Affle India IPO opens; should you subscribe?

The company braved weak conditions to hit capital markets and received strong response from anchor investors. But, the question remains whether retail investors should subscribe the issue given the subdued market sentiment .

Also Affle India IPO at 39x price-to-earnings on FY19 consolidated earnings is fully priced, but given its leading position in ad tech market in India, proven international track record, unique business model, asset-light business model with debt-free status, and automated and scalable platform, which is well placed to tap opportunities present in the sector, all brokerages advised subscribing the issue.

"Looking at its high growth market with substantial barriers to entry, low-cost business model built on an asset light, automated and scalable business platform we are optimistic and investors may consider applying in the IPO offer for both listing as well as long term investment," Mehta Equities said.

Despite the highly competitive nature of the market, Affle has reported decent financials (PAT Rs 49 crore, return on equity 67.4 percent, debt to equity 0.1x - FY19 consolidated), Central Wealth said, adding being the first of its kind issue and growth prospects, despite mature valuations, investors can subscribe to the issue from a long term perspective.

Affle is a global profitable technology business company. It is a leading ad tech solutions provider in India, with an international presence (56.4 percent of FY19 consolidated revenue). Affle engages in two business segments. One is consumer platform, which accounted for 97 percent of FY19 consolidated revenue, that provides services like new customer conversions, retargeting existing consumers for e-commerce companies via relevant mobile advertising & an online-to-offline (O2O) platform.

Second is enterprise platform, which accounted for 3 percent of total revenue, that provides end-to-end solutions for enterprises to enhance their engagement with mobile users.

Affle has invested and developed its technological capability thus allowing its platform to accumulate consumer data points (over 300 billion in FY19) and detect real-time fraud (mFaaS) which gives it an edge over peers in a high-entry barrier market like India.

Affle has an asset-light model and continues to focus on inorganic growth that could provide an opportunity to expand customer base and cross-sell solutions. Going ahead, smartphone penetration, focus on Tier 2 & 3 Indian cities and international markets along with strong customer base (ad/media agencies and B2C brands – Amazon, Airtel, AirAsia, BookMyShow etc) are added triggers.

Here is what brokerages say about the issue:

Choice Broking

Considering the growth outlook coupled with dominant domestic market position and expected benefit from the operating leverage, we assign a subscribe rating for the issue.

Centrum Wealth

At higher end of the price band of Rs 745, the issue is priced at P/E of 38.9x (post dilution) on FY19 consolidated basis and 36.7x on proforma basis, which we believe is fully priced. The company has no listed peer. Affle has been building and improving its consumer platform resulting in products spanning the entire value chain. In addition, following the acquisition of Vizury, Shoffr and RevX, the service offerings have increased.

Affle could be a key beneficiary with the ad tech market expected to register global CAGR of 10 percent to $54 billion and India CAGR of 39 percent to $808 million over 2017-22 (Frost & Sullivan Report). Expansion of customer base and market penetration could aid volumes of Cost Per Converted User (CPCU). Being the first of its kind issue and growth prospects, despite mature valuations, investors can subscribe to the issue from a long term perspective.

Mehta Equities

We like Affle's unique business model with asset-light growth strategies and debt-free status. Considering Affle's presence in high-growth advertising market globally as well as India, we believe Affle is well placed in the mobile only advertising approach to tap the growth. It is globally well diversified clientele base in which nearly 70 percent of the revenue comes from global and the rest from domestic markets.

Affle works with all of the top six global advertising agency groups and with other top mobile focussed advertising agencies that acts as catalyst for business visibility going forward. On valuation parse at higher price band of Rs 745 per share Affle commands Rs 1,899 crore market cap with P/E of 37x on its FY19 earnings and higher Return on capital employed due to high growth business model which proposes a long term investment opportunity.

Looking at its high growth market with substantial barriers to entry, low-cost business model built on an asset light, automated and scalable business platform, we are optimistic. Investors may consider applying in the IPO for both listing as well as long-term investment.

SPA Securities

As transactions on mobile apps keep getting more traction and become mainstream, we believe that the demand for Affle's user acquisition and retention solutions to grow manifold. Asset-light model imparts immense potential for margin expansion and its presence across advertising value chain provides strong moat to the business model. Management's focus on profitability has created a combination of sustainable high growth, margins and cash flow generation.

We believe high sales growth and operating leverage to play out resulting in margin expansion which can result in sharp increase in profitability and improvement in ROE going ahead. However, execution of the same will remain a key investment risk. At the upper price band of Rs 745, the issue is priced at FY19 P/E of 38.9x. We recommend subscribe on the issue.

Hem Securities

The company is bringing the issue at P/E multiple of approximately 39 on post issue FY19 eps basis at higher end of price band of Rs 740-745/share. Company being in a lead position in India has a high-growth market with substantial barriers to entry. Also, company has proven international track record.

Company with its profitable, low-cost business model built on an asset light, automated and scalable platform is well placed to tap opportunities present in the sector. Hence we recommend subscribe on issue.

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