Buy Affle 3i Ltd. For the Target Rs.2,200 by Axis Securities Ltd
Mixed Performance; Strong Momentum to Continue
Est. Vs. Actual for Q2FY26: Revenue – MISS; EBIT margin – INLINE; PAT – INLINE
Change in Estimates YoY post Q2FY26:
FY26E/FY27E: Revenue: -1.2%/-1.1%; EBIT: 0%/0.6%, PAT: 0%/-1.5%
Recommendation Rationale
* Growth across Markets: In Q2FY26, India and Global Emerging Markets collectively contributed 73.9% to revenue, growing by 20% YoY, indicating strong regional demand. Developed markets registered a 16.8% YoY growth, contributing 26.1%, driven by deeper customer engagements.
* Patent Grant: The company received two new patents in the US, bringing its total IP portfolio to 16 patents. The new patents relate to a Method and System to Encode User Visibility Count to optimise ad exposure, and a Method and System for Hardware and Software-Based User Identification for Ad Fraud Detection.
* Acquisition plans: Affle is actively evaluating acquisition prospects and waiting for the right time, pricing, and fit, focusing on selective acquisitions that deliver long-term growth.
Sector Outlook:
Positive Company Outlook & Guidance: The management guided for a 20% sustainable growth given the small base relative to the large addressable market, as well as new dimensions of this market. The company is aiming to achieve 10x organic growth over the decade, with selective inorganic additions.
Current Valuation: 41x FY28E P/E (Earlier Valuation: 47x FY27E P/E)
Current TP: Rs 2,200/share (Earlier TP: Rs 2,020/share)
Recommendation: We maintain our BUY rating on the stock.
Financial Performance
Revenue reported at Rs 647 Cr, up 19.1% YoY and 4.2% QoQ, led by growth in the number of conversions across key categories. EBIT stood at Rs 114 Cr, up 29.6% YoY and QoQ despite higher inventory and data cost during the quarter. EBIT margin stood at 17.7% (+142bps YoY, - 66bps QoQ). Net Income grew by 20% YoY and 4.8% QoQ to Rs 111 Cr, driven by higher other income. The number of user conversions stood at 109 Mn at a CPCU rate of Rs 58, leading to CPCU revenue growth of 15% YoY.
Valuation & Recommendation
The management remains optimistic for sustainable growth in FY26, led by the CPCU model and deeper penetration across markets. We are constructive on the long-term outlook of the company. Hence, we continue to maintain our BUY rating on the stock and assign a 41x P/E multiple to its FY28E earnings to arrive at a TP of Rs 2,200/share, implying an upside of 16% from the CMP.
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SEBI Registration number is INZ000161633
