Tanla - Looking forward to FY24, after a regressive FY23.
Assumptions Made:
NLD + OTT channels (Whatsapp/Truecaller) - Volume growth 15%.
ILD Volume flat or de-growing
Tanla Enterprise - value wise - 2/3rd NLD+OTT, 1/3rd ILD - Hence, 9% minimum growth needs to be delivered to maintain marketshare at present levels.
Trubloq around 50% of Platform revenues (40cr+ / quarter), Wisely network around 30% (~25 crore/qtr), balance Wisely and older platforms 20%
Seeking ballpark/order of magnitude understanding at component level, rather than a very precise modelling.
A. Platforms business (comparing against Q3FY23 and not on full financial year basis - YoY it will yeild higher):
- Trubloq (with current use case)- follows NLD growth of 15% - adjusted to 10% effectively for Tanla, to account for Vi continued market share loss.
- Wisely Network - follows ILD - flat or de-growth.
- Thus 30% of platform revenue will be stagnant, 50% will grow 10%, giving effective growth of (4/65) ~6% over 80% of current revenues.
- Others
4a. Trubloq - new use cases - Voice scrubbing, consent management - totally regulatory dependent. No point trying to put a number.
4b. Wisely OTT (Truecaller) - this can scale very rapidly given lower base effect. However, how revenue accounting is done between Enterprise and Platform is not known - so difficult to model. However, let us assume 2 paise as platform revenue per message (rest going to enterprise) and assuming 2.5bn per quarter weighted avg over FY24 - per quarter gives 5Crore revenue - which is a 6% over current platform revenues.
4c. Wisely connect (Kore.ai) - let us keep 0 for FY 24. They are still in trial phase.
4d. Wisely Communicate - possibly they get 1 paise per message. Let’s say in absense of regulatory mandating - they are able to push it up by 2.5bn quarterly volume (from 1bn+ presently)- This is a 2.5Crore / quarter. - another 3% over current platform.
4e. Wisely “Protect” - using this word till they actually give a name - going to be launched Feb end. - let us keep revenues at 0 for FY24, given earlier experiences.
Adding this all up (4+5+2.5) = ~12crore weighted avg bump up per quarter from present ~80. Totalling to ~365 for FY24 vs approx 300 for FY23 - a growth of 20%+. Now this is with a rather conservative/realistic view not accounting for regulatory changes that can give serious tailwind to one or the other platforms.
B. Enterprise business
- If we assume they are able to arrest market share slide and just about grow with market volume for FY24 - it translates to a 9% value growth. A slightly higher value growth due to increasing share of whatsapp - may take it to 10-12% topline growth (basis Q3FY23 nos).
- Margin improvement continues and is able to reach 19%+ wght average over the year (aided by slightly better realization in NLD, increasing volumes from new customers and improving product mix with OTT growing faster than NLD & ILD).
- both these put together (and low base effect of Q1 Fy23) can give an approx 20% gross profit boost to Enterprise business in FY24 over FY23.
C.Overall
seems like a 20% YOY growth in Gross profits for FY24, not accounting for any external event which can have +ve/-ve impact on a conservative to realistic basis. If it all happens Tanla will reach EPS of FY22 in FY24. Effectively Two years wasted.
D.Other Potential impacts areas:
-ve : Macro conditions deteroriate further, leading to lower spends and cooling down of the transaction vol increase, besides lower promotional - Enterprise growth may not be realized.
-ve : Vi goes under - this could seriously drag down some of Tanla’s Platform revenues.
-ve : Tanla Enterprise losses further market share - chances are low, but can still happen. Might mute Enterprise growth numbers.
+ve : Trubloq Voice gets regulatory boost - boost to Platform revenues
+ve : Trubloq Consent Management gets regulatory boost - boost to Platform revenues
+ve : Data protection bill is interpreted by banks to require encryption - tremendous boost to wisely communicate.
+ve : Tanla Finally gets some international stuff going.
+ve : Tanla is able to claw back some of lost market share (40% has come down to ~30% over last 4 quarters) - tremendous boost to Enterprise growth numbers.
+ve : Possible NLD price increase in Q2 (Last 2 years ILD was increased by telco’s, would they touch NLD this year?) - can boost NLD revenues/margins.
E. Looking Beyond
If Tanla can breach FY22 EPS in FY24, it will be a positive given the situation we are in. There are few levers to do much better, but they require regulatory tailwinds.
International foray, could have added growth opportunity beyond India, but kept on hold, perhaps “wisely”, till Wisely gets traction in India. There is simply no adoption of Wisely at present - network has 1 customer, Communicate has 4 in trial/commercial and number has been constant since last few quarters.
Given large cash reserves, acquisitions to bolster market presence and gain valuable realtionships ahead of wisely international launch should have been done - no better time than this when valuations are at nadir. But management wants to do organic growth only. Surprising, but it is what it is.
New Inflection point for Tanla will come when the platform business starts contributing 40%+ gross margin (without Enterprise taking a hit) and crosses 100Crore quarterly margins. When this happens, Enterprise related margin disruptions can be easily absorbed, so overall risk comes down significantly. I believe Truecaller (Wisely OTT) is likely the one which can help move this needle fast, without regulatory changes.
It requires one of the platforms to take off (in next 2-3 quarters) to provide a new source of energy to the stock and its valuations. But beyond FY24, FY25 could be the real moment in sunshine once again for Tanla as 2-3 of its platforms could be scaling up revenue and the present economic slowdown should be over - driving the enterprise business rapidly. But, meanwhile, risks remain at the top of mind for investors. How many existing shareholders will survive FY23 and 24 is to be seen?
Disc: Invested