VF is not a bold step. It’s a life saving step. However, it is still very positive, when you look at Uday Reddy aversion to acquisition.
I don’t think he is risk averse. He is rather risk taking person. Platform plays are not for the risk averse. This is one thing I like about Tanla.
Few Questions :
Doesn’t acquisition of the 3rd largest player by the largest player, indicate consolidation of the sector. This may reflect on lower competition, leading to lower pressure on prices.
Why did Twilio sell VF? Is it because they were unwilling to spend on capex to lower costs?
Anna,
your angle of acquisition out of desperation is indeed perceptive. Whatever we say, market has given a resounding thumbs up.
Margins floating back up and upcoming digital act and focus on digital and mobile security are tail winds for the two listed players. Between the two, I continue to feel that Tanla is the relatively undervalued ticker.
DISC- largest holding, continue to ride the coaster from 1000 to 500 and back. Biased, not a recommendation. I did not even sell at the buyback chance.
Major part of RM revenues tagged as international are meant for communications that are in-bound for India.
Tanla has similar business coming from internet giants and several other enterprises who are sending SMS to India, but Tanla doesn’t usually segregate this in their reporting.
Ask Route to confirm how many local enterprises they serve locally in each country through local Telcos, answer will surprise you. For example UK subsidiary has no local presence (serving local enterprises through local Telcos) and is purely an invoice routing entity - which has one of the biggest revenues if not the biggest within international revenue.
Apart from that part, installing off-the-shelf standard SMSC servers (& firewalls) in 100 plus Telcos globally to provide low margin sms inter connectivity services is something that I would hardly qualify as doing a better job.
For fifteen odd years, Route has been present in several countries and failed to leverage its presence to penetrate into local enterprise market - what does it tell you - to achieve this one needs to become a viable proposition while competing local players & require market understanding with constant improvement in product line through innovation to match the market - which Route has clearly failed to achieve.
Now the only hope for them is the inorganic expansions like Masivian and Mr Messaging - let’s see how they fare to integrate these acquisitions, coming from very different cultures. But since Route has certain DNA - not being agile, not innovative and doing same stuff over & over again - I am afraid that they may pull these acquisitions to its own level & kill the innovation instincts these acquisitions might have.
lack of understanding what constitutes international business (when you say Tanla to bring Indian revenue to 75% - you inherently are comparing with Route while forgetting similar business of Tanla has nearly 35-40% revenues coming from international business for in-bound msgs to India.
2nd point on margins - but again the source is confusion from Route’s business when you say“Mostly the same Enterprise play at similar lower margins” - it’s not correct local enterprise business served locally with local Telcos can fetch 20% margins - like what Karix with Tanla’s synergies achieved over time from 2% to 20%.
On Synergies, i don’t agree to “Synergies … not much - Valuefirst is still going to be run independently. So no real cost saving.” - massive savings will come as discussed earlier and also confirmed by industry veterans.
It’s not exactly 20% for Enterprise business - but 15-16% in normal set up - except last few quarters there was price disruption due to Airtel etc - now the industry has resolved it and margins have again started going up - and I am hearing that industry may start increasing SMS prices which will further increase.
Also, the local enterprise business on WhatsApp / campaigns, chatbots & other value added services are usually higher as compared to bulk sms deals - so blended margins of 15-16% - which should improve as sms pricing will improve in India, positively impacting bulk sms pricing.
VF margins of 5% will definitely improve to double digits and eventually to Karix levels
am sure Uday saw business reasons to acquire VF from market share stand point, new geographies, new capabilities like Surbo etc etc - so it must have been carefully weighed decision with clear vision on deliverables.
With respect to Wisely ATP competitor, don’t think it will come from Route - we will see when it comes and we will analyse - for now Tanla is the only vendor who got through with flying colours in live testing within regulatory sandbox of TRAI demonstrating to host of regulators (TRAI, DoT, RBI, SEBI), home ministry, PSU banks, Telcos etc - so they have massive head start and once they get entrenched (needs integration of ATP platform in Telcos and enterprises etc), it will get difficult to remove them from market leader position similar to Trubloq.
*Tried adding all points from a friend who’s invested in it for 8 years
It is a good acquisition. My comments have to be seen in backdrop of Uday Reddy’s aversion to acquisition. You can go back 4 quarterly calls and in everyone he has said no to acquiring. I only wish he had woken up to reality earlier and did more acquisitions, particularly ones with large international footprints to de-risk sole exposure to Indian market. You and I possibly wouldn’t have needed to see 500.
I will clarify a few points. Rest you are entitled to your views (and your freind’s) as I am to mine.
Hope this helps you and your friend. It helped me further clarify my mind.
Another large acquisition in the CPaaS space by an Indian player and this time its a global acquisition - Tata Communications acquires Kaleyra
The acquisition is at around 0.74x EV/Sales, a cut price deal in a stressed environment for global CpaaS. Kaleyra is not a business like TWLO which makes 50% GMs, Kaleyra GMs are more like Tanla, around 20-22%. But they are likely to have interesting proprietary platforms and solutions which should be valuable. If Tata Comm can cut the excess fat in Kaleyra and get it to become EBITDA +ve while scaling up revenues through its existing wide network and relationships, this acquisition can be quite value accretive.
