Mumbai: Small town-focused e-commerce platform Meesho’s ₹5,421 crore IPO is all set to open today, December 3 and run till Friday, December 5. Through the IPO, the company will issue fresh shares worth ₹4,250 crore along with an Offer For Sale (OFS) component of ₹1,171 crore. As per its Red Herring Prospectus (RHP), the company aims to use the proceeds to invest in cloud infrastructure and machine learning in order to enhance its offerings, leveraging the power of AI. Besides that, Meesho also aims to fund inorganic growth, and finance other strategic initiatives.
The secret sauce to Meesho’s rise? A mass market focus
Most think of Amazon, Flipkart or Myntra when it comes to e-commerce. These brands pioneered the concept, and have been jostling for market share in leading metros ever since. But Meesho still remains largely unknown, and that’s a conscious decision. The company has been one of the leading ecommerce brands outside of Tier 1 cities, focusing on the needs of small town and village customers.
For many Small and Medium Enterprises (SMEs), Meesho remains central to their business, with affordable marketplace fees that helped them reach a mass market. As a result, small-town customers flock to the platform for the best-priced products, even as the e-commerce market has now penetrated to almost the entire country.
Challenges faced
Despite having almost 12.61 crore orders placed through the platform, Meesho has had to deal with vendors selling fake goods on the platform, along with various frauds committed through it in 2024.
Though the company now has an almost 30% market share in e-commerce shipments, most of it comes from Cash on Delivery (COD). The company hasn’t been able to break even, with the company reporting three consecutive years of losses, with it rising dramatically to ₹3,945 crore in FY25, despite the revenue growing to ₹9,389 crore. Dealing with price sensitive products also translates into higher marketing spends, which the company has included in its broad category of ‘other expenses’ that includes fulfilment, advertising and seller enablement costs, which in itself was a massive ₹9,120 crore for FY25.
Also, Cash on Delivery (COD) orders at Meesho come with just a 75% success rate, with the unsuccessful ones carrying the delivery and return costs with no revenue to replace it.
The company is also highly dependent on its marketplace model, where it has to find ways of integrating AI to make its position attractive. Despite its affordability, there is always the risk of Amazon and Flipkart competing with them with deeper discounts or attractive deals for SMEs.
So far, the company has relied heavily on advertising and seller service fees for monetization. If the demand for promotional spending slows, revenues and margins could shrink.
Can it meet expectations?
Unlike Amazon or Flipkart, Meesho doesn’t have an in-house logistics management solution. It offers its sellers various logistics fulfilment options through its Valmo platform, but besides that, it doesn’t have another source of income.
For now, the IPO is expected to become a success, going by the GMP of ₹46 with a potential listing gain of 41.44% as per Investorgain data. How Meesho’s founders Vidit Atrey and Sanjeev Barnwal convert hype into profits remains to be seen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in stocks includes financial risks, and past performance is not indicative of future results. Readers should conduct their own research or consult with a qualified financial advisor before making any investment decisions.
