TANLA emerging as a Global CPaaS leader on back of blockchain
Strong foothold in the domestic market, development of WISELY & TRUBLOQ, first of its kind blockchain networks globally along with robust financials bodes well for TANLA in long term. We are LONG.
Tanla Platforms Limited (Formerly Tanla Solutions Limited) is a Hyderabad based company which is - with a 40% volume share - the largest CPaaS player in India. TANLA provides value-added services in the cloud communications space and has offices in ten locations including Singapore, London, Dubai, etc.
Understanding CPaaS and the market potential
Communications Platform as a Service (CPaaS) describes cloud solutions that enable businesses to integrate real-time communication channels like outbound voice calls, inbound call routing, number masking etc. with software they already use. Global CPaaS market is currently sized at $7bn and is expected to reach $25bn by FY 2025.
Strong foothold in the domestic market
TANLA brought “Mann Ki Baat” on voice in multiple languages. TANLA’s offerings have been deployed by central government agencies such as the National Informatics Centre, various ministries along with state governments. COWIN, GSTN, GSTIN, Income Tax, Health and Agriculture department are some of the use cases where all the OTPs and messages come through their platform. Their other marquee customers include banks such as HDFC, ICICI, SBI, Kotak and Axis as well as new age businesses like Nykaa and Dream 11.
TANLA acquired Gamooga Softech and Karix Mobile and its wholly owned subsidiary - Unicel in FY 2020. While Karix and Unicel are engaged in the business of enterprise messaging, having a 30% market share, Gamooga is engaged in the business of providing SaaS Products.
Developing moats of the future
TANLA has partnered with Microsoft to launch WISELY, an edge-to-edge global blockchain enabled platform for secure omni-channel communication. WISELY has been granted three patents in cryptography and blockchain processes by the US Patents & Trademark Office. Recently, TANLA and VI entered into a partnership centered on WISELY cloud-based-platform wherein TANLA will be the exclusive provider of solutions to secure, encrypt and enhance performance for the entire international messaging traffic on the VI network. Another inimitable blockchain platform TRUBLOQ is under development. TRUBLOQ’s carriers are based out of the Middle-east where TANLA is expecting 100% traffic to flow through it in the near term. Presently TRUBLOQ processes 63% of India’s A2P messaging, though approvals from TRAI for a majority of services are still awaited.
Sound financials and solid balance sheet de-risk the investment profile
TANLA added over 250 customers in FY 2021. Concentration risk remains low with top 20 customers contributing c. 65% to FY 2021 revenues. Revenue/EBITDA saw a CAGR of 42%/67% respectively during FY 2017-2021 helping the company deliver a lofty 11.6% ROCE and 8.8% ROE (L5Y average). SaaS companies target operations within the “Rule of 40” (i.e., revenue growth + EBITDA margin >= 40%). TANLA has been operating at a “Rule of 60” since Q1 2022. Leverage is fairly accommodative with no debt on books. Cash flow generation looks strong with FCFF of INR468cr as at FY 2021. Cash on balance sheet as at Q2 2022 stood at c. INR840cr, a 40% slice of total assets.
Valuation on absolute and relative terms looks fairly attractive
TANLA currently trades at 35.1x P/E and 25.4x EV/EBITDA on FY23F. Indian comp Route Mobile (NSE: ROUTE) trades at 39.4x P/E and 30.3x EV/EBITDA while global comps Sinch AB (NASDAQ: SINCH) trades at 50.1x P/E and 18.3x EV/EBITDA and Link Mobility (OB: LINK) at 16.1 P/E and 8.8x EV/EBITDA on FY23F. Broader macro factors like quicker than expected change in technology, foreign exposure are downside risk factors but not unique to TANLA. Promoter holding has increased since March 2020 and is currently at 43.7%.
A strong foothold in the domestic market, development of WISELY & TRUBLOQ, first of its kind blockchain networks globally along with robust financials gives comfort around TANLA’s forward looking performance. We are LONG.
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Disclaimer: The views expressed above are the views of Arkvega Partners LLP, and are subject to change at any time based on market and other conditions. This is neither an offer nor solicitation for the purchase or sale of any security, and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. We strongly advise you to do your own research and consult an accredited investment advisor before investing based on what you read in a newsletter. Arkvega Partners LLP or its employees may have exposure in the financial instrument discussed above and can close positions in the future without prior intimation.