Bank of America (BofA) has downgraded Urban Company Ltd. to 'underperform' from its 'neutral' rating for the the stock after it registered a 30% rally since its first quarter results were declared.
The downgrade comes on the back of expensive valuation, a risk-reward ratio that is skewed downwards, and growing competition in the instant help arena with major losses looming.
"We downgrade Urban company (UC) to U/P from Neutral as after the recent stock outperformance, we find risk-reward skewed to downside. Since its 10 results, stock is up 30% (vs Nifty down 1%)," the brokerage said in its note.
The brokerage that surge in stock price came despite competition being high in the Instant help service space & consensus downgrades on estimates for EBITDA & EPS for FY27-28 post the first quarter numbers.
"We expect higher competition & investments in the Instant Help services to drag down overall EPS despite improving momentum at the core business," BofA underlined.
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Additionally, it flagged that the competition for the InstaHelp has not peaked as of yet as both of UC's peers Snabbit & Pronto have raised capital.
"Our retail checks indicate that all platforms have increased their discounts & continue to spend on minimum guarantees for gig workers as well as in expansion of new areas. Infact UC's InstaHelp segment EBITDA losses have increased from Rs 100mn in 1QFY26 to Rs 1.3bn in 1QFY27," BofA said.
The brokerage underscored that while it expects InstaHelp to aid in a potential re-rating for Urban Company, the losses will remain high for foreseeable future.
BofA has also reduced its fiscal 2028 and 2029 EPS estimates to Rs (0.73)/1.41 from Rs 0.59/2.27, pricing in higher competition in InstaHel.
The target price for the shares remained unchanged at Rs 155 as core business momentum remains strong. The brokerage has increased its estimates for core consumer on back of stronger growth led by densification, improving traction & lower competition/Al benefits aiding margin improvement.
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