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Developed market impacts Q2; outlook strong…

About the stock: Affle India (Affle) is a technology platform that enables advertisers to do targeted advertising.

* It helps advertisers to measure the effectiveness of advertisement as it charges only when a user downloads an app or completes a transaction

* As on FY22, 99.1% business comes from consumer platforms while the rest comes from enterprise platforms

Q2FY23 Results: Affle reported weak Q2FY23 revenue numbers.

* Revenue grew 2% QoQ. Converted users grew 4.5% QoQ

* EBITDA margin improved ~20 bps QoQ to 20%

* Realisation declined 2.1% QoQ

What should investors do? Affle’s share price has grown by ~6.6x since listing [from ~| 174 (adjusted for split) in August 2019 to ~| 1154 levels in November 2022].

* We maintain BUY rating on the stock

Target Price and Valuation: We value Affle at | 1,350 i.e. 47x P/E on FY25E EPS

Key triggers for future price performance:

* Key beneficiary of a shift of advertising budget to digital medium

* Six billion connected consumer devices to be added globally by 2025

* Significant increase in India’s digital user base from 525 million (mn) in FY20 to 902 mn by FY25E at 11.4% CAGR while mobile ad spend is expected to rise at 32.4% CAGR in the same period

* We expect 29.6% revenue growth in FY22-25E (organic & inorganic combined)

Alternate Stock Idea: Apart from Affle, in our IT coverage we also like Persistent

* Consistent growth aided by continued strong TCV and inorganic opportunities

* BUY with a target price of | 4370

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