Shares of Meesho jumped more than 6% on Tuesday, 22 September, after UBS retained its Buy rating on the e-commerce platform and raised its target price to ₹260 from ₹210.
The brokerage’s revised target reflects its expectation of stronger medium-term growth and a faster improvement in margins. While UBS has largely retained its FY27 estimates, it has raised its FY29-FY31 net merchandise value (NMV) estimates by 7-18%, along with similar increases in contribution profit estimates. Its EBITDA estimates for the period have been raised by 20-40%.
The key question for investors now is what is driving UBS’ increased confidence in Meesho’s longer-term earnings potential.
Growth remains in the low 30s
UBS believes Meesho can sustain low-30% NMV growth in FY27, despite the timing shift in Diwali this year.
The brokerage expects the festival timing to create a softer growth rate in the second quarter and a stronger performance in the third quarter. Beyond FY27, Meesho continues to target around 25% NMV CAGR between FY26 and FY31.
The growth outlook is supported by continued expansion in both sellers and buyers. In Q1FY27, annual transacting sellers rose 81% year-on-year to 1.04 million, while annual transacting buyers increased 29% to 274 million.
The company is also expanding its SKU base and logistics network, giving UBS confidence that Meesho still has considerable room to increase transaction. volumes.
The bigger story: margins are improving
While growth remains important, UBS believes the more significant change is happening on the profitability side.
Meesho’s contribution margin improved sharply from 2.3% in Q3FY26 to 4.6% in Q1FY27. UBS expects it to reach around 5% by the end of FY27 and 5.6% by the end of FY28.
Two factors are expected to drive this improvement — lower logistics costs and higher advertising monetisation.
Falling logistics costs could unlock margins
Logistics has been an important area to watch for Meesho. The company had historically targeted a logistics margin of around 2.5%, but higher costs and disruption in the logistics sector forced it to reinvest in the business from mid-FY26.
That trend is now showing signs of improvement. Logistics cost per parcel declined from ₹44 in Q3FY26 to ₹42 in Q1FY27.
UBS expects this cost to continue declining, allowing Meesho to gradually rebuild its logistics margin from around 1.5% to 2.5% over the next two to three quarters.
If achieved, this could provide a meaningful boost to contribution margins and eventually EBITDA.
Advertising could become another profit driver
Advertising is the second major lever identified by UBS. Meesho’s advertising revenue crossed 3% of NMV in Q1FY27, while sellers have indicated that they could potentially spend 2.5-3 times the current amount on advertising.
However, the company is taking a measured approach because aggressive advertising could affect the buyer experience and conversion rates.
For UBS, this creates room for advertising monetisation to increase without relying entirely on higher transaction volumes.
Can Meesho reach 500 million users?
Another part of the longer-term growth story is the potential increase in Meesho’s annual transacting user base.
The company is targeting more than 500 million annual transacting users (ATUs) over the medium term, compared with 274 million in Q1FY27.
UBS believes there is also significant headroom to increase ordering frequency.
Users who have been on the platform for more than five years currently order around 20 times, compared with an average of 10 times across the platform and 6-7 times for new users.
More recently acquired cohorts are also showing improving engagement. Users who have been on the platform for more than three years are recording around 15 times ordering frequency.
This suggests that Meesho’s opportunity may not only be about acquiring more users but also getting existing customers to shop more frequently.
Why UBS raised its EBITDA estimates
The combination of higher transaction volumes, improving logistics economics and stronger advertising monetisation is behind UBS’ more bullish EBITDA outlook.
The brokerage has increased its FY29-FY31 EBITDA estimates by 20-40%, even though its FY27 estimates remain broadly unchanged.
This distinction is important: UBS is not necessarily expecting an immediate earnings surge. Instead, it sees the benefits of operating improvements becoming more visible over the medium term.
Meesho’s Q1FY27 results already showed this direction, with NMV rising 34% year-on-year to ₹11,614 crore and contribution margin expanding to 4.6%, supported by logistics efficiencies and improved platform monetisation.
What could derail the growth story?
The UBS thesis also depends on a few important assumptions.
Logistics costs need to continue falling, while average order value (AOV) is expected to decline at a mid-single-digit annual rate as Meesho attracts new customers and expands into additional use cases.
The company also needs to increase user frequency and monetise advertising without hurting customer conversion or the overall shopping experience.
For investors, these are the metrics worth tracking alongside headline NMV growth: logistics cost per order, contribution margin, advertising revenue, user growth and ordering frequency.
Valuation: UBS sees ₹260
UBS values Meesho using a combination of discounted cash flow (DCF) and multiples-based valuation.
Under its multiples approach, the brokerage applies a 40x EV/EBITDA multiple to the average FY30-FY31 estimated EBITDA and discounts the resulting value back by two years.
This leads to a revised target price of ₹260, up from the earlier ₹210 target. UBS has retained its Buy rating. The target revision comes as the brokerage raises its longer-term growth and profitability assumptions.
What should Meesho investors watch now?
The Meesho story is increasingly shifting from “how fast can the platform grow?” to “how efficiently can it monetise that growth?”
For investors tracking the stock, the key indicators will be whether Meesho can sustain low-30% NMV growth, bring logistics costs down further, expand advertising revenue and lift contribution margins towards the levels UBS expects.
If these operating improvements materialise, they could provide a stronger foundation for the company’s longer-term earnings growth. Meesho itself has maintained a long-term 25% NMV CAGR target, while its latest reported results showed continued user and seller expansion alongside improving platform economics.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
