Tanla Solutions Ltd Management Discussions.

Company overview

Tanla offers high-end, dependable and quality consumer commercial communication services to enterprises. Commercial communications comprise Short Message Services (SMS), voice, push notifications, e-mails, WhatsApp and Rich Content Services (RCS). This segment, regulated by the Telecom Regulatory Authority of India (TRAI), has been growing at an annual rate of 25% over the past few years.

The growth in the number of users of mobile handsets and the migration to smartphones have resulted in significant growth in digitisation of services like banking, insurance and retail, and the rise of social media, resulting in the emergence of unsolicited commercial communication from these enterprises. To ensure data privacy of mobile users and to curb the menace of unsolicited messages, TRAI, in July 2018, has issued Telecom Commercial Communication Customer Preference Regulations stipulating blockchain technology to be used for developing platforms for transmitting commercial communications.

Tanla has proactively initiated its teams into the development of blockchain-enabled platforms and has successfully launched its platform on February 26, 2019 and targets to go live with various telecom operators.

Human capital

Human resources are vital for the growth and sustainability of information technology industry. Often encountered with a challenge of recruiting, training and retaining, the HR team conducts training programmes for people to groom them into subject matter experts.

Tanla is focusing on creating a talent pool trained in advanced technologies like Artificial Intelligence, Machine Learning and Big Data. The Company encourages talent and rewards performance. Towards this purpose, people are incentivised through employee stock option plans, employee share purchase scheme and spot recognitions & awards.

The total number of employees in Tanla Solutions & Subsidiaries as at March 31, 2019 was 130.

Corporate social responsibility

Tanla Solutions Limiteds CSR objective is to build safer, healthier and productive communities of young people, capable of supporting self-directed growth and citizenship by providing end-to-end community-based solutions.

The Company meticulously nurtures quality learning, health and hygiene, along with sustainable livelihoods for vulnerable communities of children and young people. To accomplish this purpose, it has adopted a community stakeholders-based approach, targeting children and young people at risk in schools and out of school conditions.

The following initiatives were undertaken by Tanla through Unitedway of Hyderabad to help improve the quality of education in schools and anganwadi centres during the year:

• Initiated a baseline survey in six villages (comprising 2,853 families and 9,905 people) on their socio-economic status, academic performance of students, enrolment in schools, attendance, role played by School Management Committees, water and sanitation, infrastructure related issues, among others

• Sports day was conducted in which 650 students participated from 10 primary schools and one high school in various sports events; the winners were awarded medals and prizes, among others

• Conducted career counselling sessions by India Literacy Project (ILP) for 8th, 9th and 10th standard students; 200 children benefited through the programme, reducing the number of students who had no clarity of future career prospects

• Conducted anganwadi teacher training and distributed Bodhaguru learning material (a play equipment for kids) that helps improve the childs physical, cognitive and emotional skills - 352 children benefited from 10 anganwadi centres

• Conducted health check-up for 1,000 children and 80% were identified as anaemic

• Regular school enrolment drives were conducted by the field team

• Conducted capacity-building programmes for School Management Committees

Financial review

The table below provides an overview of the consolidated revenue and gross margin for FY 2019:


FY 2019

FY 2018

Growth %
Rs. in Crore % of Revenue Rs. in Crore % of Revenue
Overseas 186.41 18.6 84.92 10.7 120
Domestic 817.55 81.4 706.69 89.3 16
Total Revenue 1,003.96 100.0 791.61 100.0 27
Direct Expenses
Cost of Services 860.66 85.7 695.47 87.9 24
Gross Margin 143.30 14.3 96.14 12.14 51


The Companys overseas revenue grew by 120% and domestic revenue expanded by 16%. The consolidated revenue increased by 27% year-on-year, of which Rs. 171 Crore (equivalent to 22%) is attributable to an increase in price per message in overseas and domestic markets and Rs. 41 Crore equivalent to 5% was achieved due to enhanced volumes.

Price per message increased due to a sudden dip in supply pursuant to closure of two of the largest telcos in the domestic market.

