Axis Capital has initiated a ‘Buy’ rating on Meesho with a target price of Rs 195, implying a 34% upside. The optimism stems from the belief that the e-commerce company is well placed to benefit from the sector’s growth, driven by rising penetration in tier-2 and smaller cities. The company could gain by leveraging its value play and affordability flywheel to drive user growth and order frequency, the brokerage said.

Meesho shares rallied 5% today, hitting the day’s high of Rs 147.39 on the NSE. The December-listed stock is up 32% over its IPO price of Rs 111, though it remains 42% below its peak of Rs 254.

Axis Capital has listed three reasons why it believes a 34% upside is within reach, despite ongoing subdued market sentiment:

(1) Path to 440 million (44 crore) ATUs

Axis argues that India’s five-year e-commerce growth of 20% CAGR will be led by rising penetration in tier-2 and smaller cities, where affordability is key.

“Meesho, as India’s largest e-commerce player with 250 million ATUs (Annual Transacting Users), is best placed to benefit given its market leadership in unbranded and long-tail categories. Its strategy to drive the affordability flywheel by passing cost efficiencies—especially in logistics—to sellers, allowing them to offer affordable products, helps increase user penetration and order frequency,” the brokerage said.

(2) Growing importance of ads

Axis’ analysis shows the Total Addressable Market (TAM) at 580 million (58 crore) users by FY30E across rural and urban India, where Meesho could capture 8% of spending in its categories.

“Mercado Libre and Pinduoduo show that continued growth in users and order frequency is possible despite high penetration,” the brokerage said.The company is also expected to benefit from ad monetisation. With 9 lakh sellers, a focus on unbranded assortments leading to clean attribution, high order frequency, and a discovery-led platform, advertising could become an important margin lever for the company.

Axis sees ads scaling from 3% of Net Merchandise Value (NMV) to 6% by FY30E.

(3) Impact of competition

In Axis’ view, Amazon Bazaar and Shopsy are structurally constrained by seller base, catalogue, and fulfilment economics inherited from higher average selling price (ASP) models.

Its checks also revealed that Meesho is 31–37% cheaper on a 19-product basket costing Rs 1,600.

The company is expected to deliver 29% NMV CAGR between FY26 and FY30E, while rising ad contribution could drive 25% revenue CAGR.

Adjusted EBITDA margins are projected to expand to 3.1% by FY30E, rising 620 basis points on operating leverage. An asset-light model and negative working capital cycle are also expected to support free cash flows (FCF).

Risks

1. Lower growth in ATUs and sellers
2. Logistics costs not declining as expected
3. Lower-than-expected improvement in ad monetisation

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)