Buy Tanla Solutions Ltd For Target Rs.920 - Geojit Financial Services
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Tanla Platforms Ltd. is the largest Communication Platform as a Service (CPaaS) player in India. Tanla has two major business: Enterprise and Platform, both using blockchain technology to reduce spam and fraud activities and make it easy to integrate with enterprise applications.
• Tanla Platforms is the largest CPaaS player in India, with a market share of ~40% and handling 800 billion interactions annually.
• The CPaaS industry is expected to grow at a CAGR of 30% in FY20-2025E due to higher government regulation on messages and rise in mobile customer base.
• Tanla has a healthy balance sheet with an accumulated net cash of Rs 808 cr in FY22 and a debt-to-equity ratio of 0.03x as of FY23E .
• The drop in revenue witnessed in H1FY23 is likely to normalize in the coming quarters on the improvement in volumes from new clients on rising transactions from Wisely (New CPaaS Platform) along with an increase in realisation from existing customers and measures to improve margins by minimising currency volatility.
• Due to product price disruption, stock appears reasonable and currently trades at a PE of 17x on FY25E, which is less than its 5-year average (5 Yr Avg = 27x). We expect earnings to grow at a 21% CAGR during FY23–25E. Hence, we value Tanla at 19x FY25E with a target price of Rs. 920 per share and recommend a Buy rating.
Largest CPaaS player in India
Tanla Platforms is the largest CPaaS player in India, with a market share of ~40% and handling 800 billion interactions annually. Tanla Platforms has transitioned from an application-to-person (A2P) service provider to a full CPaaS provider through inorganic growth. Tanla’s strategy of acquiring Karix found success, considerably expanding Tanla’s CPaaS capabilities and driving enterprise business. Tanla provides services to large players in a variety of industries, including BFSI, E-Commerce, Healthcare, Travel, Social Media, and the Government of India.
Strong growth in CPaaS Industry drives revenue
Tanla is anticipated to continue its revenue growth on the back of robust demand for digital interactions across industries which is favourable for CPaaS players. CPaaS is forecasted to grow at a CAGR of 30% through FY20-2025E. Furthermore, the government regulation on preventing unsolicited messages (Spam) to comply with TRAI regulation, as well as the increase in mobile customer base, will benefit India's largest CPaaS player.
Strong growth from Platform business, Wisely
The management anticipates an increase in revenue from Platform business, including Trubloq and newly Wisely platform. Wisely is a cloud based, blockchain enabled platform, providing data privacy & security, trackability with lower latency and better scalability. The management expects to see gross margin of roughly Rs.100 cr in an annualized basis during FY23.
Healthy balance sheet
Tanla has a healthy balance sheet with an accumulated net cash of Rs 808 cr in FY22 and a debt-to-equity ratio of 0.03x during FY25E .
Operational headwinds to stabilize in FY23
The drop in revenue in H1FY23 is likely to normalize in coming quarters on improvement in volumes from new players (Vodafone Idea Ltd., Truecaller, and Kore.ai) and increase in realisation from existing customers. Additionally, switching billing to dollars would likely minimise the impact of currency volatility on earnings, leading to improvement in EBITDA margin in H2FY23.
Valuations & outlook
Due to operational headwinds, EBITDA margins squeezed in H1FY23, which is expected to improve during coming quarters by measures to minimising currency volatility in the earnings. On the view of a recovery in revenue and steady expansion of EBITDA margins, it is likely to show a boost in EPS during the period FY23–FY25E. Due to product price disruption, stock appears reasonable and currently trades at a PE of 17x on FY25E, which is less than its 5-year average (5 Yr Avg = 27x). We expect earnings to grow at a 21% CAGR during FY23–25E. Hence, we value Tanla at 19x FY25E with a target price of Rs. 920 per share and recommend a Buy rating.
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