Cost of services

The Companys cost of services grew by 24% year-on- year, of which 16% was on account of an increase in cost per message, while 8% was on account of an increase in volumes.

The Compounded Annual Growth Rate (CAGR) in revenue over the preceding six years touched 49%.

Gross margin

The net impact of an increase in revenue and cost was an year-on-year growth in gross margin by 51%.

The Companys gross margin as a revenue percentage grew from 12.1% to 14.3%, a growth of 18.25% year-on- year.

Employee benefits expense

March 2019

March 2018

Particulars Rs. in Crore % of Revenue Rs. in Crore % of Revenue Increase / (Decrease) %
Salaries, Incentives and Allowances 15.88 1.5 11.71 1.5 35
Employee Stock Options Cost 0.51 0.1 0.76 0.1 -33
Employee Stock Purchase Scheme 4.61 0.5 - - -
Contributions to Provident Fund and Other Funds 0.95 0.1 0.62 0.1 55
Staff Welfare Expenses 1.00 0.1 1.09 0.1 -9
Total 22.95 2.3 14.18 1.8

Salaries, Incentives and Allowances grew by 35% year-on year, of which Rs. 3.39 Crore was a result of salary increments and Rs. 0.76 Crore was on account of payment of performance incentives.

Employees of Tanla and its subsidiaries were allotted shares under Tanla Employee Stock Option Plan (ESOP) 2015 and Tanla Employee Share Purchase Scheme (ESPS) 2018, at a cost of Rs. 5.12 Crore vis-a-vis Rs. 0.76 Crore in FY 2018, resulting in an overall increase in employee benefits expense by 62%.

Other operating expenses

March 2019

March 2018

Particulars Rs. in Crore % of Revenue Rs. in Crore % of Revenue Increase / (Decrease) %
Travel Expenses 2.62 0.3 2.57 0.3 1
Connectivity and Related Expenses 2.67 0.3 3.81 0.5 (29)
Advertisement and Promotion 2.97 0.3 0.95 0.1 213
Provision for Bad Debt 0.26 - (0.06) - -
Finance Cost 0.33 - - - -
Other Expenses 15.10 1.5 9.50 1.2 59
Total 23.95 2.4 16.77 2.1

Connectivity and Related Expenses decreased by 29% as bandwidth costs declined. The Companys Advertisement and Promotion Expenses increased by 213% on account of spends for Mobile World Congress event in Barcelona and the launch of Trubloq, Tanlas proprietary technology for blockchain-enabled platforms.

Provision for bad debt represents the expected credit loss on realisation of debtors as per Accounting Standard Ind-AS 109. Finance cost comprises the commission paid for bank guarantees for business, loan processing charges and interest on working capital and term loan @ 9.6% annually, availed from HDFC during FY 2019 to replace high-cost debt in Karix.

Break-up of Other Expenses

(Rs. in Crore)

Particulars March 2019 March 2018
Fees to advisors, legal consultants and bankers to acquisition 3.6 -
Exchange Fluctuation 2.2 0.3
Rent, Rates & Taxes 2.6 2.8
Repairs & Maintenance 1.3 1.1
Professional Charges 1.6 1.5
Other Admin Expenses 3.8 3.8
Total 15.1 9.5

Other expenses increased by 59% due to the cost incurred towards professional charges to advisors, legal consultants and investment bankers for advice on matters relating to deal structuring, legal and regulatory issues for the acquisition of Karix Mobile Private Ltd. and its wholly-owned subsidiary Unicel Technologies Pvt. Ltd. The deal was consummated in the first quarter of FY 2020.

Exchange fluctuation represents the cost incurred to conduct transactions in international currencies. Exchange fluctuation cost has increased due to the variations in exchange rates in international currencies between the date of recording of transaction and date of actual payment.


