After losing over half of its investor wealth just in 2022, Yes Securities expect this stock to jump 60 percent going ahead. This stock is Tanla Platforms.
The brokerage has a 'buy' call on the stock with a target price of ₹1,218 per share, implying a potential upside of 61 percent. In the last 1 year, the stock has lost over 20 percent, while it has tanked 59 percent in 2022 so far.
It has given negative returns in all months of 2022, except August till date. The scrip shed over 30 percent in July on the back of weak earnings. However, it has gained over 8 percent in the 4 sessions of August.
Despite the massive correction recently, the stock has been a long-time favourite for long-term investors giving nearly 1,500 percent returns in the last 5 years.
Earnings
In the June quarter, the firm reported a sharp fall in its bottom line figures on a sequential as well as YoY basis.
Its profit after tax fell 28.6 percent QoQ to ₹100.4 crore in the June quarter, while on a YoY basis, it dropped 3.9 percent. Its revenue increased 28 percent YoY to ₹800 crore in the quarter under review but fell 6.18 percent QoQ. The YoY growth was led by a rise in volumes in domestic business and faster growth in OTT channels. Its margin also contracted to 16.3 percent from 21.5 percent.
The EBITDA margin was impacted by operational headwinds such as market disruption, modernization of the company’s legacy systems and foreign currency impact of Euro depreciation, the firm said.
Hyderabad-based Tanla provides value-added services in the cloud communications space.
“Q1 had some operational headwinds in the Enterprise business, but we have our building blocks in place to accelerate our momentum in the coming quarters. We have a strong balance sheet and are excited by the opportunities ahead of us,” Uday Reddy, founder chairman and CEO had said commenting on the performance.
Reddy added that the operational headwinds in Q1 are due to a combination of external and internal factors: Market disruption, Legacy systems and infrastructure modernization and forex impact.
Why YES Securities is bullish?
The brokerage noted that Q1 is a seasonally weak quarter and that led to a sequential dip in revenue. However, it added that the Wisely platform is shaping up nicely and would drive revenue growth for the Platform segment in FY23. The firm remains a leader in CPaaS space in India, growing faster than the industry and the adoption of CPaaS-based A2P messaging across industries continue to drive volume growth for both enterprise and platform segments, it said.
YES expects EBITDA margin to improve going ahead led by improved execution. Platform segment(higher gross margin) growing faster than enterprise segment will also support margin going ahead, it added. It estimates a revenue CAGR of 21.8 percent over FY22‐FY24E with an average EBIT margin of 19.1 percent.
However, the brokerage reduced the target PE multiple from 30x to 22x to account for lower margin assumption and higher cost of capital in this environment of high macroeconomic uncertainty.
Other brokerage views
Brokerage house HDFC Securities is also bullish on the stock. While the brokerage reduced its target price of the stock to ₹1,040 from ₹1,350 earlier, it still expects around a 40 percent upside in the stock in 12 months after the massive correction recently.
"Tanla reported a weak quarter, revenue was down due to seasonality and margin dropped due to client-specific issues and higher competition. The enterprise business gross margin slipped 640 bps to 16.4 percent due to a pricing cut in one large client, currency impact and higher technology investments," the brokerage said analysing Tanla's Q1 earnings.
Going ahead, HDFC believes that the company's platform business will continue to deliver strong growth, with the ramp-up of Wisely (VI and Truecaller). The brokerage expects the enterprise business to clock 15 percent volume growth and the gross margins (GM) will be in the 18-19 percent range (vs 20-21 percent earlier) due to increasing competition.
It estimates that the platform business will clock 35 percent revenue CAGR, with 90 percent GM. The management is also confident about expanding the EBITDA margin to 19-20 percent in the next two quarters, added the brokerage. However, due to the Q1 earnings being weaker than estimates, HDFC expects a margin recovery but it is likely to be lower than the historical level.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
