Urban Company shares jump 18% despite Q1 loss, Morgan Stanley upgrades to overweight

Urban Company's shares experienced a significant surge of nearly 18% during early trading on Monday, defying the company's announcement of a consolidated net loss for the first quarter of financial year 2027. Despite this financial setback, brokerages have expressed optimism about the company's potential for growth, profitability, and re-rating.

Morgan Stanley, a prominent brokerage firm, upgraded Urban Company's rating from underweight to overweight and raised its target price to ₹165 from ₹128. This positive outlook is based on the company's strong growth, improved execution, and profitability prospects, particularly in its India consumer services business excluding insta and international operations.

Morgan Stanley highlighted that confidence in profitability across segments has increased due to robust execution, and they anticipate profitability targets could be met sooner than initially projected. However, they acknowledged that elevated losses in Instahelp might necessitate consolidation sooner. The brokerage also expects return on capital employed to normalize at over 20% in the steady state and considers the current valuation starting point reasonable following a large underperformance.