India Equity Research | Information Technology © June 23, 2021 Visit Note Emkay Your success is our success Tanla Platforms Refer to important disclosures at the end of this report CMP Target Price Undisputed leader in domestic market; eying Rs 838 NA as of (June 23, 2021) 12 months global expansion with ‘one platform’ strategy Rating Upside
NOT RATED -
We attended Tanla Platforms’ investor and analyst meet in which it gave insights about Stock Details growth plans, industry landscape, international expansion and ‘one platform’ strategy. Bloomberg Code TANLA IN The highlights of the meet: Face Value (Rs) 1 Strong industry tailwinds: CPaaS industry in India is expected to grow 3.5x over 2020-23, Shares outstanding (mn) 136 from ~$320mn in 2020 to ~$1.1bn in 2023. Global CPaaS market is expected to reach ~$47bn by 2023. The addressable market is evolving as enterprises and CPaaS players continuously 52 Week H/L 1,030/65 innovate, broaden their offerings, acquire new capabilities through M&A, and create new use M Cap (Rs bn/USD bn) 113/1.5 cases. Further, the Covid-19 crisis has led to the digitization of activities like commerce and Daily Avg Volume (nos.) 256,669 business transactions, resulting in a surge in demand for CPaaS. Daily Avg Turnover (US$ mn) 3 Undisputed leader in Indian enterprise messaging market: Tanla (Karix) is the undisputed leader in the Indian enterprise messaging market with over 30% market share. The next three Shareholding Pattern Mar '21 competitors have a combined market share below 30%. Tanla serves ~1,300 enterprise Promoters 41% clients in India and at least 6 out of 10 customers across major industries (BFSI, e-commerce, FIIs 12% retail, social media, DTH, Pharma, government, etc.). The company derives 60% of its DIIs 0% revenues from Top-50 customers. It added 250+ new customers in FY21 and has executed its land and expand strategy very well by ensuring growth from existing deployments, cross- Public and Others 47%
selling of new products and upselling of products. Price Performance Adopting ‘one platform’ approach for global ambition: The company has adopted ‘one (%) 1M 3M 6M 12M platform’ approach, under which the capabilities of Karix, Gamooga and Trubloq will be Absolute -4 -4 32 1,076 integrated with recently launched Wisely platform for international expansion. Tanla believes that the encryption capabilities of Wisely platform will be the key differentiator as enterprises Rel. to Nifty -7 -9 17 697 are looking for more secure means of communication. The Wisely platform is developed on Relative price chart
Microsoft Azure. The company has so far on-boarded clients such as HDFC Bank, Union 1025 Rs %920.0 Bank of India, Axis Bank and Free Charge on the Wisely platform. 832 734.0 Trubloq – DLT/GRC platform - adds highly profitable new revenue stream and stickier relationship with telcos: Trubloq, Tanla's blockchain-based stack, is built to solve the 639 548.0 unsolicited commercial communication in accordance with the TRAI Telecom Commercial 446 362.0
Communications Customer Preference Regulation (TCCCPR). The SMS and OTPs, when 253 176.0 sent by enterprises, are checked against the templates pre-registered by them on this 60 -10.0 blockchain platform. Tanla has on-boarded 33,710 enterprises, processed over 200bn Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 transactions since its commercial launch in Sept’20 and enjoys 62% market share. Recently, Tanla Platforms (LHS) Rel to Nifty (RHS) Tanla partnered with Etisalat and Du to implement a new regulation on mobile spam policy in Source: Bloomberg the UAE. Outlook and valuation: We remain positive on the CPaaS space and medium-term growth outlook of Tanla, considering growing needs of digital communications, expanding product offerings, scope of margin expansion with product mix change and operating leverage, and healthy cash generation (negative working capital cycle and low capital intensity). We have coverage on Route Mobile (Buy; TP - Rs1,820) while do not have active coverage on Tanla.
