Morgan Stanley has upgraded Urban Company Ltd. to Overweight from Underweight and raised its target price to Rs 165 from Rs 128, citing better growth visibility, improving profitability and a more reasonable valuation after the stock's recent underperformance. The current market price is Rs 129 and the revised target implies an upside of about 28%.
The brokerage said Urban Company has emerged as a re-rating candidate, supported by a structural improvement in growth across its India consumer services business, excluding Instahelp, as well as its international operations.
Morgan Stanley said the company's "faster, cheaper, better" proposition is showing results. Supplier growth rose 10% year-on-year, while net transaction value increased about 30%. The business is also seeing lower churn, shorter delivery times, better partner utilisation and a larger share of experienced service professionals.
The brokerage has also gained confidence in profitability across segments, helped by strong execution. It now gives greater weight to execution, an internal factor, than to competition, an external factor, while assessing the Instahelp business.
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Morgan Stanley believes profitability targets could be achieved earlier than management guidance. It also expects elevated losses in Instahelp to push the market towards consolidation sooner. Adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization) losses in the segment are expected to peak in the fourth quarter of fiscal 2027 or the first quarter of fiscal 2028, though the brokerage continues to assume losses until fiscal 2030.
Following the first-quarter results, Morgan Stanley raised its fiscal 2027-29 revenue estimates by 4%-12% and adjusted Ebitda estimates by 1%-15% for the consolidated business excluding Instahelp.
The brokerage expects consolidated return on capital employed to normalise above 20% once the company reaches steady-state margins. It also said the starting valuation has become reasonable, supporting the double upgrade over the medium term.
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