FY 2019

FY 2018

Particulars Rs. in Crore % of Revenue Rs. in Crore % of Revenue Increase / (Decrease) %
EBITDA 96.72 9.6 65.19 8.2 48
Depreciation 73.23 7.3 57.33 7.2 28
Other Income 10.61 1.1 4.76 0.6 123
Profit Before Tax 33.47 3.3 12.62 1.6 165
Tax Expense 3.65 0.4 (6.49) -0.8 156
Profit After Tax (PAT) 29.82 2.9 19.11 2.4 56


March 2019

March 2018

Particulars Rs. in Crore % of Revenue Rs. in Crore % of Revenue Increase/ (Decrease) %
Depreciation 73.23 7.3 57.33 7.2 28

Depreciation grew by Rs. 15.9 Crore, from Rs. 57.3 Crore to Rs. 73.2 Crore in FY 2019, a 28% growth and a result of the depreciation of assets, based on the reassessment of their useful life.

Depreciation is provided on a straight-line method, based on the useful life of the asset. Life of assets is assessed at the end of each financial year and assets whose useful life has expired are depreciated fully in line with the applicable Ind-AS Accounting Standard.

The Companys assets are assessed for impairment at the end of each financial year, where events or changes in circumstances reflect that the carrying amount of an asset or group of assets may not be recoverable. If such an indication exists, the Company estimates the recoverable amount of the asset or group of assets and the impairment loss is recognised in the Statement of Comprehensive Income.

Other income

Other income grew by 123% as a result of:

(a) planned investment of surplus cash in liquid mutual funds, yielding a return of 7% to 7.5% annually

(b) interest on Income Tax refund pursuant to the completion of pending assessments

Tax expense comprises of current tax and deferred tax.

Current tax is either regular tax computed in accordance with Income Tax or Minimum Alternate Tax (MAT). Currently MAT is calculated at a rate of 20.4% on profit as per Profit and Loss account drawn up in accordance with Companies Act 2013 and is payable when regular tax computed in accordance with Income Tax provisions is nil.

Deferred tax arises on account of timing differences in depreciation charge between Income Tax Act and Companies Act and is reversed in future periods.

For FY2019, Tanlas tax liability computed under MAT provisions increased by Rs. 2.5 Crore from Rs. 2.4 Crore in FY 2018 to Rs. 4.9 Crore in FY 2019.

Deferred tax liability for FY 2019 increased by Rs. 10.1 Crore against deferred tax asset of Rs. 7.2 Crore in FY 2018 resulting in a net deferred tax liability of Rs. 2.8 Crore.

The net effect of the above is disclosed under Tax expense in Statement of Profit and Loss.

Consolidated balance sheet

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
Equity and Liabilities
Shareholders Funds 725.54 687.65
Non-current Liabilities 47.20 0.20
Current Liabilities 334.13 246.14
Total 1,106.87 933.99
Property, Plant and Equipment 349.71 451.99
Other Non-current Assets 91.78 25.56
Trade Receivables 396.48 266.53
Cash and Bank Balances 228.79 165.44
Current Assets 40.11 24.47
Total 1,106.87 933.99

Share capital

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
200,000,000 equity shares of Rs. 1/- each (120,000,000 equity shares of Rs. 1/- each as on March 31, 2018) 20.00 12.00
Issued, Subscribed and Fully Paid-up
115,626,827 equity shares of Rs. 1/- each (112,421,952 equity shares as on March 31, 2018) 11.56 11.24

Tanla has one class of fully paid-up equity shares of Rs. 1/- each. As on March 31, 2018, the paid-up share capital was Rs. 112,421,952. During FY 2019, a total of 32,04,875 fully paid-up equity shares of Rs. 1/- each were allotted as follows:

Date of allotment Number of shares allotted Allotted to
December 27, 2018 3,00,000 Employee towards ESPS
March 7, 2019 63,750 Employee towards ESOPS
March 15, 2019 11,76,125 Employees towards ESPS
March 29, 2019 16,65,000 Promoters pursuant to the conversion of preferential warrants into equity
Total 32,04,875

As on March 31, 2019, paid-up share capital was Rs. 115,626,827.