Please see our sector model portfolio (Emkay Alpha Portfolio): Information Technology (page 8)
Financial Snapshot (Consolidated) (Rs mn) FY17 FY18 FY19 FY20 FY21 Net Sales 5,793 7,916 10,040 19,428 23,415 EBITDA 561 652 967 1,850 4,335 This report is solely produced by Emkay Global. The EBITDA Margin (%) 9.7 8.2 9.6 9.5 18.5 following person(s) are responsible for the production of the recommendation:
APAT 409 191 298 -2,112 3,561 Dipesh Mehta EPS (Rs) 4.0 1.7 2.6 -14.8 25.3 [email protected] EPS (% chg) 456.9 -57.6 51.8 NM NM +91 22 6612 1253 ROE (%) 6.2 2.8 4.2 -29.6 44.7 Monit Vyas P/E (x) 209.0 492.9 324.8 -56.7 33.2 [email protected] EV/EBITDA (x) 200.8 172.3 116.1 60.5 25.0 +91 22 6624 2434 P/BV (x) 17.4 16.6 15.7 16.2 12.8 Source: Company, Emkay Research
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Acquired Karix Mobile and Gamooga to strengthen enterprise cloud communication capabilities: Tanla has acquired Karix Mobile and its wholly owned subsidiary Unicel from GSO Capital Partners (Blackstone company) at an enterprise value of Rs3.4bn. Tanla paid GSO a cash payment of Rs1.12bn, issued equity shares worth Rs1.25bn (21.99mn shares at a price of Rs56.79/share), and also assumed Rs1.03bn of debt. Karix Mobile is a leading business cloud communications provider with reach to over 1,500 enterprise clients across various industries like BFSI, DTH, Government, Auto, Retail & FMCG and e-commerce. It also acquired Gamooga for total consideration of Rs485mn – cash outgo of Rs315mn and issuance of equity shares worth Rs170mn (2.12mn equity shares at a price of Rs80/share). Gamooga is a big data and AI- driven omni-channel marketing automation platform which enables businesses to personally engage with their users across channels such as email, SMS, voice, website, apps and others. Strengthening corporate governance: Tanla has appointed MSKA & Associates as statutory auditors, effective Sept 30, 2019, and Deloitte, Haskins & Sells as internal auditor. It has also reconstituted its board and added industry experts from telecom, technology, finance and legal background. The board consists of 4 independent directors, 2 non-executive directors and 2 executive directors. In the last 2 years, it appointed Ms Amrita Gangotra – Vodafone/Bharti/HCL; Mr Rohit Bhasin – PwC/Standard Chartered/AIG; Mr Sanjay Kapoor – Bharti/Micromax; Mr Sanjay Baweja – Bharti/Emmar MGF/Flipkart/Tata Communications; Mr Rahul Khanna – Habrok Capital/Fidelity/Aditya Birla Sunlife Asset Management; and Mr Deepak Goyal – Karix/Tulip Telecom/Wyse Technology to strengthen the board and guide the company in its future growth roadmap. Other KTAs: 1) Management remains confident of sustaining the current EBITDAM (~20%); 2) the company will pursue M&A opportunity only if it fits with its strategy; 3) the platform business operates at much higher gross margins (>85%).
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Story in Charts
Exhibit 1: Revenue growth has been robust since FY16, partly aided by acquisitions 93.5% 25,000 100.0% 22,000 78.0% 80.0% 19,000 16,000 60.0% 13,000 34.2% 36.6% 10,000 26.8% 40.0% 20.5% 7,000 20.0% 4,000 4,316 5,793 7,916 10,040 19,428 23,415 1,000 0.0% FY16 FY17 FY18 FY19 FY20 FY21
Revenues (Rs mn) YoY growth
Source: Company, Emkay Research
Exhibit 2: GPM and EBITM have expanded sharply in the past few quarters on account of growing share of platform business
40.0% 27.3% 23.1% 23.0% 24.6% 30.0% 19.4% 20.2% 19.3% 21.4% 20.0% 10.0% 18.0% 19.2% 13.9% 15.0% 0.0% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 -10.0% -1.3% -4.9% -20.0% -7.8% -30.0% -40.0% -31.0%
