Why Tanla Platforms’ Share Price Surged More Than 1,200% Since March Low

A new name, a couple of marquee investors, inclusion in an international index and more than 13-fold rise in its share price since March lows—2020 has been a good year for 20-year-old small-cap Tanla Platforms Ltd. and its investors.

Tanla Platforms (formerly Tanla Solutions) provides messaging services to companies to help them engage with customers through SMSes, push notifications, voice calls and emails. For instance, every time a user gets an update about an order from Swiggy, all notifications are managed by Tanla Platforms. Its other clients include Bharti Airtel Ltd., Vodafone Idea Ltd., Facebook Inc., Etisalat, LinkedIn and HSBC, besides about 1,500 firms from banking, e-commerce, information technology, insurance and retail sectors.

The surge in Tanla Platforms' share price coincided with the Covid-19 pandemic when digital spends across sectors rose as companies increased online engagement with customers during the lockdown. The rally mirrors investor interest in its newly listed peer Route Mobile Ltd.

But that’s not the only reason why the stock surged.

Positive Triggers

Acquisition of Karix Mobile messaging platform helped the firm acquire e-commerce clients, while Gamooga’s AI-driven omni-channel marketing automation platform aided product development.
Amrita Gangotra, former director of technology at Vodafone Group Plc and former chief investment officer at Bharti Airtel Ltd., joined the board as an independent director. The company also roped in Sanjay Kapoor, former chief executive officer at Bharti Airtel, as a growth adviser last year.
Tanla Platforms was included in MSCI India Domestic Small Cap Index on Nov. 12, increasing investor interest.
Route Mobile’s stellar market debut had a positive rub-off on the stock. Tanla still trades at a discount to its peer—at 11.6 times its earnings for FY20 compared with 16.1 times for Route Mobile.
Singapore-based Amansa Investments and American Funds acquired 3% and 6.34% stake, respectively, in the company.
Business communication transactions, a key business area for the company, have soared almost fivefold to 200 billion in the last five years, increasing demand for its products and services.
The company and its arms are debt-free.
Promoters increased stake in the company by 9% to almost 41.2% in the last 12 months, showing their confidence in the business.

(Source: Annual report, exchange filings, Angel Broking report)

Tanla Platforms is a market leader in the app-to-person messaging ecosystem in India, Uday Reddy, founder and managing director at Hyderabad-based company, told BloombergQuint. Its blockchain-enabled Trubloq platform handles approximately 70% of domestic messaging traffic in India and has more than 90% market share of international messaging traffic terminating in India, he said.

Tanla Platforms and its subsidiaries—Karix Mobile and Gamooga—have created an interdependent system to serve the same clients with multiple product offerings, aiding revenue growth, he said.

Revenue and operating profit grew at an annualised rate of 35% and 30%, respectively, in the last five years.

The operating income in FY16 rose due to a change in product mix and certain accounting entries as the company exited overseas market, according to its exchange filings. Since then, financials have grown on increasing contribution from the platforms business.

Risks

Despite its performance, the company’s growth faces risks including:

Provision for bad debts increased from Rs 0.3 crore to Rs 19.6 crore in FY20 over the previous fiscal.
Finance and operational costs increased due to acquisitions of Karix and Gamooga.
Carrying of investments reduced by Rs 48.7 crore due to the impact of Covid-19.
Mounting operational costs, on-boarding of consultants to advise on regulatory and legal compliances, cost of lawsuits for recovery of unpaid invoices are major expenditures.
Changing digital laws and compliance pose a risk.
Clients can misuse its platform and send unauthorised SMS messages in violation of telecom regulatory norms.
Statutory auditors of Karix Mobile resigned on Oct. 31 citing pre-occupation in work.
The company earlier ventured into international markets in 2007-08 but failed to make a mark and the investments were written off. Now, it plans to expand overseas again targeting the Asian market in the second half of fiscal 2021.
Inability to maintain or enter into relationships with mobile network operators may impact the business.
Lack of analyst coverage.

(Source: Company’s annual report, Motilal Oswal, concall transcripts)