to scale quickly as a consumer-durables play, while Insta Help, though likely to grow at a very fast clip, will require substantial upfront investment. Kotak points to the company’s healthy cash reserves and asset-light model as key supports for this phase. The brokerage flags upside risks such as stronger growth, lower competitive intensity and faster-than-expected traction in Insta Help.