Q3FY24 Review: Tanla Platforms: ILD decline to partly offset platform, non-SMS growth

25 Jan 2024 , 02:46 PM

Tanla’s Q3 was largely in-line with estimates. Underlying revenue growth of 5% YoY was muted on account of a decline in ILD SMS revenue as large tech players migrated to cheaper OTT channels such as WhatsApp. Platform business has been faring well, with Tanla signing its first commercial agreement on Wisely ATP with a bank. Management called out the bottom of ILD SMS revenue but analysts of IIFL Capital Services would wait for a quarter or two before analysts of IIFL Capital Services make an inference. Considering ILD SMS weakness, analysts of IIFL Capital Services cut FY25 and FY26 PAT by 7% each but they largely maintain FY24 est. The stock trades at 25x 1YF PER. Analysts of IIFL Capital Services trim their TP from Rs1,240 to Rs1,197 on EPS downgrade despite roll-forward to Mar’25. 

Inline Q3; growth in non-SMS channels but ILD declines: 

Tanla’s Q3 revenue/Ebitda/PAT grew 15%/27%/20% YoY. On an organic basis, revenue grew 5% YoY, with the ValueFirst (VF) acquisition contributing the rest. Tanla’s Q3 FCF was Rs640mn (Rs2.8bn for M9FY24). Its cash balance was Rs6.2bn as of end-Q3FY24. While Tanla’s platform revenue and enterprise revenue from non-SMS channels have been growing healthily off a low base, a sharp decline in ILD SMS revenue due to shift in volumes to non-SMS channels limited underlying revenue growth to single-digits. On the positive side, margins have held up well. 

Cautiously optimistic management commentary: 

Key takeaways from earnings call: 1) Tanla signed its first commercial agreement with a bank for Wisely ATP and expects Rs100mn annual PAT from every bank it manages to get on the platform; 2) price increase in ILD SMS led to decline in volume as large players shifted to WhatsApp or native RCS; 3) WhatsApp is likely to stop international A2P messages from March/April 2024 or raise prices, and ILD SMS volumes could subsequently come back; 4) Q3 WhatsApp revenue crossed Rs1bn and has seen an increase of 7x in last seven quarters. 

Cut EPS by 7% each for FY25/26: 

Analysts of IIFL Capital Services cut their revenue estimates by 5%/6%/6% for FY24/25/26 as price increase in ILD SMS has led to decline in volume and revenue. Analysts of IIFL Capital Services also build in revenue from VF’s overseas operations from Q1FY25 now vs. Q4FY24 earlier due to the delay in securing regulatory approvals. Consequently, Ebitda sees a 2%/7%/7% cut for FY24/25/26. Analysts of IIFL Capital Services new TP comes at Rs1,197.