Buy This Small-Cap Multibagger IT Stock, Trading At 52 Week Low, Brokerage Sees 78% Gains

HDFC Securities has recently published a report on Tanla Platforms Ltd, where the brokerage recommends buy for a target price of Rs 140 apiece. The brokerage sees potential gains of 78% considering the stock's current market price and the estimated target price.

Stock Outlook & Returns

The stock of the company closed on Wednesday, July 27, at Rs 585.20 apiece after a major fall of 20% from its previous close of Rs 730.60 apiece. It was opened at Rs 700 apiece. The CMP of the stock is hit the 52-week, and currently trading at the 52 week low.

The stock's 52-week low was recorded today at 584.50 apiece. The 52-week high is Rs 2096.75 apiece, recorded on 17 January 2022. The PE ratio is 14.73, and the P/B ratio is 5.87. The TTM EPS is Rs 39.73, and ROE is also negative at 39.82%.

The stock has done well in terms of returns on investment over the past 5 years, given multibagger returns. However, it has not performed well in the last 1 year, declining 37.12%. In the last 1 week, it has a negative 41.68%, and 1 month fallen 43.07%, respectively. 

 

Q1FY23 Result highlights

The enterprise segment (92% of revenue and 65% of gross profit) declined 6.7% QoQ to Rs 7.3bn and gross margin contracted 639bps QoQ to 16.4%, as a result of volume drop, given the steep discount from the competition. ~64 new clients were added in Q1FY23 (73 in Q1FY22).

Platform revenue (8% of revenue and 35% of gross profit) declined 1.0% QoQ to Rs 0.68bn, owing to seasonality, while gross margin expanded 142bps to 96.0%. The VI and the Truecaller deal will start contributing from Q2FY23. The client concentration is coming down and T20 clients contribute 59% of revenue. The margin impact was ~100bps due to cross currency, ~100bps due to investments, and ~440bps due to client issues. Net cash is Rs 8bn (~8% of mcap).

Outlook

The brokerage said, "We estimate +20/10% revenue/EPS CAGRs over FY22-24E, on account of the addition of new enterprise clients, higher A2P volumes, and the ability of Wisely to scale with more partnerships."

Margin drops but likely to recover, Buy for a target price of Rs 1040 apiece

Commenting on the valuation, the brokerage stated, "Margin drops but likely to recover Tanla reported a weak quarter, revenue was down due to seasonality and margin dropped due to client-specific issues and higher competition. The enterprise business gross margin slipped 640bps to 16.4% (vs. our estimate of 100bps decline) due to a pricing cut in one large client, currency impact and higher technology investments. Revenue came in line, down 6.2% QoQ due to softness in the enterprise business (-4.2% QoQ) while the platform segment was stable (-1.0/+22.7% QoQ/YoY). The platform business will continue to deliver strong growth, with the ramp-up of Wisely (VI and Truecaller)."

The brokerage added, "We expect the enterprise business to clock ~15% volume growth and the GM will be in the 18-19% range (vs 20-21% earlier) due to increasing competition. The platform business will clock 35% revenue CAGR, with ~90% GM. The management is confident about expanding the EBITDA margin to ~19-20% in the next two quarters. We are building in margin recovery but expect it to be lower than the historical level. We cut our EPS estimate by 10.6/9.1% for FY23/24E led by a ~200bps margin reset. We have a BUY rating with a Target Price of Rs 1,040, based on 22x FY24E EPS (earlier 26x), supported by ~20% revenue CAGR and RoE of >40%. The stock is trading at 18.6/15.4x FY23/24E EPS (~40% lower than 5Y average)."

About - Tanla Platforms Ltd.

Tanla Platforms Ltd., incorporated in the year 1995, is a Small Cap company with a market cap of Rs 7,943.83 Crore operating in the IT Software sector. Tanla Platforms is engaged in providing integrated telecom infrastructure solutions and products. Its software development centre in Hyderabad Andhra Pradesh India and worldwide marketing office in U.K. Telecom Infrastructure Solutions have been at the core of Tanla's operations. Tanlas range of services include product development and implementation in the wireless telephony industry, aggregator services and offshore development services. key Products and Revenue Segments include Software Services.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.