Tanla Solutions (TANSOL) - ICICI Direct

Result UpdateRating matrixRating : Under ReviewTarget : NATarget Period : NAPotential Upside : NAKey financials(Rs Crore) FY09 FY10 FY11E FY12ENet Sales 687.1 366.6 435.7 521.0EBITDA 284.8 118.1 129.9 158.1Net Profit 194.3 49.0 43.0 57.8EPS 19.4 4.9 4.3 5.8Valuation summaryFY09 FY10 FY11E FY11EPE (x) 1.4 5.5 6.3 4.7Target PE (x) 1.5 5.9 6.7 5.0EV/EBITDA (x) 0.4 0.4 1.1 1.1P/BV (x) 0.3 0.3 0.3 0.3RoNW (%) 21.9 5.5 4.8 6.2RoCE (%) 24.4 5.6 5.2 6.7Stock dataMarket CapitalisationRs 270.5 CroreDebt-Cons. (FY09)Rs 0 CroreCash & Invst.-Cons. (FY09)Rs 169.4 CroreEVRs 101.1 Crore52 week H/L 78 / 27Equity capitalRs 10 CroreFace value Rs 1MF Holding (%) 0.0FII Holding (%) 17.0Price movement6,0005,0004,0003,0002,0001,0000Aug-09Analyst’s nameNov-09Price (R.H.S)Feb-10Karan Mittalkaran.mittal@icicisecurities.comNaval Sethnaval.seth@icicisecurities.comMay-10Nifty (L.H.S)80706050403020100Aug-10WHAT’S CHANGED…August 17, 2010PRICE TARGET ..........................................................................................Under ReviewEPS (FY11E) ................................................................... Changed from Rs 6.4 to Rs 4.3EPS (FY12E) ................................................................... Changed from Rs 6.8 to Rs 5.8RATING......................................................................................................Under ReviewRevenues take a hit again…Tanla Solutions reported a disappointing set of numbers for Q1FY11.The topline stood at Rs 75.6 crore against our expectation of Rs 110.5crore. Revenues grew 23.3% QoQ and 12.2% YoY. The decline of 50% inthe license manager segment and cross currency conversion led to thedecline in topline. EBITDA declined 36.0% QoQ and 23.4% YoY to Rs20.5 crore as compared to Rs 32.0 crore in Q4FY10 on the back of lowerrevenue realisation. The EBITDA margin at 32.4% declined as well. Itdeclined 399 bps YoY and 537 bps QoQ. PAT stood at Rs 2.1 crore.• Highlights for the quarterAfter a few quarters of improvement, the company again reported adecline in revenue. According to the management’s comments, therevenue decline was primarily due to a delay in implementation ofthe Nokia deal and currency conversion impact. License Managerhas taken the maximum beating where revenues declined 50%QoQ. Revenues from aggregation and product services stood at Rs47.8 crore and Rs 52.0 crore in Q4FY10, respectively. Subscriptionand mobile payment revenues declined to Rs 1.3 crore and Rs 17.93crore vs. Rs 28.2 crore and Rs 3.9 crore in Q4FY10, respectively.The company is in the process of deploying Missed Call Alert in sixnew circles with Aircel. With this, Tanla will handle half of Aircel’sIndia traffic for Missed Call Alerts.The company would also be handling spot messaging for the realityshow KBC. Revenues from the same would kick in from Q2FY11E.ValuationAt the current market price of Rs 27, the stock is trading at 6.3x FY11EEPS of Rs 4.3 and 4.7x FY11E EPS of Rs 5.8. Due to the volatile nature ofrevenues and lack of clarity on the UK and European markets, we remaincautious on the stock. We advise our clients to avoid this stock until thereis further clarity on the performance of the company.Exhibit 1: Valuation Metrics(Rs Crore) Q1FY11 Q1FY11E Q1FY10 Q4FY10 QoQ (Chg %) YoY (Chg %)Net Sales 75.6 110.5 86.1 98.6 -23.3 -12.2EBITDA 20.5 34.1 26.7 32.0 -36.0 -23.4EBITDA Margin (%) 27.0 30.9 31.0 32.4 -537 bps -399 bpsDepreciation 18.8 18.2 16.0 18.3 2.7 17.4Interest 0.0 0.0 0.0 0.0 NA NAReported PAT 2.1 14.6 10.1 13.2 -84.3 -79.4EPS (Rs) 0.2 1.5 1.0 1.3 -84.3 -79.4Source: Company, ICICIdirect.com ResearchTanla Solutions (TANSOL)Rs 27ICICIdirect.com | Equity Research

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