Other equity

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
Capital Reserve 6.99 6.99
Investment Subsidy 0.04 0.04
Share Premium 476.13 464.86
General Reserve 25.48 25.48
Retained Earnings 111.46 85.70
Other Reserves 93.88 93.33
Total 713.98 676.41

Other equity comprises share premium, general reserve, retained earnings and other reserves. Total other equity increased by 5.5% in FY 2019, profit accumulation during the year resulted in an increase of Rs. 25.8 Crore in retained earnings, up 30% from Rs. 85.7 Crore in FY 2018 and increase of Rs. 11.3 Crore in share premium up from Rs. 464.9 Crore in FY 2018, on allotment of preferential warrants to promoters and ESOPs and ESPS to deserving employees.

Current and non-current liabilities

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
Trade Payables 299.47 237.50
Term Loan 59.88 -
Statutory Liabilities 12.43 2.15
Outstanding Expenses 4.65 4.29
Provision for Tax 4.90 2.40
Total 381.33 246.33

During FY 2019, trade payables increased by 26% due to increased business volumes resulting in creditor days stabilising at 127 days in FY 2019 compared to 125 days in FY 2018. In the acquisition of Karix and Unicel from GSO Capital Partners, a Blackstone Company, the Company assumed the debt of Karix amounting to Rs. 103 Crore, as part of the purchase consideration.

To reduce the interest burden of the high-cost term loan of Karix, Tanla substituted it with a term loan from HDFC Bank at a lower interest, resulting in an increase in current/non-current liabilities of Rs. 59.9 Crore. Tanla proposes to repay this term loan at the earliest from internal accruals.

Property, plant and equipment

(Rs. in Crore)

Particulars Gross block as at March 2019 Gross block as at March 2018 Accumulated depreciation as at March 31, 2019 Accumulated depreciation as at March 31, 2018 Net block as at March 2019 Net block as at March 2018
Office Building - Land 7.66 7.66 - - 7.66 7.66
Buildings 14.61 11.62 0.88 0.66 13.73 10.96
Leasehold Improvements 2.87 2.87 2.12 1.16 0.75 1.71
Furniture and Fixtures 3.02 2.79 2.23 1.91 0.79 0.88
Computers and Software 40.05 70.75 20.88 18.11 19.17 52.64
Platforms & Deployments 416.44 425.05 110.79 48.53 305.65 376.52
Office Equipment 2.26 1.31 1.03 0.73 1.23 0.58
Vehicles 0.55 1.74 0.15 1.34 0.40 0.40
Air conditioners 2.93 2.91 2.60 2.29 0.33 0.62
Total 490.39 526.70 140.68 74.73 349.71 451.99

During FY 2019, assets aggregating Rs. 30.7 Crore (comprising software platforms) were disposed as their useful life had expired. The management assesses that capex requirement during the foreseeable future is minimal.

Trade receivables

(Rs. in Crore)

Particulars March 2019 % of Revenue March 2018 % of Revenue
Trade Receivables 307.83 26.7 205.51 22.6

During FY 2019 credit period offered to customers stood at 97 days vis-a-vis 82 days in FY 2018, representing 18% year-on-year increase.

The Companys debtor days are calculated on outstanding debtors adjusted for taxes as a factor of revenues for the year. The revenues as per Profit & Loss Account do not include the Goods and Services Tax (GST) component, as this is an intermediate liability, to be collected from customers and paid to the government.

However, the GST component recoverable from the customers represents a part of the Companys trade receivables. This variation in accounting gives rise to a situation where ex-GST revenues are measured against cum-GST Trade Receivables resulting in an increase in debtor days. The debtor days mentioned above have been arrived at after adjustment of the GST effect on sales & debtors.

Trade receivables excludes un-billed revenue which is included under Other Current Assets.

Current and non-current assets

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
Cash and Cash Equivalents 228.78 165.44
Other Advances 80.73 12.49
Advance Income Tax and GST 32.48 23.02
Total 341.99 200.95

During FY 2019 Tanla has invested surplus funds in AAA rated liquid mutual funds, yielding an annual return of 7% to 7.5%. These funds were accumulated for the purpose of meeting working capital requirements and to meet the Companys inorganic growth roadmap.

