Meesho’s Blockbuster Debut: Is The 60% Surge Just The Beginning?

Meesho, one of India’s leading social commerce turned e-commerce platform, made its much-anticipated primary market debut on Dec 10. Backed by market optimism, the stock debuted at ₹162.50/share on the NSE (National Stock Exchange).

The listing marked a 46.40% premium over its issue price of ₹111/equity share. But the momentum did not stop there. The robust buying interest has pushed the stock to an intraday high of ₹177.49/share, delivering listing gains of nearly 60% to fortunate allottees within hours of trading.

Similarly, on the BSE (Bombay Stock Exchange), the scrip opened at ₹161.20/share (up 45.23%). This listing performance has given the company an attractive market capitalisation of ₹72,751.67 Cr.

• The Meesho IPO was open for subscription from Dec 3 to Dec 5.
• It saw a subscription of 79.03 x.
• The QIBs (Qualified Institutional Buyers) led the charge with a 120.18 x subscription.

The question is: Does this valuation leave any room for fresh entry, or is it time to take some chips off the table?

What Is Fuelling The "Scarcity Premium"?

The Meesho listing is exciting, but what is the structural story?

Meesho is not just another e-commerce player entering Dalal Street. It is the only listed "pure-play" in the value e-commerce segment in India.

Meaning, it has a different structure than Amazon or Flipkart. Amazon and Flipkart currently dominate the branded and metro markets. However, Meesho has successfully carved out a deep base in Tier-2 and Tier-3 cities. The unorganised and non-branded market is huge in Tier-2 and Tier-3 cities. Here, Meesho's dominance has given it a unique "scarcity premium," highlighting its “pure-play.”

Despite the listing surge, Meesho is trading at ~5.5 x its FY25 Price-to-Sales ratio. The Price-to-Sales ratio compares a company’s market value to its total revenue. Thus, for the Indian new-age tech sector, this seems to be attractive. Meesho also has the headroom for re-rating with market appreciation of its specific business model.

Furthermore, the company has reached an important financial milestone. It is turning FCF (Free Cash Flow) positive in FY25.

The reported net profit has remained negative due to one-off items. However, the positive cash flow is signalling that the underlying business is self-sustaining and no longer burning cash to fuel growth. This is the main metric that institutional investors prioritise over headline profit numbers.

Why Did QIBs Bet Big?

The magnitude of the QIB subscription of >120 x is telling a story of high conviction among institutional fund managers. This is proving to be a calculated institutional bet. But what did they see?

1) Scale: As per a Redseer report, Meesho is the largest e-commerce platform in India in terms of order volume and annual transacting users. In a volume-driven game of e-commerce, scale is the main defensive factor. It can create network effects that can be incredibly difficult for new entrants to replicate.

2) IPO proceeds utilisation: Meesho has assigned funds specifically for investment in cloud infrastructure and deep-tech capabilities like Machine Learning and AI. These are the "capital assets" that drive efficiency.

What Should Investors Watch Now?

It is natural for the retail investors to be tempted to book profits with the listing gains. Meesho is a proxy for the rising consumption power of "Bharat," the non-metro India that is just coming online.

Those who missed the allotment might now be checking the stock price. The current elevated levels call for caution. As per analysts, the stock is likely to remain volatile in the near term. This is mainly because the pre-IPO investors would lock in gains and the market would discover a stable price floor.

The existing shareholders can look beyond the listing day fireworks. The company's transition to profitability and its dominance in a hard-to-crack market segment are suggesting that the real value creation might happen over the next few years, not just the next few days.

Sources:

Livemint
Moneycontrol
Financial Express