Tata Comm will add around 1200Cr of debt to its balance sheet for this acquisition but it has a very strong balance sheet with great cash generation - 10x interest coverage ratio and 80% CFO/EBITDA ratio in the last 5Ys - so this acquisition shouldn’t stress their balance sheet at all.
If Tanla is such a good business, I wonder why Indian MFs do not hold Tanla?
Good results - https://www.bseindia.com/xml-data/corpfiling/AttachLive/6e2ee3df-a731-4cc2-9c8a-11dd4d78e060.pdf
PAT up 35% YoY and 12.5% QoQ. EBITDAM 20% for the second quarter running, so hopefully margin only goes up from here.
A few points from investor documents:
Enterprise revenue growth pushed by higher share of Whatsapp communications (170% YoY growth) and ILD price hikes (As far as I am aware, ILD price hike had happened in H1, so why impact in Q1 of the next year?)
ValueFirst India nos to start getting consolidated from Q2 and VF Middle East nos to start getting consolidated from Q3.
36Cr investment in platforms (14Cr development and 22Cr in improvement) in Q1. This is very vague, would be nice to have specific details of which platform component this investment went into and what were the improvements. Otherwise, customer discounts on these platforms via volume based deals could also qualify as “investments”. This expense has been capitalized.
21Cr investments towards GTM and customer success - this looks like discounts or promotional items - should explain the 100bps slide in GMs sequentially, In related items, receivable days have expanded from 62 in Q4 to 76 in Q1 (These are all signs Tanla is aggressive in the market to gain market share and at the same time the demand environment may not be back to full health yet, push sales needed)
CFO is 129Cr and CFO/EBITDA is at a healthy 70%+ mark for the Q.
Things are finally looking up for Tanla (as reflected in price action) with several triggers
Some additional, unsolicited views having been invested in this stock for 2+ years now: In times of bullishness, the management tends to get over-enthusiastic, so I’d take management guidance with some moderation. Also, in my view, this is a business that should have a fair value PE multiple of 25-30x in normal times (While their ROCE and cash generation are fantastic and probably deserve a higher PE multiple, they are still one geo dependent and 70% of their GMs come from a pretty competitive and partly commoditized enterprise biz. In addition, they have a rocky history so market needs several years of steady performance to re-rate this stock). Of course bull markets and narratives can stretch that valuation number, but I’d have 25-30x PE multiple as my anchor.
one thing that is evident is…
the quality of disclosures…
very detailed and very well explained…(in the letter to shareholders)
this itself…for me as a very good improvement
A lot from this post in April, now sounds almost prophetic and what seemed un-realistic, suddenly seems in the bounds of reality. Pl check out a thread on this at Twitter
Tanla - bet coming true?
Disc : Still Invested.
No Reco. DYOR
You worried about the use of cash? Another 100cr of Free cash not used for dividends? I believe they can announce a buyback in October again. But without meaningful acquisition or giving it back to shareholders, I am on the borderline despite the improvements visible in the business.
Disc - invested with 2% of my PF
Cash deployment has been good IMO - dividend policy last year, regular buybacks and now the VF acquisition. I was worried when cash was piling up last year but they have remedied that to a large extent now.
The ILD relationship of VIL is moving from Tanla to Route Mobile.
Route press note - https://www.bseindia.com/xml-data/corpfiling/AttachLive/7275acd4-7d6b-48a1-885f-c1348ad44e88.pdf
Tanla press note acknowledging impact - https://www.bseindia.com/xml-data/corpfiling/AttachLive/c3e0fbae-6eb8-4a15-8729-a486b31e74a5.pdf
FY24 impact will be restricted to 4 months it looks. 4 month impact would be 23Cr topline and 12Cr bottomline. Full year impact in FY25 should be 68Cr topline and 36Cr bottomline. Very impressed with the disclosure and clarity provided. Uncharacteristic.
I have a question. In the concall of June 2023, Mr. Reddy said that Wisely Network has crossed 100 crore in gross profit. To quote him,
"Our DLT platform, the Trubloq reached ₹100 crores milestone in two years, whereas Wisely network which is deployed with Vodafone Idea network reached 100 crores gross margin within one year. "
But in the filings, it only mentions revenue of 17 cr per quarter, which accounts for 68 cr.
What am I missing here?
Sorry if this has been answered before but why DIIs have always stayed away from this company?
Q2 Concall notes,
Financial Highlights (Q2):
ValueFirst Update:
Organic Growth:
Wisely ATP Innovation:
Q3 Outlook:
Customer Reaction to Price Increase:
Margin Impact of Price Hike:
VIL Contract Loss:
Wisely ATP Update:
Status of E-commerce Deal:
NLD SMS Pricing:
E-commerce Deal Ramp-Up:
WhatsApp Market Share:
Future Market Share Expectations:
UPI Transactions:
Greater than ₹50 Crore Client Bucket:
Volume Degrowth:
Wisely ATP Deployment in Saudi Arabia:
Revenue Impact and TAM for Wisely ATP:
Expansion Strategy and Focus on India:
Customer Loss and Competition:
Market Dynamics:
Strategies and Innovations:
Partnership with Kore.ai:
Co-sell Arrangement with Microsoft:
Impact of Vodafone India Deal on International Traffic:
