Affle concall transcript
https://www.valueresearchonline.com/stories/7D389E17-8AA0-4696-B70F-3CF2DD6AF2D6/news-announcement
Good result in the current environment but few things stood out for me.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/4f94e48b-60db-4d1a-bcdd-d2b6bc42566d.pdf
How come India margins crashed but more than made up by disproportionate rise in International margin. Also, there is no explanation for this in their PPT. Is it due to shifting of profits from their Indian subsidiaries to international ones particularly Singapore for better tax rates? I recall Take solutions used to do that. Consol tax rates have fallen to 7% but to be fair their PBT also grew 25% yoy. On normalised tax rates of 20% PAT would have grown 22% yoy. Back to concall for the clarity on these items as presentation is curiously silent on these large deviations.
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The India margins have crashed significantly due to increase in Other Exp. (would need more clarification here as they have also benefited from lower rent)
They have Acquired Appnext through Affle International which may be the major reason for increase in international revenues. Continuous acquisitions is making it tough to understand the real international growth.
Inorganic Growth looks pretty on the PnL, but it can permanently dent the balance sheet if things go wrong
Disc- Invested after IPO in personal & client capacity
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2.5 Cr of Other Income
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Break up of other expenses and platform costs not clear.
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Need to check split of organic and inorganic revenue ( RevX, Vizury, AppNext etc).
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Split of Cost per Conversion revenue versus brand/CPC revenue
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They have acclerated hiring and also expanding client base in India. Not sure how International markets are shaping up. The key business is India, and any weakness here is a red flag. There are smaller affiliates sniping at their business in India. Though a Appnext + IndusOS deal would help in the medium term.
Someone told they said they can do Rs80cr of PAT with atleast >100% ratio of CFO/ PAT on the concall. Is that true? Does anyone have the complete results conference call notes?
Given the receivables versus payables cycle, I doubt this. But not sure.
It is clear that they have rearranged revenue booking in different geographies to take max benefit out of tax arbitrage. Whole year tax rates will fall to low double digits which will be another kicker apart from increasing contribution from acquired entities. The story is back on track after two difficult months as per the management.
Hi,
Can you explain how this is done ? Would like to understand how the effective tax rate comes down to 10-15% by re-arranging booking of revenue.
I had suspected the same and you should listen to call recording. It is simple that they have started booking revenue in the international ops and the taxes are low in those geographies. It is simple reallocation of international revenues serviced out of India.
Will the shareholders ever see this money?
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If iām not mistaken, this money will be there at Singapore holding company level. Why would they remit it to India as it would get taxed again. So it makes sense to have these funds / money at the Singapore level and drop in such funds for Indian operations as and when required. Hope it clarifies and feel free to correct me if Iām missing something.
Thanks,
Matt
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Canās assure but I have not found them cheat as yet. Their funds are getting deployed in acquisitions which has also started contributing. A long list of quality investors even at the holding level should mitigate any fly by night risk.
Affle India to acquire 8.0% ownership in Talent Unlimited Online Services Private
Limited (āBobble AIā) incorporated in India.
Objects and effects of acquisition
Bobble AI is a strategic investment for Affle as
it owns and operates āBobble Indic Keyboardā,
an indigenous social keyboard with
investments from Xiaomi and SAIF Partners.
Bobble Indic Keyboard includes speech-to-text
capabilities and is accessible in multiple Indian
languages. It is also a pre-loaded default
keyboard for Xiaomi across multiple devices in
India, enhancing Affleās vernacular strategy
and OEM partnerships.
The Company has secured exclusive global ad
monetization rights of tech assets of Bobble AI
for 5 years.
Details below
https://archives.nseindia.com/corporate/AFFLE_13082020014910_BobbleStatutoryAnnouncement.pdf
They bought it at a valuation of INR 198*100/8 MN = 2475MN, average revenue of last 3 financial years were (10+25+11)/3 = INR 46MN
i.e 53 times the last 3 years revenue
Pre-Money valuation is $20MN as per crunchbase that translate to approx INR 150MN valuation, why did AFFLE Paid at such a high valuation, when infact their revenues dropped more than 60% as compared to last year?
https://www.crunchbase.com/funding_round/bobble-app-series-a--9697feaa
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Good people and no governance risk. I wouldnt worry on this front.
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The risk in tech business is disruption, how much of the tech is owned, acquisitions integrating well and people.
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Based on the above the valuation and sustainability of profits.
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This is a small 8% minority investment.
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The deal would be to bring in advertising demand to the O&O supply ( apps/key boards etc.)
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While this can help, the way I see Affle operating with Indus OS, Bobble and other acquisitions is using cash in hand to acquire revenue or supply. Revenue is from Appnext acquisitions while supply is like Indus OS and Bobble.
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Indus OS and Bobble are good, but the same companies will also work with others in the market including InMobi, direct deals with advertisers and exchange ( Google AdX , FAN etc.). The deals do not guarantee exclusivity.
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Acquisitions will increase overall revenue which will taper off and increase costs. This might play into a short term narrative of year on year growth in revenue for 2-3 quarters but will moderate eventually.
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They donāt seem to hiring in tech and building tech. Lot of it is outsourced or acquired and yet to be integrated. This needs to be watched for the long term. Short term the returns have been excellent. Almost 3 x from IPO price and 2 x in last 4 months.
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Affle at 6k Crore valuation. ~ 15-20X Revenue multiple and 80x PAT. SaaS firms with with multiple million dollar annual recurring revenue, growing at 40-50% yoy get valued at 10-15x Revenue.
eg : Freshworks at $200Mn + Revenue is at $ 3.5 Bn valuation and it is annual recurring revenue with significant moat benefits.
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Valuation is always relativeā¦ it was expensive relative to the market during April/May and it is the same today. On an absolute level, one must look at size of opportunity and the competition along the way. There is a high degree of over valuation since the story is touted as unique one. Another thing folks are looking at is their biz model which is like ad exchange platform which will have much higher operating leverage if they are able to execute as per their own commitment. Moreover, it is the scarcity premium that is driving. There are not many comparable stories of similar size in the same domain.
Disc: I had exited earlier and got back on time when I saw that the story was far from getting any serious bump forget about being derailed.
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Size and scope of opportunity guess should be compared with number of players in the ecosystem, Moat strength along with TAM. I need senior members help to understand, if it is the only company listed in the ecosystem it can be valued at a very high valuation relative to private /international peers. This valuation is similar to FMCG valuation, 15-20% Growth, large competition but valuation at 75-80x. Private markets get significant primary infusion and 10-15x revenue multiples for SaaS companies competing globally ( Zoho etc), and this valuation on secondary market seems to trump it.
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Operating leverage will improve with scale, but not much on third party inventory business. The variable cost ( 57 % of cost of supply remains).
I look at a comparable entity i.e. Tradedesk in USA to take cue from the same. It is growing sales @50% CAGR and trades @ 190+ forward PE after becoming 15+bagger since its listing in 2016. I am not saying the valuation is justified but Mr. Market is giving these numbers so I would accept and keep watching for any chinks in the story. I also donāt think that any analyst can provide an appropriate valuation framework at this stage. Affle is operating in a country which is still at very nascent stage of digital adoption so it will be premature to worry about valuation. I would rather focus on the business model and market acceptance of their services.
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