Meesho's $603M IPO Spurred by Institutional Backing Amid Allocation Disputes

Indian e-commerce platform Meesho has begun accepting investor orders for its highly anticipated $603 million initial public offering (IPO). The firm, which operates in smaller cities and connects low-cost sellers with value-conscious consumers, set a price range of 105 to 111 rupees per share. The IPO aims to raise as much as 54.2 billion rupees, positioning Meesho for further expansion in India's competitive e-commerce landscape.

The IPO followed a contentious anchor allocation round on Monday, where several major investors reportedly walked away after not receiving the allocations they had hoped for. The firm had allocated a significant portion of its anchor shares to SBI Funds Management Pvt., a move that sparked pushback from some large institutional investors. Despite this, Meesho successfully raised 24.40 billion rupees by allocating 219.78 million shares to 125 anchor investors.

Meesho's IPO has drawn strong interest from brokerages, many of which see long-term potential in the company's business model. SBI Securities recommends subscribing to the IPO at the upper end of the price band, citing the firm's positive free cash flow in the past two years despite ongoing net losses. Bajaj Broking also expressed optimism, noting the company's focus on cost efficiency and technology has supported its growth.

Why the Standoff Happened

The anchor allocation controversy centered around Meesho's decision to give a large chunk of its shares to SBI Funds Management, much to the dissatisfaction of other major investors. Institutions like Capital Group, Norges Bank Investment Management, and ICICI Prudential Mutual reportedly withdrew from the anchor round, alleging the allocation was unfair. The move highlighted tensions in India's IPO market, where pre-listing allocations often determine early investor sentiment.

Despite the backlash, the IPO generated solid returns in the anchor round. Meesho raised 24.40 billion rupees by allocating shares to 125 anchor investors, including Abu Dhabi Investment Authority, Fidelity International, and BlackRock Inc. The firm also managed to attract substantial institutional backing, which could serve as a positive signal for public investors.

What This Means for Investors

The IPO's price band of 105–111 rupees places Meesho's valuation at approximately 5.5 times FY25 sales, a multiple seen as attractive compared to platforms like Zomato. Grey market premiums have also been favorable, with unlisted shares trading at around 156 rupees, a 40% premium over the upper end of the price band. This suggests strong retail and institutional interest ahead of the official launch.

Meesho's IPO includes both a fresh issue and an offer for sale (OFS), allowing early shareholders to exit part of their stakes. Founders Vidit Aatrey and Sanjeev Kumar, who hold large portions of the company at low acquisition costs, are among those selling shares in the OFS. Their stakes could fetch them significant returns, with Aatrey expected to take home around 177.5 crore rupees from the sale.

Brokerages like SBI Securities and Bajaj Broking see potential in Meesho's technology-driven approach and its ability to generate positive cash flows. The firm plans to use IPO proceeds for cloud infrastructure, AI development, and marketing initiatives. Analysts also highlight the company's expanding logistics and content-commerce strategies, which could drive further growth.

Meesho's IPO will remain open for subscription until December 5, with shares expected to list on December 10.

Risks to the Outlook

Despite the IPO's strong fundamentals, risks remain. Meesho reported a substantial loss after tax of 3,941.71 crore rupees for the period ended March 31, and while free cash flows have improved in recent years, profitability is still a long-term goal. The company's heavy investment in technology and marketing may continue to strain its finances, especially in a highly competitive e-commerce sector dominated by Amazon and Flipkart. Grey market premiums, while encouraging, are speculative and do not guarantee listing-day performance. The IPO's success will also depend on how retail and institutional investors respond to the price band and the company's long-term growth strategy. Meesho's reliance on a zero-commission model, while unique, also raises questions about how it will sustain revenue as it expands into new business lines like financial services and grocery.