Strong revenue growth with margin expansion
In Q2 FY25, Affle (India) Ltd. (Affle) reported a strong topline growth of 26% on a YoY basis, delivering 95 Mn conversions at a CPCU rate of Rs. 57.1. This resulted in CPCU revenue of Rs. 5,416 Mn, reflecting an increase of 35.2% on a YoY basis. During the quarter, developed market revenue showcased a strong growth of 27.5% on a YoY basis, contributing ~27% of total revenue. However, gross margin contracted by 51 bps due to rising inventory costs as the Company continues to refine its platform offerings with premium inventory and deeper ecosystem partnerships. The quarter also marked the highest-ever EBITDA and PAT, growing at 30% and 38% respectively on a YoY basis.
Margin expansion due to operating leverages
In Q2FY25, EBITDA margin expanded by 65 bps, reaching 20.9%, up from 20.2% in Q2FY24. Similarly, PAT margin increased by 146 bps, rising from ~15% in Q2FY24 to ~17% in Q2FY25. This improvement is attributed to operational leverage as the Company continues to enhance its consumer centric platform offerings, leveraging synergies for overall margin expansion. The adoption of Generative AI (GenAI) has further optimized operations and improved efficiencies. Additionally, employee costs declined by 1% due to past investments in human resources and an integrated team strategy, normalizing HR expenses and contributing to the expansion of operating margins.
On track to achieve FY25 guidance
The October month showed strong growth momentum, positioning Q3 as the strongest quarter of the financial year. The management is confident in sustaining strong performance in H2FY25. The Company has shown strong performance in H1 FY25 and is on course to achieve 20%+ revenue growth, with even greater increases in EBITDA and PAT projected for the year. As global digitization accelerates, the Company is well-positioned to sustain its growth momentum through FY25 and beyond.
View & valuation
Affle achieved strong revenue growth, coupled with margin expansion fueled by operating leverage, resulting in significant gains in EBITDA and PAT. This performance is driven by the Company’s continued investment in operational efficiency, leveraging synergies from its consumer platform, and integrating GenAI capabilities into its operations. As digital advertising continues to expand in India and other emerging markets, it is well-positioned to capitalize on this growth, particularly in high-potential sectors such as e-commerce, fintech, gaming, and entertainment. With a unique business model, unmatched network effects, and a prudent acquisition strategy, we have revised our estimate and maintain our BUY rating on Affle with a target price of Rs. 2,538 (60x FY27E EPS).
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