GPM (%) EBITM (%)
Source: Company, Emkay Research
Exhibit 3: The company’s ‘land and expand’ strategy has yielded desired results
Source: Company, Emkay Research; Note: Represents revenue from our active customers grouped by cohorts based on the year when each customer account cohort originated. Cohorts of 16-17 also includes customers acquired during prior periods Customer data complied also includes customers of Karix and Gamooga for pre-acquisition period
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Exhibit 4: Platform business gross margin contribution increased to 24% in FY21
7000 5,777 6000 5000 3,911 48% CAGR 1377 4000 766 3000 2000 4400 3145 1000 0 FY20 FY21
Enterprise business Platform business
Source: Company, Emkay Research
Exhibit 5: Client buckets have seen improvement over FY18
120 105 100 83 80 60 40 32 15 20 12 3 0 >Rs10mn -
FY18 FY21
Source: Company, Emkay Research
Exhibit 6: Wisely platform – Use case-driven solutions
Source: Company, Emkay Research
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Company Profile
Tanla is a leading cloud communications provider enabling businesses to communicate with their customers, stakeholders and intended recipients. Tanla processes more than 800bn interactions annually and about 62% of India’s A2P SMS traffic is processed through its distributed ledger platform – Trubloq, a blockchain-based solution aimed at filtering spam SMSs. Its cloud-based platforms provide ease of connectivity to enterprises and aggregators with a plug-and-play approach that shrinks delivery times of their end-user communications and continues to provide quality of services. The company derives its revenues from two main sources - platforms and enterprises. Its platforms are deployed with all major telecom operators in India, providing it access to the entire subscriber base of the operators. It serves enterprise customers spread across a diverse spectrum of businesses, including but not limited to BFSI, social media, e-commerce, government sector and aggregators based on multi-year contracts with an automatic renewal clause, unless specified otherwise. Tanla recently acquired Karix, the market leader in the Indian CPaaS space, and marketing automation company Gamooga to expand its bouquet of services. The company launched Wisely in Jan’21, a CPaaS platform offering a digital marketplace for enterprises and suppliers, with global edge-to-edge network, delivering private, secure and trusted experience. Since its launch, Wisely has processed 7.9bn transactions.
Exhibit 7: Relative valuation summary
Year- P/E P/S EV/EBITDA EV/Sales Company end 1FY 2FY 3FY 1FY 2FY 3FY 1FY 2FY 3FY 1FY 2FY 3FY TWILIO INC - A 12/2020 -2,217.5 2,385.5 391.7 26.0 19.9 15.1 281.5 200.9 132.4 24.3 18.6 14.2 BANDWIDTH INC-CLASS A 12/2020 244.4 180.8 105.9 7.1 5.9 5.1 90.5 80.2 64.7 7.4 6.2 5.3 SINCH AB 12/2020 107.0 56.9 45.6 6.9 4.9 4.3 75.2 37.9 30.5 6.7 4.8 4.2 CM.COM 12/2020 -86.8 -188.0 137.2 4.2 3.1 2.4 NA 123.2 52.2 4.0 3.0 2.3 KALEYRA INC 12/2020 -49.5 19.5 24.5 1.6 1.0 0.8 29.2 9.6 7.7 1.6 1.0 0.8 RINGCENTRAL INC-CLASS A 12/2020 228.6 177.4 130.4 17.9 14.5 11.7 125.4 107.2 78.8 18.6 15.0 12.1 FIVE9 INC 12/2020 186.3 136.7 96.1 22.6 19.1 16.0 140.0 105.8 78.7 23.0 19.4 16.3 8X8 INC 03/2021 473.1 119.0 43.2 4.9 4.2 3.5 154.5 64.4 37.2 5.3 4.5 3.8 VONAGE HOLDINGS CORP 12/2020 62.2 47.0 32.9 2.8 2.6 2.2 22.3 20.2 16.6 3.2 2.9 2.5 VERINT SYSTEMS INC 01/2021 17.2 14.9 12.8 3.4 3.2 2.9 16.3 14.4 12.6 4.4 4.2 3.8 LINK MOBILITY GROUP HOLDING 12/2020 84.3 38.4 25.2 2.1 1.8 1.5 25.1 18.1 14.5 2.4 2.0 1.7 ROUTE MOBILE LTD 03/2021 52.1 39.3 33.3 5.5 4.3 3.8 38.8 29.7 25.3 5.2 4.1 3.6 TANLA PLATFORMS LTD 03/2021 28.0 22.7 NA 4.0 3.3 NA 19.6 16.4 NA 3.8 3.2 NA
