Q1 was pathetic. No one could have expected anything like it. Moreover, answers from management were not very convincing. They need to deliver at least 2 quarters at 18%+ GM level in enterprise for some confidence to return.
Wisely - is not understood clearly by people as it is possible not explained properly by management. Plus there are no revenue numbers , no volume numbers, growth rates etc. Business model / unit economics isn’t known. How do people value nice sounding statements? when going is good - then all is fine. But when going is poor, they are discounted to literally zero. That’s what is happening here. Moving goalposts for international launch of wisely doesn’t help either.
When wisely numbers come or business model is better explained, the upward valuation will be rapid. Question is “if” and then “when”.
More sweet words from U R. In any case, stock waged it’s tail a little by day.s end today.
Anna, are you still holding?
“We are already seeing success among our top customers. As an example, 3 out of the top 5 banks are on Wisely and this will reflect in our financial performance in the coming quarters.
Feedback on Wisely from our customers is encouraging and it will help us accelerate our innovation and partnerships on Wisely.
One of the questions I frequently get is on geographical expansion. Wisely is a global platform and can scale seamlessly across all geographies. Our go-to- market strategy is to offer the Wisely platform to our long-standing customers before we scale globally.”
Hidden among the ad-nauseum repeated things about how glorious wisely is, and the same excuses for the teething troubles…is the bit about financial performance in coming quarters…
Yes. Still holding. It went from hero to confused in a single quarter, giving no chance to rethink. Am trying to digest the discussions in AGM - all may not be lost yet.
Route came with IPO just 2 years back - it has domestic institutional holding and fimilarity from day 1. Tanla has none. It has literaly zero holding by domestic institutions, except in Index based fund - where the funds have no choice.
Route management and investor relations is very pro-active and investor friendly.
Route’s business is relatively easier to model. There is nothing “Wise” there :-;
They are clear to do acquisitions and grow. Tanla is adamant not to. Crazy
Route doesnt have dominant position in Indian market either NLD or ILD. Hence they are not likely to be hit as much as Tanla, when someone does something disruptive on pricing.
They did not have a meltdown last quarter.
Timely buyback helped prop the price in a very difficult period.
Management has given very clear topline and EBITDA guidance. I believe they are very much acheivable - at the very least the topline. No Rule of xyz here - straight numbers.
They are essentially the same with respect to CPaSS. They provide omni channel communication platform.
Tanla differs in the sense it has some additional platform play compared to Route. Trubloq is a DLT platform which does message scrubbing etc. They are also trying to create wisely as an independent platform where it can work with any enterprise and CPass player. Theoretically how it helps you can look at management presentation. Actually how it helps will be understood by talking to customers using it. Unfortunately, I don’t have that yet. Neither are numbers available to model it.
Email is there in Tanla platform too. Route acquired a company doing only SMS. Tanla is unlikely to venture in that path - to provide email solution on standalone basis. Don’t think Route is doing Collaboration as a service. That goes into a different territory of unified communications which is p2p in enterprise / indv context. Tanla/Route are likely to stick to A2P and vice versa.
We will get to know that on 8th. If they go for a tender offer buyback then max size of buyback can be 175Cr. If they go for a market buyback then max size of buyback can be 70Cr. For a tender buyback they need to pass a special resolution first.
Only a 25% tender buyback will move markets significantly IMO, the 10% BB was expected and may have been discounted.
It is a bit strange that this time none of the promoters or KMPs (except Mr. Sanjay) in their personal capacity came forward to buy the stock during the fall to sub 600 levels from the open market.
I hope folks would have seen the Tanla AGM, statements, queries, and answers. I think while still short on hard details (numbers) it still gives a clearer understanding of the business. I put down my takeaways and some other points as well. One of the actions (buyback) is already triggered. Takeaways:
Taken at face value - Q1 is the floor, and we will be above in margin terms … Hopefully this is for enterprise margin as per question and not blended margins or total value of gross margin. If so, one of the key questions – whether it can get worse from here – is likely addressed. So, the discounting for worse case scenario should hopefully end.
I expect by Q3 or Q4 they will give start giving clarity on wisely numbers. There are few reasons why I think so. Nonetheless Aravind said it is in the plan and Uday also sort of alluded that in couple of quarters some numbers will start coming. Would request all readers to send emails to Tanla Investor Relation outlining what sort of disclosures you would like to see going ahead.
Deepak talked about expansion to MENA region in a couple of quarters. Will believe that when I see some senior level hiring. But first time they mentioned a specific place and specific time. MENA region is good from cultural affinity as large number of IT managers in MENA region are Indians and you don’t go head-to-head with better capitalized American /European companies in their home market. Yet disappointing that Southeast Asia where they acquired exclusivity rights from Kore.ai is not there.
Goalpost for Wisely international foray moved once again. From Consultant’s Report, to Idea case study over Q1 to now “Will roll out once we have deployed at older customers”… So essentially, there is no timeline.
Even more disappointing is management doesn’t want to address geographic risk by acquisitions. We have seen how one player can rock the Indian market. Organically you can develop that hedge over 2-3 years but leave yourself vulnerable in between.
