scorecardresearchAffle India: Stock down 30% in 1 year but this brokerage sees a 46% upside

Affle India: Stock down 30% in 1 year but this brokerage sees a 46% upside

Updated: 19 Jan 2023, 02:29 PM IST
TL;DR.
Brokerage house Elara Capital expects internet stock Affle India to reach nearly 1,500 in the next 12 months. The brokerage has initiated coverage on the stock with a buy call and a target price of 1,490, implying a potential upside of 46 percent from the current market price of 1,017. This upside is seen on the back of the strong topline and EBITDA growth of the firm. Ad spend on eCommerce in India is set to reach 19,100 crore in CY27, which will be a key valuation trigger. The brokerage expects the firm to post a revenue CAGR of 34 percent over FY22-25E and converted users of the CPCU business to reach 46.8 crore by FY25E. In the September quarter, the company's PAT rose 39.6 percent YoY to 58.7 crore from 42 crore in the same quarter last year.
The brokerage has initiated coverage on the stock with a buy call and a target price at  <span class='webrupee'>₹</span>1,490, implying a potential upside of 46 percent from the current market price of  <span class='webrupee'>₹</span>1,017.

The brokerage has initiated coverage on the stock with a buy call and a target price at 1,490, implying a potential upside of 46 percent from the current market price of 1,017.

Brokerage house Elara Capital expects internet stock Affle India to reach nearly 1,500 in the next 12 months. The brokerage has initiated coverage on the stock with a buy call and a target price at 1,490, implying a potential upside of 46 percent from the current market price of 1,017.

This upside is seen on the back of the strong topline and EBITDA growth of the firm. also, rising data traffic, increased internet penetration and focus on fast-growing new-age companies, which spend heavily on digital advertising will also aid the stock.

Affle (India) Limited, together with its subsidiaries, provides mobile advertisement services through information technology and software development services for mobiles in India and internationally. It operates through theConsumer Platform and Enterprise Platform segments. The company provides reselling services of advertisement space for online publishing companies; and customized mobile app development services. It was incorporated in 1994 and is based in Gurugram, India.

Rationale

Advertising market: According to the brokerage, India’s advertising market, which includes traditional and digital ads, is likely to touch $14.9 billion by CY22, out of which 49 percent would comprise digital ads, posting a CAGR of 31.9 percent vs 17.8 percent globally; ad spend on eCommerce in India is set to reach 18,700 crore in CY25, noted Elara.

Affle India, which is present across the entire adtech value chain with a big focus on Emerging Markets (EM), is likely to post a smartphone user CAGR of 4.4 percent over CY22-28 vs 2.8 percent globally, highlighted the brokerage. Another trend is advertisers are spending more on digital platforms for building awareness in EM, which stands at an average share of 32 percent vs 64 percent globally, it added. Further Ad spend on eCommerce in India is set to reach 19,100 crore in CY27 and in digital ad growth, EM is set to outperform Developed Markets (DM) by 1.4x, driving consumption, which gives the firm a strong opportunity to benefit from, noted the brokerage.

As per the brokerage, Affle's focus on EM, high growth EFGH verticals (eCommerce, entertainment, foodtech, gaming and healthtech) and vernacular offerings would drive a revenue CAGR of 34 percent over FY22-25E, with revenue touching 10,000 crore by FY32E. The company currently derives 80 percent of its overall revenue from EM and over 90 percent revenue from EFGH, it mentioned.

eCommerce in India and SE Asia is set to post a CAGR of 16.7 percent and 14.6 percent over CY22-27, respectively, higher than 12.2 percent globally, which is a key valuation trigger, said Elara.

It also pointed out that Affle's proprietary optimization algorithms enable it to buy media efficiently and at a big scale, giving it the ability to drive a high volume of cost per converted user (CPCU)-led campaigns at efficient pricing. It has posted a CAGR of 59 percent over FY18-22 vs global peers at 26 percent and a net margin of 21.3 percent vs global peers’ 10.1 percent, showed the report.

The firm has an in-house database vs peers who outsource. Its strength lies in tech offerings and M&A which result in better conversion user rates than peers, and this provides a competitive edge, added the brokerage.

Valuation

The brokerage expects a revenue CAGR of 34 percent over FY22-25E, led by a booming digital ad market, higher consumption and healthy growth in converted users, as pricing would remain steady in the near term. It has compared Affle's growth rates with traditional domestic media and global ad tech firms to understand its near-term prospects.

It sees converted users of the CPCU business to reach 46.8 crore by FY25E and CPCU revenue to reach 1,518 crore by FY25E.

Risks

As per the brokerage, privacy regulations, including implementation of global as well as domestic digital protection bills, such as General Data Protection Regulation (GDPR), and India’s data protection bill; new-age companies cutting marketing spend and slow digital ad market growth in key emerging markets (EM) are key risks for the firm.

Stock price trend

The stock has lost nearly 30 percent in the last 1 year and is down 5 percent in January till date. This comes after a 14 percent fall in the previous month December 2022.

However, in the last 3 years, the stock has risen over 3 times. It has surged from around 330 to currently trade around 1017, giving over 205 percent returns to its investors.

Since its 52-week low of 871, hit in May 2022, the stock has advanced nearly 17 percent.

Article
Affle India stock price trend

Earnings

In the September quarter, the company's Profit After Tax (PAT) rose 39.6 percent year-on-year (YoY) to 58.7 crore from 42 crore in the same quarter last year.

Its consolidated revenue from operations during the quarter under review rose 29 percent to 354.6 crore, from 274.7 crore in Q2FY22. EBITDA stood at 72.3 crore, up 38.8 percent YoY.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

First Published: 19 Jan 2023, 02:29 PM IST