Tanla Solutions recorded an impressive 16.2% q-o-q and a healthy 86.5% y-o-y growth in topline in Q1FY09.
The company’s growth continues to be driven by both increased penetration into existing markets as well as expansion into newer markets, with the Aggregator Business remaining the key growth driver and focus area.
Going forward, we expect Tanla to maintain a 44.3% CAGR growth in topline over FY2008-10E, while bottomline is expected to clock a 33.7% CAGR growth in the mentioned period.
EBITDA margins are expected to decline by 50-60bp annually over the period. The company should be a major beneficiary of the strong growth being witnessed in the global non-voice market, with the increasing use of value-added services (VAS) by both corporate and retail users.
Visibility for Tanla’s Aggregator business appears strong with its entry into newer markets like Singapore, Dubai, Spain, South Africa, Finland and Malaysia. The acquisition of Openbit also opens up newer opportunities for the company in the high-growth potential area of mobile payments.
At the CMP of Rs206, the stock is trading at 7.1x FY2010E EPS. We believe these valuations are attractive, given the strong growth expected in EPS over the next few years.
However, on account of the current poor market conditions, we have reduced our target P/E multiple for the stock from 12x to 10x and maintain a BUY on the stock, with a revised 12-month target price of Rs292 (Rs339).