Affle has an asset-light business model while its marketing efforts and more precisely targeted & personalised advertisements has bought in higher revenues while cost has remained relatively unchanged.
Affle India, which has already doubled investors’ money since 2019 when its IPO was launched, could turn out to be a big beneficiary in the post-COVID-19 world, suggest experts.
Affle is a technology platform that enables advertisers do targeted advertising. It listed on the stock exchange in August 2019. The company listed at a premium compared to its issue price of Rs 745 on August 8, 2019.
The outbreak of COVID-19 has disrupted businesses across sectors and geographies, in turn impacting the discretionary nature of marketing and advertising spends, but Affle India could brave the storm, suggest experts.
“Going forward, mobile advertising is expected to increase at a CAGR of ~35% in 2019-25. Further, in a post COVID world, we expect a significant shift among consumers to adopt digital technology across the world especially in India & other emerging markets,” ICICIdirect said in a note.
“Further, within verticals, we expect e-commerce to witness robust growth. It will be a key segment driving digital ad spend in the future. Affle generates ~75% of its revenues from India & Emerging markets,” it said.
ICICIdirect maintained its buy rating on Affle India with a 12-month target price of Rs 1,530 which translates into an upside of about 10 percent from the closing price of Rs 1,405 as on May 21.
The mobile advertisement has seen tremendous growth at 41 percent CAGR in 2016-19 led by rising smartphone penetration, low data tariffs, and young demographics.
In terms of valuations, Affle has an asset-light business model while its marketing efforts and more precisely targeted & personalised advertisements has bought in higher revenues while cost has remained relatively unchanged.
“This network effect has led the EBIT margins to improve from 1.9% in FY17 to 24.1% in FY19. Going forward, we expect the network effect to continue to impact revenues and profitability over a sustained period leading to a RoIC of more than 60% over a long period,” said the ICICIDirect report.
Another domestic brokerage firm, Sharekhan by BNP Paribas has a positive view on the stock and expects double-digit returns in the next 10-12 months.
The stock has corrected by around 63 percent from its peak during the past three months. “With an end-to-end offering plus focus on cost per converted user (CPCU) model and strong programmatic capabilities, Affle is well placed to derive benefits from higher mobile spends, shifting of advertisers to direct sourcing, and presence in fast-growing segments,” said the report.
“Strong balance sheet with superior return ratios along with robust cash flow conversion and a long runway for growth provides us comfort on its valuations. We stay positive on the stock and expect a 28-30% upside in the next 10-12 months,” it said.The outbreak of COVID-19 has been disrupting businesses across sectors. Though management sees short-term challenges in the light of nationwide lockdown (impacting e-commerce business in India) and exposure to impacted verticals such as travel and hospitality and geographies (Middle East) owing to COVID-19, it remains
confident in the revenue growth trajectory from a long-term perspective.
Affle has about 40 percent exposure to deeply troubled verticals (~10% of its total revenue from travel and hospitality) and temporarily impacted vertical (~30% from e-commerce), while it generates the remaining 60 percent of its revenue from fast-growing verticals (gaming, fintech, healthcare, etc).
Moneycontrol SWOT Analysis:
Based on Moneycontrol SWOT analysis, Affle India is a company with zero promoter pledge. The company has been showing an increase in revenues every quarter for the past 3 quarters.
It has low debt, and it has been showing an increase in profits every quarter for the past two quarters.
The technical rating of Affle India is also bullish.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Facebook-BCG report suggests these measures for businesses to unlock the changing consumer behaviour in the current pandemic. Read More!