Urban Company IPO risks explained: 12 warnings on operations, regulations and valuation

Urban Company whose initial public offering (IPO) will open for subscription on Wednesday, September 10 has listed key risks in its Red Herring Prospectus (RHP) that investors should be mindful of before investing in the company's Rs 1,900 crore issue. The IPO document talks in detail about internal and external risks and these risks pertain to company's business operations, regulator and legal risks and IPO related risks. Take a look at 12 such warnings:

1) Sustained losses

The company has reported net losses in recent years. Continued losses could impact financial stability and valuation. The company's EBITDA loss in the June ended quarter widened to Rs 4.8 crore versus Rs 3.4 crore in the year ago period.

Certain of the company's subsidiaries and step down subsidiaries, including Handy Home which has a significant revenue contribution, have incurred losses in the past or are currently loss-making, some of which have been deregistered. These losses may continue in future, which could adversely affect the financial condition and results of operations.

2) Intense competition

Both organised and unorganised players compete in home services. Larger aggregators or new entrants could capture market share. The company in its RHP said that it faces intense competition from traditional offline players and due to low penetration of online services across the markets it serves. This has a bearing on its revenue and cost of operations.

Limited operating history in some of its business lines such as products under the Native brand, its InstaHelp offerings, small home project offerings, wall panel services for home decor and cleaning subscription services is another caveat given by the company.

3) High marketing & customer acquisition costs

Urban Company spends heavily on promotions and discounts to attract and retain customers. Rising costs may compress margins. The company spent Rs 51.82 crore in the June quarter of FY26 versus Rs 48.63 crore in the year ago period. It was 14.11% of revenue from operations in Q1FY25 versus 17.32% in Q1FY24.

4) Dependency on service professionals

The platform relies on gig workers (beauty experts, repair technicians, cleaners, etc.). Attrition, dissatisfaction, or inability to onboard skilled professionals could disrupt operations. Its success significantly depends on its ability to maintain and increase its network of service professionals on the company's platform.

In the June 2025 ended quarter, average monthly active service professionals stood at 54,347 versus 50,992 in June 2024. But for FY25, the average monthly active service professionals was lower at 47,833.

The company also runs the risk of consumers and service professionals circumventing the platform and engaging through other means, thereby adversely impacting the business financial condition and results of operations.

5) Legal & regulatory challenges

Ambiguity around labor laws, gig worker classification, taxation, and consumer protection rules could expose the company to litigation and compliance costs. For instance, service professionals operating on Urban Company's platform are independent contractors and not employees under the existing regulatory framework of India. Changes in labor and employment laws and regulations that widen the scope of employment may classify service professionals as employees, which could result in additional obligations on the company,

6) Technology & data security risks

As a tech-driven platform, it faces risks of outages, cybersecurity breaches, and data privacy issues, which may erode customer trust. The company relies on artificial intelligence (AI), including generative AI and machine learning technologies, which are still emerging and rapidly evolving. Company's failure to successfully develop, integrate, and deploy these technologies, or if its consumers are unable to effectively use them, the business could be harmed.

7) Reliance on limited service categories

A significant portion of revenue comes from beauty and wellness. Slowdown in demand here could hurt growth prospects.

8) Geographic concentration

Urban Company earns a large share of revenues from a few top cities. Weakness in demand or regulatory shifts in these regions could impact business disproportionately.

9) Cash flow pressures

High working capital requirements, delayed payments, or rising payouts to service professionals could strain liquidity.

10. Valuation & market risks post-IPO

Given the history of losses and reliance on external funding, there is risk of overvaluation. Post-listing volatility could lead to investor losses.

11) Dividend policy

Company's ability to pay dividends in the future will depend upon its future results of operations, financial condition, cash flows, working capital, capital expenditure requirements, and is subject to restrictions under Indian laws and regulations.

12) Promoter holding

Post Offer, our Promoters will hold less than 20% of the post-Offer Equity Share capital of our Company and the shortfall of the minimum promoter contribution will be met by VYC11 Limited, one of the Shareholders.

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