Shares of Meesho rallied as much as 12% to their day’s high of Rs 245 on the BSE on Tuesday after international brokerage firm UBS hiked the target price by 24% to Rs 260, implying an upside of 19% from current levels.

UBS has raised its FY29-31 NMV estimates by 7-18%, with a similar increase in contribution profit estimates and a 20-40% increase in EBITDA estimates. The higher NMV forecasts reflect the continued flywheel effect from seller and buyer growth, with sellers increasing 81% YoY to 1.04 million in Q1FY27 and buyers rising 29% YoY to 274 million. This has been accompanied by a rapid expansion in SKUs and logistics partners.

The larger increase in EBITDA estimates reflects UBS’ expectation of a stronger medium-term margin trajectory, driven by improving ads monetisation and logistics economics.

UBS sees clear runway for CM improvement - Analysts see clear visibility on the key drivers of Meesho’s contribution margin (CM) improvement, led by advertising revenue and logistics margins. Meesho has historically targeted a 2.5% margin on logistics, but had to reinvest this margin from mid-FY26 amid disruptions in the logistics space and higher costs per parcel.

However, logistics costs have started to decline, falling from Rs 44 in Q3FY26 to Rs 42 in Q1FY27. Management expects the sequential decline to continue, which should allow Meesho to rebuild its logistics margin from 1.5% to 2.5% over the next 2-3 quarters.

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Advertising revenue crossed 3% in Q1FY27. While sellers have indicated a willingness to spend 2.5-3.0x the current amount, Meesho is balancing higher ad revenue with buyer experience and conversion. UBS expects this to support a measured improvement in the metric.

Meesho’s CM improved from 2.3% in Q3FY26 to 4.6% in Q1FY27. UBS expects CM to reach around 5% by the end of FY27 and 5.6% by the end of FY28.

Meesho’s NMV target achievable - Management remains confident about Meesho’s FY27 growth outlook. While the shift in Diwali from October 2025 to November 2026 is expected to result in slower growth in Q2 and faster growth in Q3, the company believes low-30s NMV growth remains achievable for FY27.

Meesho expects to deliver around 25% NMV CAGR over FY26-31, supported by substantial headroom for both new customer additions and higher ordering frequency. The company is targeting more than 500 million annual transacting users (ATUs) over the medium term, nearly twice the 274 million ATUs recorded in Q1FY27.

Ordering frequency among the oldest user cohorts, who have been on the platform for more than five years, is 20x the platform average of 10x and 6-7x that of new users. Recently acquired cohorts have also shown strong potential, with users in the 3+ year cohorts recording 15x frequency, while usage continues to increase across each cohort.

Around 50-55% of new users are acquired organically, while dropout rates among users who use the platform three to four times tend to remain low. This results in an 18-month payback period for new-user acquisition. These assumptions, however, require logistics costs to continue declining and average order values (AOVs) to fall at a mid-single-digit rate annually, helping bring new customers and use cases into the ecosystem.

Valuations are attractive - Following its strong run since the IPO, Meesho’s stock trades at 65x FY29E EV/adjusted EBITDA, compared with 28x for Eternal and 24-26x for the average Indian consumer company. UBS sees the premium as supported by Meesho’s above-average growth. On FY30E adjusted EBITDA, the stock’s multiple declines to 34x.

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Meesho is estimated to deliver around 30% NMV CAGR over FY26-30E, compared with 13-14% for Indian consumer peers. The stock’s latest price implies an FY28E EV/GMV multiple of 0.8x, representing a 30-35% discount to its Indian peers.

For the quarter ended June 30, 2026, Meesho reported a loss of Rs 133 crore, improving from a loss of Rs 289 crore in the corresponding quarter last year. The company expects year-on-year growth in net merchandise value (NMV) to slow during the July to September quarter as it steps up spending to acquire new users ahead of the festive season.

According to the company, the softer growth outlook is primarily due to the timing of its flagship Mega Blockbuster Sale, which has been shifted this year from the July to September quarter to the October to December quarter. As a result, the company expects growth in the third quarter to appear stronger, with comparisons expected to even out when both quarters are viewed together.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.