Q2FY24 Review: Tanla Platforms: All eyes on volumes in upcoming festive season

23 Oct 2023 , 12:32 PM

While Tanla’s 29% YoY PAT growth in Q2FY24 was better than estimates and FCF generation healthy, flattish QoQ organic enterprise revenue was a negative. The company attributed this to a high base (IPL in Q1) and adverse elasticity especially on promotional SMS volumes post NLD and ILD price increases. Tanla expects volume recovery in the upcoming festive season. Ramp-up of revenue from the world’s largest e-commerce player (recently on-boarded) and commercial deployment of Wisely ATP with leading banks (a bit pushed out due to delay in regulatory clearances) should help offset the loss from non-renewal of SMS firewall contract with Vi. While competitive intensity remains high, there have been no pricing disruptions in the past year. Analysts of IIFL Capital Services raise FY24/25/26 EPS by 5%/3%/2%. The stock trades at 24x 1YF PER. Their TP rises from Rs1166 to Rs1240 on EPS upgrade and roll-forward to Dec’24. 

Healthy Q2 performance: 

Tanla’s Q2 revenue growth of ~19% YoY was above analysts of IIFL Capital Services estimate of ~14%. On an organic basis, revenue grew 7% YoY. Organic enterprise revenue was flattish QoQ despite benefits from ILD price increase for the full quarter and NLD price increase for two months, due to decline in volumes. Inorganic revenue boost, higher gross margin and steady opex-to-revenue ratio boosted YoY PAT growth to 29%. While FCF generation was healthy, cash balance came down due to Rs3.7bn payout for ValueFirst India acquisition. 

Positive management commentary: 

Key takeaways from earnings call: 1) Volume decline post price increases as well as unwinding of IPL tailwinds, seen in the preceding quarter, led to flattish QoQ organic enterprise revenue.; 2) Promotional message volumes should pick up during festive season; 3) Acquisition of VF’s overseas business will be completed during Q3 and will contribute Rs650-700mn revenue per quarter (Q4 will be the first full quarter of integration); 4) Non-renewal of SMS firewall contract from Vi from Nov’23 (PAT hit already quantified at Rs90mn per Q) will be offset by healthy underlying momentum in the rest of the business.

Raise FY24/FY25/26 EPS by 5%/3%/2%: 

Competitive intensity in the industry will be keenly watched, especially with enterprise telcos stepping up their CPaaS presence and a more aggressive Route Mobile. The extent of volume impact post price hikes will also be clearer in festive season.