Broker’s call: Meesho (Buy)

The e-commerce landscape in India is not constrained by a shortage of consumers, but rather by a lack of suitable business models to cater to this growing market. Currently, Meesho holds just 7% of retail spend, compared to the 10-35% share held by its competitors. However, Meesho's innovative model, which allows lower-income consumers to develop an online shopping habit, presents a promising growth opportunity.

Established platforms like PDD, Shopee, and MELI have already demonstrated the scalability and profitability of this approach. As these companies expand their traffic and transaction density, their revenue streams are shifting from low-margin, volume-driven fulfilment to higher-margin advertising and services. To capitalize on this trend, The Hindustan Times has initiated a position on Meesho with a target price of ₹265, anticipating that the company will outpace traditional e-commerce players in terms of volume growth.

The advertising income is projected to grow to 5.5% of net merchandise value (NMV) by FY31, while fulfilment revenue will compound at a rate of 22%. These factors should drive up the contribution margin from 3.5% to 7.4% of NMV, EBITDA margin to 9.6%, and return on capital employed (RoCE) to 36%. With a valuation of 1x FY31E EV/NMV, Meesho appears to have significant rerating potential compared to its peer, Blinkit, which trades at 1.5x.

According to the company's GRACE framework, Meesho stands out as the most scalable and margin-leveraging business among its peers.