Urban Company shares could fall 26%, Morgan Stanley, Goldman say 'growth priced in'

Recently listed Urban Company Ltd. has received two coverage initiations from Morgan Stanley and Goldman Sachs on Thursday, October 23, and both of these firms expect the shares to fall going forward.

Morgan Stanley has initiated coverage on Urban Company with an "underweight" rating and a price target of ₹117, which implies a potential downside of 26% from Tuesday's closing levels.

The brokerage said that it is "underweight" on the home essential services provider, as the growth is already in the price.

Urban Company has a large addressable market in online home services, supported by competitive moats, and an experienced founding teams, Morgan Stanley wrote in its note, adding that it expects the core India Consumer Services Net Transaction Value (NTV) to grow at a Compounded Annual Growth Rate (CAGR) between 18% and 22% over financial year 2025-2028.

Higher churn and supply constraints will also drive growth at a calibrated pace, according to Morgan Stanley, who expects the consumer services business, excluding the new "Insta Maid" service to reach an adjusted EBITDA margin of 30% in the medium-term.

However, continued investments in the "Insta Maid" facility will prove to be a drag on Urban Company's profitability, according to the brokerage.

Urban Company's valuation multiples should sustain in-line with strong & established business models in the India Internet services space, Morgan Stanley said.

Additionally, Goldman Sachs also initiated coverage on Urban Company with a "neutral" rating and a price target of ₹140, which also projects a potential downside from Urban Company's closing price on Tuesday.

Similar to Morgan Stanley, Goldman Sachs also believes that the strength of the company's business model and outlook is already reflected in the premium valuations at which the company trades at.

Goldman Sachs expects a 24% revenue CAGR over financial year 2025-2030, and 35% ex-Insta Help, which is at the higher end of India's internet services coverage that the firm has.

Urban Company is trading at 9 times financial year 2028 estimated Enterprise Value to sales, and 64 times financial year 2028 Enterprise Value to EBITDA, both of which are at a material premium to peers but broadly in-line on a growth adjusted basis, Goldman Sachs' note said.

These are the first two initiations that the stock has received after listing.

Urban Company had a strong listing on the bourses, and the stock also nearly doubled from its issue price of ₹103, making a post-listing high of ₹201. The stock has declined over 25% from those levels since then and also trades below its listing price of ₹162.25.

Shares of Urban Company ended 2.6% higher on Tuesday at ₹158.25.