Urban Company IPO: SBI MF booster shot, stronger governance, transparency, leaving money on the table make investors lap up shares

“During meetings, the team would set goals for six months. Then, they would come back with an interim update to show their progress. They did this periodically. That established confidence that they are on track to deliver what they promised and will continue to deliver in the future,” an investor said.

Since companies are valued based on their future earnings potential, the continuity and predictability the trio displayed helped incoming investors give better valuations.

The team even communicated very openly that rising competition may impact its near-term profitability, especially in the quick services space.

“Most founders don’t think like that. Once the story is sold, they rarely re-engage from time to time and the bad bits are often kept hidden,” a second person in the know said.

Internally, Urban Company has now guided for full profitability by FY28, pushing it out by a few quarters. The company is expected to breakeven by the end of FY27, as per sources.

It also helps that Urban Company is a service many households use. So the brand recall is higher, which propels demand a bit more.

Money for retail investors

Urban Company was reportedly planning an IPO as large as Rs 3,000 crore but trimmed it to around Rs 1,900 crore, leaving money on the table for incoming investors, especially retail ones.

The company is also commanding a slightly lower valuation. At the upper end of the price band, Urban Company is valued at around Rs 14,800 crore, a discount of 5 percent even from its last private market fundraise in 2021 when it was valued at Rs 16,000 crore.

Is Urban Company profitable?

Urban Company showed a profit of Rs 240 crore in FY25. However, most of it was because of deferred tax credit of Rs 211 crore. Without that, the company would have delivered a pre-tax profit of Rs 28 crore.

“For retail investors, who do not research too much before investing, an impressive net profit number is enough. They don’t know or care how the company got there,” one of the persons cited above said.

“You cannot blame them, though. There are only a handful of internet companies generating profits. So, the ones that are turning in profits will be lapped up.”

However, the profits may not be compounding from here just yet.

“The company has also provisioned Rs 150-200 crore to invest in its quick services platform as the competitive intensity rises which will impact near-term profitability. Even this was communicated to the incoming investors with great clarity,” a source said.

How big is the quick services unit for Urban Company?

In the quick services space, Urban Company competes with Lightspeed-backed Snabbit and General Catalyst-funded Pronto. Both companies have raised new funding rounds to compete with Urban Company, which was a late entrant but has a larger customer base.

All stakeholders are super excited about Urban Company’s insta helps business. It has come up in every conversation during the roadshows and meetings, Moneycontrol has learnt.

“This business alone is a Rs 2,000-2500 crore opportunity. There is a big total addressable market (TAM) for this in cities, especially in Mumbai where UC is already doing very well,” a source said.

UC’s catchment is the new employee base entering the workforce by migrating to a new city. “The money spent on insta help far outweighs the total money being spent on all other UC services in a year,” the source added.

If not Urban Company, then who?

A slew of investors, who want exposure to this sector, also invested in Urban Company because it has no direct and large rivals. While there are a few other quick services companies, its other business verticals have seen players come and go, as per sources.

SBI mutual fund booster shot

While several companies get marquee investors in pre-IPO rounds, Urban Company got SBI Mutual Fund, the country’s largest-fund manager, as an investor early on “and then it was smooth sailing from there”.

“For Retails and QIBs, SBI Mutual Fund investing in a profitable company just seals the deal. Everything else takes a backseat. The IPO just builds automatically with all other stakeholders,” a source said.

Moneycontrol was first to report about SBI mutual fund investing in Urban Company back on August 9.

“Urban Company’s meeting with the SBI MF team lasted over 3.5 hours. If the top MF house is spending that much time on a company, it increases conviction around the team and the company,” the source added.

How much do founders own in Urban Company?

Lastly, one key thing that stood out in Urban Company was that all three co-founders have the exact same stake. Bhal, Khaitan and Chandra each have a 6.7 percent stake in the company. Together they hold a 20.1 percent stake in the company, classifying them as promoters.

“It is extremely rare to see all co-founders have equal stake in their companies. There is always one hero and then the others, but in UC’s case it shows equality. Each of the three co-founders have their work divided and sorted, working like a well-oiled machine,” the investor cited above said.

Next, a promoter-led set up works best because it gives stakeholders confidence, as per sources.

Apart from these, strong governance structures, spending time in Mumbai and Gujarat to convince HNIs to invest, doing detailed roadshows, speaking for long and with clarity all helped UC reach here. Where the share lists remains to be seen, but the grey market premium signals a 50 percent jump which should augur well for the firm.