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Healthy operating performance…

Affle India’s (Affle) revenues increased 59.3% YoY (up 11.5% QoQ) to | 150.5 crore, mainly led by healthy growth in organic revenues (up 21% YoY) and inorganic revenues (at | 36 crore). EBITDA margins were down 340 bps YoY (flat QoQ) to 25.5%. PAT was up 42.9% YoY to | 30.6 crore due to a lower tax rate.

Improving organic revenues key positive

The company has seen a robust improvement in CPCU revenues (33% YoY in 9MFY21), which, we believe is mainly due to improvement in advertising budget and shift of spends towards mobile advertising. Affle is seeing significant improvement in CPCU revenue. It has gone to average of | 1.39 crore/day. In addition, we expect the robust growth in Q4FY21E revenues to continue with organic growth up 30% YoY, rest inorganic. Considering this organic revenue trajectory and acquisition we expect the company to register 49.8% YoY growth in revenues in FY21E.

Long term growth trend continues to be healthy

The Indian region is expected to increase at 30% CAGR in the next five years led by increasing smart phone penetration and rising online shoppers from (120 million to 450 million CAGR of 24% over next five years). The company expects healthy growth in geographies outside India over the next five years (which we believe could be 25-30%). In addition, Affle sees healthy traction in 10 verticals namely e-commerce, entertainment, ed tech, foodtech, fintech, FMCG, gaming, grocery, government, healthcare (that has increased from 76% in Q4FY20 to 90% in Q3FY21), which is expected to drive revenues, going forward. Further, Affle is planning to make further inroads into Europe, North America and South Korea. This coupled with the company’s focus to penetrate vernacular section of India, inorganic growth and significant shift among consumers to adopt digital technology globally prompt us to be positive on the company’s long term revenues. Hence, we expect 30% revenue growth in FY22E and FY23E.

Valuation & Outlook

Robust growth in the Indian region (30% CAGR over the next five years) led by higher online shopping and improved penetration in tier-2 & tier-3 cities of India is expected to drive topline. This coupled with geographic expansion and significant shift among consumers to adopt digital technology globally will drive long term revenues. In addition, the company’s unique business model, healthy PAT growth (CAGR of 40%) prompt us to remain positive on the stock. Hence, we maintain BUY recommendation on the stock with a target price of | 5100 (72x FY23E EPS) (earlier target price of | 3,525).

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