Buy Affle India Ltd For Target Rs. INR 2,020 By Axis Securities Ltd
Mix Bag Performance; Strong Momentum to Continue Est. Vs. Actual for Q1FY26: Revenue - MISS; EBIT margin - BEAT; PAT – BEAT
Recommendation Rationale
• Growth across markets: In Q1FY26, India and Global Emerging Markets collectively contributed 72.3% to revenue, growing by 18.1% YoY, indicating strong regional demand. Developed markets registered a 23.3% YoY growth, contributing 27.7%, driven by deeper customer engagements.
• Patent Grant: The company received a 14th patent grant in India for a "Method and System to Detect Advertisement Fraud," enhancing fraud detection capabilities across connected devices.
• 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. In the long run, the company is aiming to achieve 10x organic growth over the decade, with selective inorganic additions. Current Valuation: 47x FY27E P/E Current TP: 2,020/share Recommendation: The company is well-positioned to capitalise on emerging opportunities due to focused tech investments, robust customer base, and deeper penetration across markets through category verticals. Hence, we resume our coverage with a BUY rating on the stock
Financial performance
In Q1FY26, the company reported the revenue of Rs 621 Cr vs Rs 520 Cr (Q1FY25), up 19.5% YoY and 3.1% QoQ, led by device additions and strong converted users, 17% YoY. EBIT stood at Rs 114 Cr vs Rs 85 Cr (Q1FY25), up 33.9% YoY and 6% QoQ, led by lower other expenses and higher topline growth. EBIT margins were at 18.5% (up 198 bps YoY and 51 bps QoQ). Thus, net income stood at Rs 105 Cr vs Rs 86 Cr (Q1FY25), up 22.5% YoY and 2.4% QoQ. The number of user conversions stood at 107 Mn at a CPCU rate of Rs 58, leading to CPCU revenue growth of 20% 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 resume over coverage with a BUY rating on the stock and assign a 47x P/E multiple to its FY27E earnings to arrive at a TP of Rs 2,020/share, implying an upside of 10% from the CMP.
Outlook
• From a long-term perspective, we believe Affle has strong device and client additions. The company also demonstrates superior penetration in the international business and holds significant revenue growth potential moving forward.
Key highlights
• India and Global Emerging Markets together accounted for 72.3% of the revenue, up 18.1% YoY, indicating strong regional demand. Developed markets registered a 23.3% YoY growth, contributing 27.7%, driven by deeper customer engagements.
• The company achieved a significant milestone by becoming an Apple-certified partner, resulting in better credibility and trust among advertisers globally.
• Affle received its 14th patent grant in India for a "Method and System to Detect Advertisement Fraud," enhancing fraud detection capabilities across connected devices.
• According to management, the R&D spending is likely to remain in line with no significant increase expected in the coming years.
• On a category-wise wise, G and E are witnessing growth while F and H continue to be resilient. However, some customers have been impacted due to macro uncertainty issues. However, at a broader level, the company is seeing broad-based growth and increasing its efforts in these particular categories.
• Indian markets continue to look attractive compared to international markets due to strong presence across vertical categories, direct customers' contribution, i.e 76% of revenue, and deeper integration of CPCU model with customers. • No major competition from large agencies or other players, like Trade Desk, due to the company’s direct advertiser engagement model and conversion-led platform.
• On the acquisition front, the company is actively evaluating businesses and waiting for the right time, pricing, and fit, emphasising more on selective acquisitions that will deliver long-term growth.
• Affle continues to be a consumer platform, with mobile being a dominant part due to increasing consumer time spent on devices and rising digital transactions. The company is integrated with platforms like Google and Meta to optimise campaigns across various channels.
• The company remains confident in sustaining the strong business momentum, supported by intact market tailwinds. The management guided for 20% sustainable revenue growth with 23% EBITDA margin, led by CPCU model, strong strategic moat, and deeper penetration in emerging markets through vertical categories. Aiming to achieve 10x decadal growth backed by organic growth and selective inorganic additions.
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