Buy back definitely in plans. I think he will likely announce ASAP. Question is whether it will be the quick and easy 10% or more meaningful 25% (even here it will not exceed 175crores. - so, buy back will be at best 1.25-1.50% of outstanding equity). I would want 25% to happen, with management not participating. This would give investors to overall tender 2.5-3% equity at a good price and taxes paid by company on buy-back actually accrue to the tendering shareholders. Moreover, it will spark attention on the script all over again.
Indian market to grow to 25K Crore in 4 years per opening statement of Uday. A CAGR of ~30%. Besides this international market which is multiple times the size of this market will also be addressable. The opportunity size is huge and Tanla can aspire to grow at greater than 30% CAGR organically.
Other Views
I believe enterprise margins will continue to be strained compared to FY22 (would believe approx. 4%+ gross margin is lost (over and above SBI) for the balance quarters of this FY at least), but platform is going to hit big, if they need to return to 20% EBITDA. Personally, I prefer this. Enterprise GM to reach back to 20% in weaker quarters will be difficult. I rather see them hit 100 crores in platform revenue by Q4 (which they should IMO). Enterprise Loss of Margin is partially SBI. However, that can’t explain more than 2% and won’t be applicable post Q2. I suspect bigger losses in ILD space, which will continue for the next few quarters.
Enterprise volume growth is going to be exceptionally good for NLD (even post SBI volume loss). How much of it is neutralized by losses of Volume and margin in ILD – I don’t have a very good handle. UPI volumes are ramping up like crazy and they have direct co-relation to SMS volume. Similarly for e-commerce transactions and travel and leisure industries. In FY22, UPI facilitated over 4,600 crore transactions (Source NewIndianExpress) a run-rate of less than 400crore pm. In both July and Aug this year it is over 600Crore pm. Growth rate YOY basis would be 80%+. Even after SBI losses Tanla will likely get ~50% of this volume IMO as it is the dominant incumbent in BFSI. NLD volume growth directly feeds 1:1 into DLT volumes – so platform revenues will also be on fire.
A lot of platform play hinges on Data Protection Laws. Regulatory mandates such as DLT can super charge the business as enterprises have no option but to adopt. Both Consent management on Trubloq and Wisely are impacted by delay in data protection bill. If it comes through in 2023, that will be provide another boost to domestic platform revenues.
Forex related losses are likely to continue as Q2 is likely to see worse depreciation of Euro/GBP compared to Q1. So that won’t be a one time as expected by management.
If some of above optimistic view turns out true (enterprise margin not falling lower than q1, NLD growth and Platform growth) then hope fully prices will recover rapidly post Q2 results. We would have lost a year no doubt and given 30% CAGR return expectations - 30% of opportunity value too, besides a price de-rating of ~20x (~40%) from peak. But all is not lost and Tanla still seems to have great potential. This industry is on a take-off trajectory. Let’s hope Tanla does not again go fighting with Telco’s and do a self-goal Q1FY23 style all over again.
Disc: Invested and sitting tight, hoping for above.
Anna and Nirvana, 170Cr is a decent chunk, wudnt you say? Almost 20% of Cash holding.
Buyback li,e this and 30% div payout definitely speaks to mgmt confidence.
DISC - invested, Doubled down at low 700 bringing my avg price to 1000. I am an IDIOT and a rank amateur. NOT A RECOMMENDATION
Its the largest possible buyback amount as allowed by SEBI. So its definitely a strong statement of confidence by the Board.
If Tanla follows this up with a strong Q2 where Enterprise margins don’t further erode but show some recovery and platforms get more traction, we just may be over the worst phase. The business is expected to have good tailwinds during the festive season as analysts are expecting a lot of consumer spending this Diwali after 2 years of muted spends.
I am cautiously optimistic, watching out for Q2 results. If Q2 performance is poor, the stock may still be rangebound in and around 1000.
Buyback announced. Max possible they could have done under the regulations and commendable. Totally in line with point 6 above. Unfortunately, Tanla standalone balance sheet is rather small and hence, even 25% doesn’t amount to much. This much cash Tanla will possibly generate additionally by the time the offer is completed and money is paid out to shareholders. Following remains open:
What will be use of 900-1000 crore cash still in bank by end of Dec22 (after payment of interim dividend and buyback)? Best possible time to do acquisition and geographically spread risk from enterprise business perspective. Will management rethink?
Merge Karix with Tanla. This will bring heft to the Balance Sheet and next time buy back is to be considered (Dec’23), some serious money can be bought into play.
Good thing is this buyback will give stability to stock price in 900+ range over the next 2 months, till Q2 results are annouced. The future trajectory will be set from that. Till then holding tight will be easier for folks.
I believe you did the right thing. Many people advice against averaging. But I think it is context specific and in present context, whoever can average should average. Tanla’s price loss from 2100 can be broken into 2 parts ~35% overall market fall and balance Q1 debacle. On both accounts averaging works if we can take Q1 to be floor. Industry is growing like crazy. I hope you will be very well rewarded over a time frame of 2-3 years.
Ordered a pizza. 3 OTP and 1 WhatsApp message. 1st OTP to login , 2nd OTP for credit card payment, 3rd OTP for delivery and WhatsApp confirmation of order. And everyone is doing home delivery.
