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Tanla Platforms has delivered very strong returns to shareholders over the last five years. The stock is up 1,800% over past 5 years. But today Tanla Platforms shares are down 20% to ₹733.30 after the company reported a decline in Q1 net profit, both on sequential and annual basis. Net profit in the quarter ended June 30, 2022, Q1 fell to ₹100 crore as compared to ₹140 crore in the March quarter. Revenue increased by 28% year-over-year to ₹800 crore.
Hyderabad-based Tanla provides provides value-added services in the cloud communications space.
A a letter to shareholders, founder Chairman & CEO, Uday Reddy, said, "Q1 had some operational headwinds in the Enterprise business, but we have our building blocks in place to accelerate our momentum in the coming quarters. We have a strong balance sheet and excited by the opportunities ahead of us."
“Our operational headwinds in Q1 is due to a combination of external and internal factors: Market disruption, Legacy systems and infrastructure modernization and forex impact," he said.
Over the past few years, we have been building a great institution at Tanla and have been a consistent industry leader in the rapidly evolving space of digital interactions. We have achieved this with 3 strategic focus areas – (i) creating large innovative platforms, (ii) obsessing on customer success and (iii) embedding ESG in everything we do. This is reflected both in the quality of our business (platform led, deep relationships with leaders across industry segments) as well as the robustness of our financial performance (13X growth in PAT in 6 years).
Our strategy is working, and I have a huge personal conviction in our current direction. In Q1, we made significant progress with Wisely, our platform of platforms for digital interactions. A few updates to highlight the momentum of Wisely:
i. Wisely platform at VIL: We have deployed our AI/MLbased firewall to prevent leakages at a very large scale.
We have also launched Wisely Insights and have received tremendous positive responses from several global tech majors. On the back of Wisely insights and the AI/MLbased firewall, we are able to deliver a better user experience, demonstrate improved compliance and drive better business outcomes (e.g., OTP conversions) which should translate to more business for us in Q2.
ii. Kore.ai and Truecaller on Wisely: I have always believed in deep partnerships to drive innovations. We have kicked off our exclusive partnership with Kore.ai, a Gartner Magic Quadrant leader in conversational AI space supporting 200+ Fortune 2000 companies. With Truecaller, we expect our revenue stream to start in Q2. We are seeing a lot of interest from enterprise customers and have an exciting product roadmap.
iii. Innovation and Experience Centre: Behind all our innovations is our team. Our innovation team will be housed in a truly unique customer experience and innovation center in Hyderabad, which will be launched in Q2. Our innovations are focused on building products that address greenfield opportunities, change the financial profile as well as drive trust in the entire CPaaS ecosystem.
In this context, I am also very excited that Mr. Sunil Bajpai joined Tanla as Chief Trust Officer in Q1. He will be working with the regulatory community, enterprises, and partners to drive products and policies that address all concerns of consumers in the evolving space of business communication, globally.
We continue to obsess about customer success and have seen progress in our customer metrics. We have product penetration of 2+ in our top customers i.e., on average, we have sold two solutions often at different buying centres amongst our key customers. This goes on to show how invested we are in deepening our customer relationships. We are also adding new customers, with 40% of customers added for the newer solutions beyond SMS.
While you can see significant progress in our strategic focus areas, we have had operational headwinds in Q1. While our revenue grew 28% YoY in a seasonally weak quarter, we had pressure on our profitability. Our EBITDA and PAT margins are industry-leading even at Q1 levels, but it is lower than the levels we have operated at in the past. We have delivered 20%+ EBITDA for the past 5 quarters and that is the level we continue to aspire for. Our operational headwinds in Q1 is due to a combination of external and internal factors:
Market disruption: We saw market disruption of pricing both in NLD and ILD business in select customers which impacted our EBITDA. We have been quick to respond by taking an approach of making focused investments on our priority customers. We are confident that at the end of this cycle, we will come out stronger with our customers and be able to get back to better profitability systematically over the course of this financial year.
ii. Legacy systems and infrastructure modernization: From an internal perspective, we had some challenges in scaling our legacy infrastructure as our volumes have scaled substantially over the years. We have used this opportunity to completely modernize our legacy systems and infrastructure to the highest standards. We had an impact in Q1 on EBITDA, but we do not see this impact going forward.
iii. Forex impact: The sharp depreciation of the Euro against the USD had an impact on EBITDA.
While Q1 did not go in the direction we would have liked, it takes nothing away from my conviction of how exciting the future is. Our building blocks are coming together, and we are just getting started. We are staying true to our strategy of ‘build over buy’.
While the markets are moving from pure growth companies to companies with profitability and cash flow, we have always been on the path of driving profitable growth with strong free cash flows. We have a very strong balance sheet (cash balance of ₹9,873Mn and zero debt) as well as a strong cash flow generating business ( ₹965Mn operating cash flow).
I am very excited by the opportunities and potential that lie ahead of us. I am confident that we will continue to deliver on our promise of strong, consistent, and profitable growth for the years to come.
Thank you for your support.
Uday Reddy
Founder Chairman & CEO
