Speeding Ahead On The Digital Highway
Affle (India) Limited, a global technology company with a proprietary consumer intelligence platform that delivers consumer engagement, acquisitions and transactions, is well-poised to take advantage of the increasing shift towards all things digital
Affle (India) Limited started its business operations back in 2006 and was successfully publicly listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on August 8, 2019. Affle Holdings Pte Ltd. (AHPL) based in Singapore is the promoter of Affle India and its investors include Microsoft, D2C which is a NTT DoCoMo subsidiary, Itochu, Bennett Coleman and Company (BCCL), and others. Affle India is a global technology company which focuses and aims to improve returns on marketing spend along with delivering contextual mobile ads and reducing digital ad fraud, thus addressing consumer privacy expectations. The company has two business segments, namely, consumer platform and enterprise platform.
Affle India’s consumer platform primarily provides services related to new consumer conversion such as acquisitions, engagements and transactions through relevant mobile advertising, re-targeting existing consumers for completing transactions for e-commerce companies through relevant mobile advertising as well an online to offline (O2O) platform which can convert online consumer engagement into in-store walk-ins. Affle India’s consumer platform is used by business- to-consumer (B2C) companies across industries, including e-commerce, fin-tech, telecom, media, retail and FMCG companies directly and indirectly through their respective advertising agencies.
The enterprise platform includes services provided for end-to-end solutions for enterprises in order to enhance their engagement with mobile users, such as developing apps, thus enabling offline to online commerce for offline businesses with e-commerce aspirations and providing enterprise grade data analytics for online and offline companies. As of March 31, Affle India’s consumer platform had approximately 2.02 billion consumer profiles of which approximately 571 million were in India while the other 582 million were in emerging markets comprising Southeast Asia, the Middle East, Africa and other regions. Apart from this, around 867 million were in developed markets consisting of North America, Europe, Japan, Korea and Australia.
Industry Overview
On the basis of stimulating economic growth, technology advancements and increasing digital users via the internet it is believed by market experts that the outlook for the advertising industry is highly positive. Global advertising spends in 2017 were approximately USD 569 billion out of which the US contributed by far the largest share which accounted for 36.94 per cent. Digital advertising, which is advertising online, comprises 34 per cent of total advertising spend globally and around 37 per cent of the US market. By 2022, digital spend is expected to comprise over 50 per cent of total advertising spend globally.
The Indian advertising industry has continuously been evolving from being a small-scale business to a full-fledged industry. The industry is projected to be the second-fastest growing advertising market in Asia after China. The government has been providing significant support to the advertising and marketing industry as well. Hence, it is expected that advertising expenditure may increase in the financial sector, primarily driven by Reserve Bank of India (RBI) policies which will result in a more favourable business environment and market sentiments. In the advertising industry, print contributes a significant portion to the total advertising revenue which accounts for around 41.2 per cent while TV contributes 38.2 per cent and digital contributes 11 per cent of the total revenue.
The remaining consists of outdoor, radio and cinema, which is up to 10 per cent. By the end of 2020, the Indian digital advertisement market is expected to grow at a compound annual growth rate (CAGR) of 33.5 per cent to cross the Rs. 25,500 crore (USD 3.8 billion) mark. Also, the internet’s share in total advertising revenue is assumed to increase from 8 per cent in 2013 to 16 per cent in 2018. Digital advertising in 2019 witnessed a 26 per cent increase as compared to that in 2018 to reach Rs. 13,683 crore with overall advertising witnessing a growth of 9.4 per cent. The media and advertising industry is shifting at a rapid speed and digital is certainly taking charge. Thus, 2020 is expected to witness a major change in advertising in India, with digital becoming a primary and bigger medium. It is expected that by 2020, its growth will surpass that of print.
Financial Overview
On a consolidated quarterly basis for the third quarter of FY20, Affle India reported a 27.40 per cent increase in its net sales from Rs. 94.46 crore to Rs. 74.15 crore in the same quarter of FY19. For the recently ended quarter of the current fiscal year, the company’s PBDT stood at Rs. 28.64 crore as compared to Rs. 22.50 crore in the corresponding quarter of the previous fiscal year. Thus, consecutively, the net profit grew by 31.33 per cent to be Rs. 21.45 crore gained in the third quarter of FY20 as against Rs. 16.33 crore gained in the same quarter of FY19. Affle India has consistently posted positive financial performance which can be seen in the half yearly financial results as well. Considering the half yearly financial trends, for H1FY20, revenue from operations increased by 38.8 per cent to Rs. 159.3 crore from Rs. 114.8 crore in H1FY19. The increase in revenue is driven 39.4 per cent growth in total converted users (CPCU business) from both new as well as existing customers across key industry verticals including e-commerce, food, travel, transport, entertainment, healthcare, etc.
