The Tier-2 Titan: How Meesho Conquered the Market Others Couldn’t Reach

Company Overview:

In the expanding competitive arena of Indian e-commerce, where industry giants such as Amazon and Flipkart have dominated because of their convenience and reach, Meesho emerged as a new alternative in 2015. Founded by Vidit Aatrey and Sanjeev Kumar, Meesho acted as a peer-to-peer social commerce platform for local individuals, especially women entrepreneurs to resell their products. This was previously done through WhatsApp and other social media channels limiting their reach. Meesho provided a one stop solution to this problem along with providing affordability and local taste. Currently with over 21 crore annual transacting users, 575 thousand sellers and a GMV (Gross Merchandise Value) OF 6.2 billion it has positioned itself as a powerful competitor.

Structure of the Offer:

•  Fresh issue up to ₹4,250 crores to fund working capital requirements, strategic investments and general corporate purposes. The size may be reduced to ₹850 crores if there is a Pre IPO-placement offer. Page 133

  
  

• An offer for sale of 105,513,839 equity shares to ensure liquidity in the market. The selling shareholders include Elevation Capital, Peak XV Partners and SoftBank including a portion of the promoter’s stake. Page 133

• The company has set a price band of ₹105-₹115 per share for it's IPO, Which opens for subscription on December 3rd,valuing the company at $5.6 Billion at the end. The offering closes on December 5th and expected to list on December 10th on BSE and NSE. Source

Key Financial Metrics: 

• Revenue from operations has surged to ₹9,389.9 crores in FY25 marking a 23% increase from FY24. The company has become cash flow positive generating ₹539.37 crores in net operating cash. Page 409

• The company has incurred losses since inception. While they have been cash flow positive in FY24 and FY25, the company has restated losses before exceptional items and tax of ₹147.67 crores and ₹108.4 crores in the three-month ended June 30 and FY25. Page 409

• The Adjusted EBITDA has increased since the last 3 years with the current data standing at a loss of ₹219.59 crores indicating a marginal improvement in the efficiency in the core operations of the business. Page 409

• Continuous negative cash flows from operation since the last 3 years with a negative cash flow of ₹1,454.863 crores has reduced the ability of the company to make progress in operations.  Page 412 

(in Indian Rupees in Million)

Metric	FY25	FY24	Change%
Revenue	93,899.03	76,151.48	23%
Net Profit/Loss	(39,417.05)	(3,276.41)	(1103) %
Adjusted Loss	(108)	(327.6)	67%
Restated Losses	(108.4)	(147.67)	26.5%
Free Cash Flow	591	(2,336)	125.3%

Risks associated with the business: 

• Despite operational improvements, company has incurred losses since 2015 reporting a large loss in FY25. Future profitability depends heavily on successful execution of its future operations. Page 87 

• The company has witnessed high employee churn, with attrition rate of 52.04% in FY24 and 33.94% in FY25. This could hinder technological and operation aspect of the business and shows inefficiency. 

• Meesho faces fierce competition from well established businesses like Amazon and Walmart owned subsidiary Flipkart. This puts continuous pressure on the pricing strategies of the products and customer acquisition strategies. 

• The company also paid a one-time expense of ₹130 crores as prerequisite tax paid by the company on the behalf of investors. The logistical expenses have also increased drastically over the years indicating a lot of pressure on its logistics platform, Valmo Page 450

Company Insights:

• The development of Meesho’s own asset-light logistical platform Valmo has been a critical step for cost reduction. This consists of local logistics partners leading to lower shipping costs and are passed onto the sellers to maintain the affordability of the products. They handle around 62% of company’s shipped orders as of FY25. Page 91

  
  

• The management is focused on diversification through Horizon 2 initiatives launching new ventures including Valmo for daily essentials and a potential digital financial services platform.

  
  

• A higher proportion of orders (76.95% in Fy25) are paid via COD. The payment method carries a lot of risk related to returns and logistical costs which blocks the capital of the business. Page 93

  
  

• The demerger of the e-commerce undertaking with Meesho Technologies Private Limited and the demerger of Grocery Undertaking with Meesho Grocery Private Limited would increase the chances of increasing efficiency of the business.

Market Outlook: 

• The professionals have signaled cautious status against Meesho’s IPO. The grey market premium (GMP) has surged to ₹35-36 per share on the basis of upper price band of ₹111. This is approximately 32% upside from the IPO price band. However, the grey market is very speculative and unreliable. At the upper price band, the company is valued at approx. $5.6 billion indicating 5.6x FY25 revenue, while the other ecommerce firms trade at 1-2x of revenue.  

  
  

• Professional institutions like Kotak Mahindra Capital, JP Morgan and Morgan Stanley, Meesho has been labelled as “A Logistics Moat Story” emphasizing the importance of Valmo in the business. This could be one of the reasons for justifying the premium. 

Conclusion:

The Meesho IPO can be defining moment for the Indian e-commerce sector validating the scalability, innovation and benefits of its value-first model. The Horizon 2 initiatives and Valmo are just a step towards achieving market leadership and making a pathway to profitability. While the company is currently making strategic investments for the future, it has achieved positive free cash flow which is a breakthrough in this sector. The long-term strategy of the company is clear, to develop its own internal systems to reduce dependency and increasing operational efficiency.

Authored by: Aryaveer Batra

Disclaimer:

This article is intended solely for information and educational purposes and does not constitute any financial, investment or legal advice. The data and analysis presented are based on publicly available information, including the company’s Red Herring Prospectus (RHP) and reputable financial news sources. Readers are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher have no responsibility for any monetary losses or damages from reliance on the information contained herein.