Tanla Solutions (Turnaround + Monopoly + No Debt)

Company Name: Tanla Solutions (BSE Code: 532790)

Industry: IT Software Products

Investment Horizon: 3 Years (This may not give a consistent return over the investment horizon)

Recommendation: Allocate not more than 10% of your portfolio, at a CMP of Rs.37 is a value buy and try to add on dips.

Investors who are holding may hold it for long term gains, investors who have not entered so far can take fresh positions

Many investors know about this, but still posted for new people who do not aware about this, put in a slightly different manner

About the Company:

Core segments:

Major One:

63% revenues - A2P SMSC (Short Message service centre) -- Which includes OTPs (One time password), everyone use in daily routine online activities – Highly Scalable and least cost – MONOPOLY (major market share – 65%)

Voice – toll-free number, mobile virtual number – published in both online and offline and continuously monitored And Notifications, games many more

Connecting Devices, Infrastructure to enterprise applications – ERP

SMS Firewall, SMS Hub – Scalable and pay as you go basis

New entrance:

Cloud Computing – Giant in Future

“Cloud Communications service provider has been selecting by a leading Mobile Operator (Vodafone)

Pros:

One of the World’s Largest Cloud Communication Solutions providers, with over 80 billion transactions annually

A2P SMS traffic to peak at 2.2 trillion messages by 2018 and expected to grow at a 6% CAGR by next ten years. And 30% of International Messages terminating into India processed by Tanla

Aiming to achieve 85% of messages submitted to be delivered in 5 seconds.

The Company is going for aggressive acquisitions for growth

Cons:

Return on Equity is low at 0.39% from past three years – Due to high reserves but will be increased in coming years

Low Promoter holding of 34% but increasing their holdings in recent quarters

(The MD has invested Rs.42 Cr almost 10% of the public equity which shows the confidence of the management about the future of the business)

The company is having an equity base of Rs.10 Cr

Financial Highlights:

Consolidated revenues increased by 78% to Rs.431.5 Cr in FY 16 from 242.5 Cr in FY 15

EBITDA stands at Rs.70 Cr in FY 16 and the operating margins on average stood at 10% approx.

Consolidated PAT increased by 360% to Rs.12 Cr in FY 16 from Rs.2.6 Cr in FY 15

Revenues have grown at 54% from past three years

Dividend Pay-out ratio is 17%

Narration	2012	2013	2014	2015	2016	2017
Sales	178.11	117.39	104.60	242.49	431.55	579.30
Expenses	200.04	107.91	78.35	166.10	361.34	523.20
Op Profit	(21.93)	9.48	26.25	76.39	70.21	56.10
OPM	(12.31)	8.08	25.10	31.50	16.27	9.68
Net profit	(157.43)	(147.49)	(19.83)	2.59	11.91	40.91
EPS	(15.51)	(14.53)	(1.95)	0.26	1.17	3.81
Price to earning	(0.44)	(0.31)	(2.53)	67.39	33.84	9.72
Price	6.86	4.52	4.94	17.20	39.72	37.00

Note:

Revenue statement has three broad pictures – EBITDA, Dep, Interest elements

EBITDA (Operating Margins have been discussed above)

The Company has Zero debt

A brief on Depreciation

Since the company is a IT software products, the major (almost 90%) fixed assets are lying in the form of Software products and these were purchased earlier before 2015 and since then depreciation rate is 60% the major amount of depreciation have already booked in earlier years and in the coming years the depreciation is going to be negligible or low

Any further additions in software products would contribute only less amount of dep.

Management:

D Uday Kumar Reddy – Chairman and MD

Gautam Sabharwal – Director

Ram Narain Agarwal – Director

Kalpana Reddy – Director

Srinivas Kamoji G -- CFO

Seshanuradha Chava -- CS

Rating:

Technical Rating: Weak

Fundamental Rating: 88

Overall Rating: --

Valuation:

With the investment horizon given, considering all the inputs of estimates the valuations are at Rs.185

Valuations are made at 18X projected FY 20 EPS

(The valuations are calculated on the basis of financial inputs/estimates but investors are required to invest based on the business potential and business risks too)

ANNUAL REPORT FY 16