Shares of Affle India rallied 10 percent intraday on November 11 after Japanese brokerage firm Nomura had initiated coverage with a buy rating on the stock and the target price at Rs 1,900, implying 36 percent potential upside from current levels.
The stock more-than-doubled already from its issue price of Rs 745 since the August listing. It was quoting at Rs 1,519.20, up Rs 121.35, or 8.68 percent, on the BSE at 13:48 hours IST.
"We initiate with a buy on Affle, a leading digital AdTech player in India. We think the underlying macro is attractive in Affle's key markets (India & SEA), where a large internet user base, rising smartphone sales, improving data connectivity and young demographics augur well for the shift to digital," the brokerage said.
Digital advertising spends are expected to grow faster at 32 percent and 18 percent CAGR in India, and SEA against 15 percent globally over FY18-21E. Despite this, the penetration is expected to remain low at 25-30 percent by FY20/21E against 54 percent globally, thereby offering a long runway for growth, it added.
It further said, as advertisers shifted to direct sourcing, ad tech vendors could retain a higher share of digital ad spends, implying faster growth for ad tech vendors.
In FY19, Affle generated 75 percent of revenue from India/EM and 55 percent from ecommerce, where digital adoption is high (34 percent of overall ad spends versus 17 percent average in India).
Affle India reported a whopping 50 percent increase year-on-year (YoY) in profit at Rs 15.5 crore during July-September and 40 percent growth in revenue in Q2. The earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 42 percent and margin expanded 1,030bps YoY.
Affle's 28 percent EBITDA margin despite operating in India, a fragmented market with low CPCU rates, presents a case for global expansion (53 percent revenue outside India), said Nomura which forecast revenue/EPS CAGRs of 34/39 percent over FY19-22F and valued Affle at 35x FY22F EPS (20 percent premium to the global peer average) to set target of Rs 1,900.
The management remained optimistic as Anuj Khanna Sohum, CMD and CEO,. told CNBC-TV18 that the second half of FY20 was expected to be better than the first.
"The company is consistently investing in the growth areas. We have increased our investment in technology. We expect bottomline efficiency to kick in going ahead," he said.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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