Urban Company's long-sought IPO is finally here: 5 key takeaways

Home services marketplace Urban Company had been looking for a public debut even before it rebranded. Founder Abhiraj Singh Bhal had expressed interest in taking the initial public offering (IPO) route for the company, then known as UrbanClap, after raising its Series C funding round in 2017.

It is now finally having its moment in the sun. Urban Company filed its draft red herring prospectus (DRHP) with the exchanges for a Rs 1,900 crore IPO, joining a sleuth of startups looking to make fortunes from Indian bourses.

The Delhi-NCR-based company is looking to raise Rs 429 crore from a fresh issue of shares, along with investors offloading shares worth Rs 1,471 crore in an offer-for-sale component.

Founded in 2014 by Bhal, Raghav Chandra and Varun Khaitan, the company has enlisted Kotak Mahindra Capital, Morgan Stanley India, Goldman Sachs, and JM Financial as the lead book-running managers for the IPO. Its bid for a public debut comes weeks after the company converted into a public entity earlier this year, and around a year after it first declared itself profitable on a profit-before-tax level.

It last raised primary funding in 2021 from a host of investors, including Tiger Global Management, Dragoneer, Steadview, and Prosus, among others. At the time, it was valued at $2.6 billion.

Urban Company's bid for the bourses has underpinned its confidence in its fundamentals. Here are five key takeaways from the DRHP:

1. Banking on profitability

The home services marketplace primarily earns revenue from consumer services, including salon, cleaning, pest control, and home furnishing solutions. It also earns from its overseas operations and sale of home improvement products under the Native range of water purifiers.

For the first three quarters of FY25, Urban Company clocked a profit of Rs 242.5 crore, against a loss of Rs 57 crore in the year-ago period. Its operating revenue of Rs 846 crore wasn't just a 40% year-on-year improvement but was higher than the entire turnover for FY24.

Its biggest segment, the consumer services arm in India, saw revenues grow by 30%, driven by an increase in annual transacting users and growth in services spend per customer. Its Native range grew six-fold to Rs 75 crore, primarily from the sale of its water purifiers.

Its international arm saw 83% topline growth, driven by improvements in its operations in Saudi Arabia. It is currently present across UAE, Saudi Arabia, and Singapore.

2. Shifting captable

Promoters and founders Bhal, Chandra and Khaitan collectively own 20% of the company, each with a stake of 6.67%. Coincidentally, founders are not expected to offload any shares in offer-for-sale.

Urban Company's two largest shareholders—Accel India, which owns 10.51% of the company, and Elevation Capital, which owns a 10.84% stake—are lining up to book windfall gains. Tiger Global, VY Capital, and Bessemer India own 4.73%, 9.18%, and 6.46% stake, respectively.

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3. Selling shareholders: Ka-Ching for early backers

The offer-for-sale component is worth Rs 1,471 crore, which will see key investors like Accel India, Elevation Capital, and Tiger Global, among others, cash in.

Elevation Capital, which acquired shares across both primary and secondary transactions, is expected to offload shares worth Rs 346 crore, acquired for a weighted average cost of Rs 5.39, which primarily refers to an average acquisition price per share across investment rounds.

Tiger Global joined the company's captable in the Series E round, with an average acquisition cost of Rs 60.25 apiece. Through its Internet Fund V, it is expected to offload shares worth Rs 303 crore.

Accel India, its backer from the seed stage, is expected to offload shares worth Rs 433 crore, acquired at a cost of Rs 3.61 apiece. Elevation is set for an exit value that is 11-fold higher than Tiger Global, while Accel is looking at a 16.7X higher exit.

VY Capital and Bessemer India are expected to offload shares worth Rs 216 crore and Rs 173 crore, respectively.

4. Market volatility makes its mark

The Abhiraj Bhal-led company had initially planned for a Rs 3,000 crore IPO, with a significant portion to be a primary raise, according to an ET report. Then, earlier this month, it had reduced the size of the fresh issue to Rs 528 crore, as approved by the company's board. According to the DRHP, Urban Company is now seeing a fresh issue size of Rs 429 crore.

The trimmed IPO comes as startups defer or cut down on public debut offers amid market volatility and global fluctuations. The trade war launched by US President Donald Trump has led many investors to hyper-focus on the market dynamics.

5. Funding its future

Urban Company is looking to deploy proceeds from its fresh issue to develop new technology and cloud infrastructure, a crucial part of its core business services. A portion of the net proceeds is also expected to go towards lease payments for its office in India and abroad, while a part will also be utilised for brand-building activities.

These investments come as Urban Company navigates business risks like stiff competition, high attrition by service professionals, and rapid diversification.