Shares of Tanla Platforms have fallen over 35 percent in just two sessions after the firm reported weak earnings for the June quarter. Just in today's trade, the stock has lost as much as 19.4 percent to hit its 52-week low of ₹588 per share. It tanked 20 percent in the previous session.
However, the stock has been a long-time favourite for long-term investors giving nearly 1,500 percent returns in the last 5 years. But in 2022, the stock has lost over half of its investor wealth (down 69 percent) mainly on the back of weak earnings as well as overall negative market sentiment. It has given negative returns in each and every month of 2022 since January. Just in July, it lost 40 percent.
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.
Despite the weak June quarter earnings, brokerage house HDFC Securities remains bullish on the stock. While the brokerage reduced its target price of the stock to ₹1,040 from ₹1,350 earlier, it still expects a 77 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 (vs our estimate of 100bps decline) due to a pricing cut in one large client, currency impact and higher technology investments. Revenue came in line, down 6.2 percent QoQ due to softness in the enterprise business (-4.2 percent QoQ) while the platform segment was stable (-1.0/+22.7 percent QoQ/YoY)," 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.
It cuts the EPS estimate of the stock by 10.6 for FY23 and 9.1 percent for FY24 led by a 200 bps margin reset. It sees a 20 percent revenue CAGR and an RoE of over 40 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.