Subsequently, EBITDA expanded by 47.1 per cent and was Rs. 40.4 crore in H1FY20 as compared to Rs. 27.5 crore in H1FY19. For H1FY20, the company gained a net profit of Rs. 28.8 crore which is a significant rise of 59.7 per cent from Rs. 18 crore gained in H1FY19.
On the annual front, rapid growth in internet, e-commerce and digital advertising has led to a rise in revenue from operations by 49.1 per cent to Rs. 249.4 crore in FY19 as compared to Rs. 167.2 crore in FY18. EBITDA rose by 54.6 per cent and was Rs. 70.3 crore in FY19 as compared to Rs. 45.5 crore in FY18. The net profit gained for FY19 was reported to be Rs. 48.8 crore, thus clocking a growth of 75.4 per cent from Rs. 27.8 crore gained in FY18.
Its return on equity (ROE) as of September 30, 2019 on an LTM basis and adjusted for IPO proceeds was 58.6 per cent while the company’s return on capital employed (ROCE) for the same time period was at 61.7 per cent. As of September 30, 2019, the company’s gross debt was Rs. 33.7 crore of which cash and cash equivalent, which includes other bank balance but without considering the IPO proceeds, was calculated to be approximately Rs. 20.45 crore. The net debt without the IPO proceeds stood at Rs. 13.2 crore, thus making the company almost debt-free according to its management.
The initial public offer (IPO) made by Affle India was overall subscribed 86.48 times on the final day of the bidding process as well since the IPO opened for subscription on July 29 to 31, 2019.
IPO Status The initial public offer (IPO) made by Affle India was overall subscribed 86.48 times on the final day of the bidding process as well since the IPO opened for subscription on July 29 to 31, 2019. The IPO comprises a fresh issue of shares worth up to Rs. 90 crore and the total issue size is between Rs. 456.5 to Rs. 459 crore at the lower and upper price band respectively. At its upper price band the offer for sale is 49.53 lakh shares. The IPO had received bids for 29,21,57,880 shares against the total issue size of 33,78,021 shares as per NSE data. The quota for qualified institutional buyers (QIBs) was subscribed 55.31 times whereas non-institutional investors (NIIs) was subscribed 198.69 times and retail investors by 10.94 times. Shares for the IPO were allotted at the upper end of the price band fixed at Rs. 740-745 per share.
By listing on both the major exchanges, NSE and BSE, the company’s IPO which is a 100 per cent book-built issue IPO type was at the face value of Rs. 10 with a minimum order quantity of 20 equity shares. The company intends to use its net proceeds from the fresh issue for funding the working capital requirements and for other general corporate purposes. Post the IPO, promoter holding in Affle India dropped to about 68.4 per cent from 92.17 per cent. The company’s IPO was the first offer under the new Unified Payment Interface (UPI) mechanism, which was made mandatory for the retail investor category with effect from July 1, 2019. Post this, the IPO shares’ final listing on BSE and NSE took place on August 8, 2019.
Conclusion
The growth momentum of Affle India looks very positive as it ventures forward in its business operations. The company practices a profitable, low-cost business model built on an asset-light, automated and scalable platform. Since the company works with customers who it believes are likely to grow, the hypothesis is that this in turn will help it to grow in various countries in which customers provide services. In the growing age of need for protection against digital fraud and data safety issues, the demand for products of Affle India is likely to increase. Expanding its international business through local business development and through referrals from existing customers as well as penetration in its top customers to deliver more converted users for large e-commerce companies is a top expansion strategy for the company. The company’s consumer platform has a leading position in India with high growth potential. The growth in this platform is supported by the overall consumer trends of greater time spent by people on smartphones or connected devices. This shows an increase in the adoption of online payments as well as an increase in average transaction value that people are carrying out through such devices. The company’s business in a way can be said to be seasonal with majority of the revenue being generated close to the festive season rather than during the non-festive period.
Its data management platform (DMP), which is a big data, machine learningpowered platform, has over 2.1 billon connected devices profiled globally and Affle India continues to invest in the 4V strategy of volume, variety, variation and visibility, thus powering its ability to reach the next billion shoppers on connected devices. In order to support such growth, the company has filed 14 patents across jurisdictions recently. It has also launched a new research and development centre in Bangalore which will be effective in strengthening its competitive advantage in big data, machine learning and advanced deep learning models. Since Affle India doesn’t focus on a profitable growth business model alone but also on increasingly generating positive cash flows, it continues to invest in attractive inorganic opportunities to further enhance the value of its stakeholders. Hence, based on the company’s positive growth trend, we recommend a BUY.