Summarised cash flow statement

(Rs. in Crore)
Net Cash Provided by/(Used in) As at March 2019 As at March 2018
Operating Activities (30.42) 32.31
Investing Activities (53.71) (5.19)
Financing Activities 73.71 5.02
Net Increase/(Decrease) in Cash and Cash Equivalents (10.42) 32.14

The Companys cash and cash equivalents increased in FY 2019 vis-a-vis FY 2018 due to the inflow of Rs. 8.4 Crore towards the receipt of amount paid by promoters for subscription to warrants and conversion of share warrants to equity, and net cash generated from operations of Rs. 29.7 Crore, utilised for dividend payment of Rs. 3.3 Crore and purchase of assets of Rs. 2.6 Crore.

Cash and cash equivalents

(Rs. in Crore)

Particulars As at March 2019 As at March 2018
Current Accounts 74.65 54.17
Deposit Accounts 80.18 111.19
Investments in Liquid Funds 73.76 -
Total 228.59 165.36
Current Accounts
INR 59.68 41.01
USD 13.53 11.82
Others 1.44 1.34
Sub-total 74.65 54.17
Deposit Accounts
INR 77.85 109.01
USD 2.33 2.18
Sub-total 80.18 111.19
Investments in Liquid Funds
Axis Liquid Fund 20.20 -
HDFC Liquid Fund 10.02 -
ICICI Prudential Liquid Fund 10.02 -
Reliance Liquid Treasury Plan 33.52 -
Sub-total 73.76 -
Grand Total 228.59 165.36

Cash and cash equivalents increased by Rs. 63.2 Crore from Rs. 165.4 Crore to Rs. 228.6 Crore in FY 2019, a 38% year-on-year growth.

Cash and cash equivalents represent the balances held with various banks in current accounts and deposits and amounts invested in units of liquid mutual funds. Cash and cash equivalents are used in the business to fund working capital requirements as the Company has been debt-free since inception. Surplus funds are invested in mutual funds or bank deposits with average annual yields, ranging between 7% and 7.5% annually.


Tanla paid dividend consistently for a period of eight years from FY 2004 to FY 2011 and again from FY 2016. At Tanla, the goal is to reward shareholders by continuing to distribute steadily increasing profits as annual dividends.

For FY 2018, a final dividend of 30%, aggregating to Rs. 405.92 Lakh, inclusive of dividend distribution tax of Rs. 68.66 Lakh was paid.

Tanlas Board of Directors, at their meeting held on May 2, 2019, has recommended a final dividend of 35% which would result in a cash outflow of Rs. 606.55 Lakh inclusive of dividend distribution tax of Rs. 103.42 Lakh. This is subject to the approval of the shareholders at the ensuing Annual General Meeting.

Risk management

In business, risk management is defined as the process of identifying, monitoring and managing potential risks in order to minimise the negative impact they may have on an organisation. Examples of potential risks include security breaches, data loss, cyber attacks, system failures and natural disasters. An effective risk management process will help identify which risks pose the biggest threat to an organisation and provide guidelines for handling them.

Risk management process consists of three parts: risk assessment and analysis, risk evaluation, and risk treatment and response.

1. Risk assessment & analysis

The first step of the risk management process is risk assessment and analysis stage. A risk assessment evaluates an organisations exposure to uncertain events that could impact its day-today operations and estimates the damage those events could have on an organisations revenue and reputation.

2. Risk evaluation

After the completion of the risk assessment/ analysis, a comprehensive risk evaluation process takes place. A risk evaluation process compares estimated risks vis-a-vis risk criteria that the organisation has already institutionalised. The Companys risk criteria can include associated costs and benefits, socio-economic factors, legal requirements and system malfunctions.

3. Risk treatment and response

The last step in the risk management process is risk treatment and response. Risk treatment is the implementation of policies and procedures that will help avoid or minimise risks.

Risk management requires a deep insight into the organisations day-to-day operations, the market in which it operates, the legal, social, political and cultural environment in which it exists, as well as the development of a sound understanding of its strategic and operational objectives.