Median 62.2 47.0 44.4 4.9 4.2 3.7 57.0 37.9 33.9 5.2 4.2 3.8 Source: Bloomberg, Emkay Research
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Key Financials (Consolidated) Income Statement Y/E Mar (Rs mn) FY17 FY18 FY19 FY20 FY21 Net Sales 5,793 7,916 10,040 19,428 23,415 Expenditure 5,232 7,264 9,072 17,578 19,080 EBITDA 561 652 967 1,850 4,335 Depreciation 196 573 732 3,778 396 EBIT 365 79 235 -1,928 3,939 Other Income 25 48 106 124 219 Interest expenses 3 64 11 PBT 390 126 338 -1,868 4,147 Tax -19 -65 37 -261 586 Extraordinary Items -0 22 57 -448 - Minority Int. /Income from Assoc. - - - - - Reported Net Income 409 191 298 -2,112 3,561 Adjusted PAT 409 191 298 -2,112 3,561
Balance Sheet Y/E Mar (Rs mn) FY17 FY18 FY19 FY20 FY21 Equity share capital 107 112 116 146 136 Reserves & surplus 6,456 6,764 7,140 6,871 8,795 Net worth 6,563 6,876 7,255 7,017 8,931 Minority Interest - - - - - Loan Funds - - 599 54 43 Net deferred tax liability -69 -145 -168 -567 -428 Total Liabilities 6,494 6,731 7,686 6,504 8,546 Net block 4,907 4,520 3,555 2,707 2,633 Investment - - 755 - - Current Assets 2,933 4,675 6,591 8,723 13,065 Cash & bank balance 1,333 1,654 1,550 2,006 5,841 Other Current Assets 1,600 3,020 5,041 6,717 7,223 Current liabilities & Provision 1,346 2,463 3,215 4,926 7,152 Net current assets 1,587 2,211 3,377 3,797 5,913 Misc. exp - - - - - Total Assets 6,494 6,731 7,686 6,504 8,546
Cash Flow Y/E Mar (Rs mn) FY17 FY18 FY19 FY20 FY21 Opening Cash 509 1,333 1,654 1,550 2,006 Net Cash from Operations 716 323 -304 2,392 5,610 Net Cash Used in Investing -46 -52 -537 -1,263 -98 Net Cash Used in Financing 154 50 737 -673 -1,677 Net Inc/(Dec) in Cash 824 321 -104 456 3,836 Closing Cash 1,333 1,654 1,550 2,006 5,841 Source: Company, Emkay Research
Key Ratios Profitability (%) FY17 FY18 FY19 FY20 FY21 EBITDA Margin 9.7 8.2 9.6 9.5 18.5 EBIT Margin 6.3 1.0 2.3 -9.9 16.8 Effective Tax Rate -0.0 -0.5 0.1 0.1 14.1 Net Margin 7.1 2.4 3.0 -10.9 15.2 ROCE 5.6 1.2 3.3 -27.2 52.3 ROE 6.2 2.8 4.2 -29.6 44.7 RoIC 9.8 1.2 3.5 -29.8 53.8
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Per Share Data (Rs) FY17 FY18 FY19 FY20 FY21 EPS 4.0 1.7 2.6 -14.8 25.3 CEPS 4.4 5.6 7.6 12.3 29.1 BVPS 48.3 50.6 53.3 51.6 65.7 DPS 0.3 0.3 0.4 0.0 1.0
Valuations (x) FY17 FY18 FY19 FY20 FY21 PER 209.0 492.9 324.8 -56.7 33.2 P/CEPS 188.4 149.1 110.6 68.4 28.8 P/BV 17.4 16.6 15.7 16.2 12.8 EV / Sales 19.4 14.2 11.2 5.8 4.6 EV / EBITDA 200.8 172.3 116.1 60.5 25.0 Dividend Yield (%) 0.0 0.0 0.0 0.0 0.1
Gearing Ratio (x) FY17 FY18 FY19 FY20 FY21 Net Debt/ Equity -0.2 -0.2 -0.2 -0.3 -0.6 Net Debt/EBIDTA -2.4 -2.5 -1.8 -1.1 -1.3 Working Cap Cycle (days) 16.0 25.7 66.4 33.7 1.1
Growth (%) FY17 FY18 FY19 FY20 FY21 Revenue 34.2 36.6 26.8 93.5 20.5 EBITDA -14.4 16.2 48.4 91.3 134.3 EBIT 189.9 -78.5 198.9 NM NM PAT 465.3 -53.3 56.1 NM NM
Quarterly (Rs mn) Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Revenue 5,221 4,556 5,833 6,541 6,486 EBITDA 586 750 975 1,269 1,340 EBITDA Margin (%) 11.2 16.5 16.7 19.4 20.7 PAT -891 786 815 935 1,025 EPS (Rs) -6.1 5.2 5.9 6.9 7.5 Source: Company, Emkay Research
Shareholding Pattern (%) Jun-20 Jul-20 Sep-20 Dec-20 Mar-21 Promoters 35.2 39.6 39.9 41.2 41.2 FIIs 0.1 0.1 0.1 11.1 11.8 DIIs 14.5 16.3 16.2 0.1 0.0 Public and Others 50.3 44.1 43.7 47.7 47.0 Source: Capitaline
