Q1FY24 Review: Tanla Platforms: Multiple legs to growth

24 Jul 2023 , 02:56 PM

Analysts of IIFL Capital Services upgrade Tanla’s EPS by 10-11% after a significant positive revenue surprise in Q1 (which also drove 35% YoY PAT growth) and improved revenue visibility. The revenue beat was led by ILD SMS volumes holding up better despite the price increase. They expect NLD SMS price increase wef 1st August to uplift enterprise revenue by ~10%. Recent win with the world’s largest e-commerce company, impending commercial closure of Wisely ATP platform deal starting with a private bank and boost from ValueFirst (VF) acquisition provide healthy near-term revenue visibility. There have been no pricing disruptions in the past year. The stock trades at 26x 1YF PER. Their Sept’24 TP based on 26x target PER is Rs1448.

Strong Q1 show: 

Tanla’s 14% YoY revenue growth was the highest in the last four quarters. 1Q FCF stood at Rs869mn, with a cash balance of Rs8bn. Enterprise revenue grew 12% YoY and analysts of IIFL Capital Services estimate that ~280bps of this was driven by rising traction in WhatsApp (up 170% YoY). The rest is largely due to ILD SMS price increase. Analysts of IIFL Capital Services estimate that WhatsApp’s contribution to enterprise revenue was ~4% in 1QFY24 vs. <2% a year back. Platform revenue growth accelerated to 29% due to Trubloq and Wisely.

Multiple growth tailwinds: 

Key takeaways from earnings call and Investor PPT: 1) NLD price increase will be applicable on non-PSU/nongovernment SMS volumes wef 1st August, 2023. 2) Post the recently signed contract, Tanla endeavours to handle 60-70% of the e-commerce company’s messages (both ILD and NLD) terminating in India. 3) For Wisely ATP, following a three-month regulatory sandbox with TRAI and PoC with three leading private banks, Tanla expects commercial deal closure with one of the banks to begin with. 4) VF acquisition enhances market share and accelerates international expansion.

Raise FY24/FY25 PAT by 11%/10%: 

Analysts of IIFL Capital Services raise FY24/25 revenue estimates by 8%/10% due to the multiple factors mentioned above. There is no change to their earlier assumption of consolidation of VF India from 2QFY24 and VF International from 3QFY24. FY24 should see a strong bounce-back at 35% EPS growth after a tough FY23 (16% EPS decline). Recent deals in the CPaaS space such as TCOM-Kaleyra and ProximusRoute indicate a potential shift towards CPaaS being offered as one of the solutions by enterprise telcos as opposed to a standalone service. The competitive intensity in the industry in light of this will be keenly watched.