Buy Tanla Platforms; target of Rs 1450: HDFC Securities

HDFC Securities' research report on Tanla Platforms

Tanla reported strong QoQ revenue growth of 9.3% (the best in the last seven quarters) in a seasonally weak quarter and the margin was stable at 20%. The growth in enterprise business was supported by a recovery in transactional volumes and ILD price hike. The platform revenue grew 7.9% QoQ, led by Wisely Network and OTT platform. The growth in Enterprise business will be driven by (1) a continued surge in transactional SMS traffic, led by UPI and OTP; (2) a price hike in NLD rates effective Q3; and (3) the acquisition of ValueFirst, which will lead to market share gains and pricing power. The platform segment growth will be powered by Wisely platforms. Wisely ATP (anti-phishing product) is a promising product, which has received Sandbox approval from TRAI and is under POC with large banks. Wisely Network and OTT (WhatsApp) have started yielding results, while Wisely Communicate (encrypted OTP) and Wisely Engage (performance marketing) are future drivers. The EBITDA margin which was impacted in Q1FY23 has returned to a normal level in Q1FY24. The ValueFirst integration in Q2FY24E will impact margins by ~150bps but cost synergies will lead to gradual margin expansion. We upgrade our EPS estimate by ~8% for FY24/25E to factor in the NLD price hike.

Outlook

We maintain our BUY rating and assign a TP of INR 1,450, based on 23x June-25E EPS. The stock is trading at a P/E of 26/21x FY24/25E.