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Emkay Alpha Portfolio – Information Technology
EAP sector portfolio BSE200 EAP OW/UW OW/UW EAP Weight Company Name Weight Weight (%) (bps) (Normalised) Information Technology 13.30 13.05 -2% -25 100.00 BirlaSoft 0.00 0.08 NA 8 0.57 Coforge 0.00 0.00 NA 0 0.00 eClerx Services* 0.00 0.00 NA 0 0.00 Firstsource Solutions 0.00 0.07 NA 7 0.55 HCL Tech 1.18 1.28 8% 9 9.59 Infosys 6.14 6.30 2% 15 47.34 Intellect Design* 0.00 0.00 NA 0 0.00 L&T Infotech 0.19 0.00 -100% -19 0.00 Majesco* 0.00 0.00 NA 0 0.00 Mindtree 0.12 0.00 -100% -12 0.00 Mphasis 0.18 0.08 -58% -11 0.59 MPS* 0.00 0.00 NA 0 0.00 NIIT* 0.00 0.00 NA 0 0.00 Analyst: Dipesh Mehta Nucleus Software* 0.00 0.00 NA 0 0.00 Contact Details Oracle Financial Services* 0.09 0.00 -100% -9 0.00 [email protected] Persistent Systems 0.00 0.45 NA 45 3.35 +91 22 6612 1253 Ramco Systems* 0.00 0.00 NA 0 0.00 Sector TCS 3.79 3.49 -8% -31 26.20 IT Services, ITeS and Software Tech Mahindra 0.73 0.74 2% 1 5.55 Wipro 0.88 0.58 -34% -30 4.38 Analyst bio Cash 0.00 0.25 NA 25 1.88 Dipesh is a seasoned Equities Source: Emkay Research professional who has covered Technology sector for over 15 years. * Not under coverage: Equal Weight Dipesh has completed his B.E. in High Conviction/Strong Over Weight High Conviction/Strong Under Weight Information Technology from Sardar Sector portfolio NAV Patel University and MMS in Finance Base Latest from Mumbai University. 1-Apr-19 22-Jun-20 21-Dec-20 22-Mar-21 21-May-21 22-Jun-21
EAP - Information Technology 100.0 96.0 154.0 177.8 179.1 197.0 BSE200 Neutral Weighted Portfolio (ETF) 100.0 94.0 146.3 167.3 167.1 183.7 *Performance measurement base date 1st April 2019 Source: Emkay Research Price Performance (%)
1m 3m 6m 12m EAP - Information Technology 10.0% 10.8% 27.9% 105.3% BSE200 Neutral Weighted Portfolio (ETF) 9.9% 9.8% 25.6% 95.3% Source: Emkay Research
NAV chart NAV 200 174 148 122 96 70 Apr-19 Jul-19 Oct-19 Jan-20 May-20 Aug-20 Nov-20 Mar-21 Jun-21 EAP - Information Technology BSE200 Neutral Weighted Portfolio (ETF) Source: Emkay Research Please see our model portfolio (Emkay Alpha Portfolio): Nifty Please see our model portfolio (Emkay Alpha Portfolio): SMID “Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha Portfolios Report and is updated on regular intervals”
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Emkay Rating Distribution Ratings Expected Return within the next 12-18 months. BUY Over 15% HOLD Between -5% to 15% SELL Below -5%
Completed Date: 24 Jun 2021 01:50:17 (SGT) Dissemination Date: 24 Jun 2021 01:51:17 (SGT)
Sources for all charts and tables are Emkay Research unless otherwise specified.
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1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of June 23, 2021 2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report Disclosure of previous investment recommendation produced: 3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months. 4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of June 23, 2021. 5. EGFSL, its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the June 23, 2021 6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months. 7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection with the research report. 8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the June 23, 2021
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