Tanla Q4 – expectation Vs Actual
Business
- Gross Margin improvement in Enterprise business –
continues to reach 20%.Good show.
- No more than 3% QoQ fall in enterprise revenues
Overall down 4.15% – not so great, but not a disaster either. Basically, tells me Tanla is still losing market share, albeit at lower pace in the Enterprise segment (down 5% QoQ). On the other hand platform is up 4%+ QoQ. This is a mixed bag as it basically tells us that there is no significant progress (Revenue wise) on any other platform. At this low base, any platform taking off, should lead to significanly higher growth rates.
- Wisely OTT (Truecaller) scale up to run rate of bn messages a month.
Bang on – Extract from the shareholder letter – WiselyOTT has started to scale substantially over the last three months to reach a monthly volume of over 1 billion digital interactions with over 50+ marquee enterprises.
- Wisely Communicate scale up to revenue run rate of 10+ crore a quarter
Did not happen. Actually seems like no further progress. This was the original Wisely. Its proved to be a dud so far. Also no signs of anything changing significantly, in the near future. Management gave a guidance of 0-50Crore. I mean, who gives such a range?
- Clarity on sms price increase (ILD)
Not clarified to the best of my knowledge. ILD per managemet is 30-33% of Enterprise business. A 20% increase on that, without loss of any further market share or fall in volumes, basically translates into a growth of ~6% in FY23-34 purely from that. However, the last two price increase does not seem to have gone well for Tanla as it kept losing share. Let’s see how this round shapes up.
Commentary on other stuff.
The only confident commentary and answers seemed to be for Wisely ATP. But no details on timelines and opportunity size except saying – it’s the biggest innovation from Tanla.
- Nothing on Further use case deployment for Trubloq (consent management, voice DLT)
- Kore.ai may get commercialzed next quarter.
- Wisely ATP may start commercial operation next quarter.
- Wisely communicate – only god knows.
- Wisely OTT will conitnue scale up IMO. we can see it hit a runrate of 2bn a month sometime by Diwali, IMO.
Conclusion and looking forward
What do we exect in FY24 and beyond? Firstly what is Tanla today – Presently Tanla is still largely an Enterprise Play + Trubloq, with almost entire revenues in India. Wisely (communicate) is a flop show so far and doesn’t seem to be doing much even for next few quarters… Truecaller is just an enterprise channel like whatsapp or sms (though margin may be highest). Kore.ai still doesn’t have a customer. FY2223 is a washout.
For FY2324 partial views – refer to this : Tanla Platforms ~ Leading player in the fast-growing CPaaS market – #256 by anna
Gross Margins
Gross Margin improvement in Enterprise does not appear to come from market condition improvement in my opinion. To me it seems more of a financial thing. My bet is they have traded some discount from Vi by paying them upfront. Last quarter they had an outgo. The discount possibly has kicked in this quarter. This is my view, and I could be wrong. For FY2324 – I think gross margin will be within 20-22 range as whatsapp and Truecaller scale up, and they provide healthier margins and promotional business too has higher margin. On the other hand, PSU banks contract renewals/tenders will continuosly keep pushing the margin down thanks to reverse auctions.
Platform scale up
Truecaller (Wisely OTT) will definitely scale up further. How much of revenue is booked in platforms from that is not known. But it will add. Wisely Network (Vi firewall) will not add anything. Trubloq will at best grow with organic growth in market. So where is the Wow? Wisely ATP could be the Wow for Tanla and be a Trubloq repeat. Unless that happens, there is no wow. If that happens and they can say drive a monthly revenue run rate of around 15Crore+ – the entire perception of the stock and its earning multiple will change overnight. My money is on this happening by Q2.
Operating leverage
With fall in revenue, -ve operating leverage is at play (Gross Margin to EBITDA conversion ratio has fallen significantly). Without large jump in revenues there is no operating leverage (-ve), salaries are flat as % of revenue and SGA has increased. So they need to get to 15%+ growth in enterprise business to get some operating leverage back. It is a distinct possiblity.
Enterprise Market share
Can Tanla claw back some market share in the Enterprise business. Possible, if promotion business picks up, One large ILD customer swings back and Truecaller is able to be strategically used. Else the stress will continue.
Image and credibility
The biggest knock Tanla has taken has been on its image and credibility (directly coupled to Uday Reddy’s image) in FY23. A blockbuster performance from Wisely ATP can restore it partially. My touchstone to determine this would be the DII particaption in this stock. If their shareholding goes up from literally zero to 3%+ (which was there at end of FY22) then I would say this is largely restored. However, I don’t have much hopes on this. I think FII will actually rampup their holding further. Maybe then the DII might step in
Price Increase in NLD A2P
I continue to believe it is around the corner. Last two changes were in 2018 and 2020/21. Its about time now. This at 20% increase hypothetically, will give a straight 12-14% topline increase on annual basis.
Industry
Presently this industry in India is around Rs 10k crore. Uday reddy in his remarks says that by 2028 it could be 5-6bn USD, which is in Rs 40-50K Crore range. Seems diffiicult but not impossible. Even at 30k, it will be a CAGR of 25%. Who can argue against that for long? My money on the industry is on this basis.
FY24 Bottomline
Despite a lot of -ve being listed, can FY24 deliver a 30%+ YoY topline growth and a EPS of ~Rs50? Sounds far-fetched? Can a Rs15 EPS be possible in Q4 FY24? Maybe not. Maybe a 20% probability. But this is exactly what the bet has to be on.
Disc : still invested
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