Over the years, the Company has evolved a resilient risk identification and mitigation process. It has helped it overcome business downtrends, economic slowdown and financial impact. An effective assessment and risk analysis has helped Tanla protect assets, improve decision-making and optimise operational efficiency across the board, thereby saving money, time and resources.

The risk management team at Tanla follows a governance structure to ensure that the management makes informed decisions on critical issues.

Recognising the kind of risks that the Company is/may be exposed to, the identified risks can be classified broadly into the following categories:

a) Business risk

• As agreements with clients and telecom partners are subject to periodic reviews, reduction in revenue share payable by telecom partners or change in the transaction cost may affect Tanla. Clients may shift to a partner with competitive cost advantage that may impact Tanlas business.

• Risks also exist in implementing and supporting aggregators. Mismanagement of these efforts may effectively lead to restricted growth and adversely impact operations.

• Concentration of clientele and a limited number of customers will require the Company to continue to nurture client/customer relationships and modify the terms to continue the relationships. This risk has been mitigated as newer inclusive business strategies to ensure harmonious relationships with the clients/customers and assured business growth have been developed. The dependence on existing clients is also reduced as we are focusing on diversifying the clientele base, expanding into newer markets and geographies and emerging as an enterprise cloud communications provider to safeguard against this threat.

• Constant change in client requirements for a cost-effective end-user engagement model by maintaining the quality of service in the form of stringent SLAs are resulting in the emergence of new-age engagement models, requiring constant technology upgradation and products. This may lead to project delays.

b) Compliance risk

• The Company operates in a dynamic and regulated industry, which requires the implementation of emerging technology, and tools to ensure compliance to changed regulations. This makes the existing technology obsolete and increases the capital expenditure. To mitigate this risk, our teams are constantly updated with new regulations and are equipped with adequate training to meet the emerging challenges.

• A statutory compliance calendar is in place to track applicable regulations, obligation arising out of it and corresponding action items that require to be adhered to ensure compliance. The calendar is monitored and regularly reviewed to ensure compliance.

• Non-renewal of agreements that expire while the services are being rendered/procured would impair the Companys ability to proceed legally in case of non-performance by the vendor/customer. A standard operating procedure describes the process for entering into an agreement and maintaining the agreement calendar.

c) Financial risk

• The Company operates with large volumes but lower margins, necessitating timely collections with nil bad debt. It has well-defined processes in place for ensuring timely collection of receivables. This process is regularly revisited to check for any corrective action required.

d) Operational risk

• The introduction of a new technology, along with emerging processes impacts the overall value chain of the business, leading to sub-optimal process efficiency. The Company has hired consultants to implement new processes, while existing employees are provided with necessary trainings to upskill them.

• The platforms operational efficiency depends on primarily three parameters: speed of delivery, uptime of platform and percentage of delivery. Non-achievement of agreed SLAs with regard to these attributes would be detrimental to customer engagement. Tanla constantly upgrades its system to achieve better-than-industry standards. The Company has deployed a robust technology that delivers 85% messages in less than 5 seconds and maintains a 99% platform uptime.

Internal control systems and adequacy

In addition to a strong internal control system to monitor its business processes, commensurate with the size of the operations and industry in which Tanla operates, Tanla has employed the services of a team from a Big4 Audit firm to enable verification and validation of every financial and accounting transaction that takes place in the organisation. This teams clearance is required for every transaction before it is entered in the accounting package and before any payment is released. The team ensures compliance with the applicable legal and financial statutes, thereby preventing losses, interest and penalties.

Tanla has drawn up Standard Operating Procedures for all business transactions with the support of KPMG in India to ensure compliance with industry best practices. KPMG in India, internal auditors for FY 2019, carried out quarterly internal audits and submitted reports to the Audit Committee for review and discussion. The Audit Committee and the Statutory Auditors, in their meetings with the internal auditors, have reviewed the reports and suggested corrective actions, which have since been implemented.

The auditors have also independently audited the internal financial controls on financial reporting as at March 31, 2019 and have opined that adequate controls over financial reporting exist and that such controls were operating effectively.