Buy Tanla Platforms; target of Rs 1440 HDFC Securities

HDFC Securities' research report on Tanla Platforms

Tanla's revenue growth of 10.7% QoQ was led by ValueFirst acquisition but the organic growth was flat. The enterprise business volume was impacted by a decline in promotional traffic but the platform revenue registered strong growth of 8.4% QoQ, led by OTT (WhatsApp). The NLD price hike (effective Aug-23) led to volume decline but is expected to normalise. The growth in Enterprise business will be driven by (1) growth in transactional SMS traffic, led by UPI and OTP; (2) NLD price hike; and (3) market share gains with ValueFirst acquisition. The platform segment growth will be powered by Wisely and Trubloq. Wisely anti-phishing product (ATP) is a promising product and is under POC with large private banks. The growth in ATP will offset the impact of Wisely Network (termination of the VI network deal). The EBITDA margin post the integration of the VF India business stood at 19.5%, while the low-margin VF Middle-East business will be integrated in Q4.

Outlook

The management has indicated that the target margin range is ~19%. We downgrade our EPS estimate by ~5/3% for FY24/25E. We maintain our BUY rating and assign a TP of INR 1,440, based on 23x Dec-25E EPS. The stock is trading at a P/E of 24/19x FY24/25E, RoE is ~31% and cash generation has improved.