Affle India - Strong organic performance... - ICICI Direct

Affle India's revenues rose 76.9% YoY (down 5.9% QoQ due to seasonally weak quarter) to Rs. 141.6 crore, mainly led by healthy growth in organic revenues (up 45% YoY), inorganic revenues (at Rs. 25.5 crore). EBITDA margins were down 201 bps YoY (115 bps QoQ) to 24.4%. PAT was up from Rs. 15.3 crore in Q4FY20 to Rs. 58.5 crore in Q4FY21 due to one off other income of Rs. 34 crore. Normalised PAT was up 73.6% YoY to Rs. 26.5 crore.

Digital advertising key growth driver

The company has seen a healthy improvement in CPCU business (up 45.6% YoY in FY21). We believe this is mainly due to improvement in advertising budget and shift of spends towards mobile advertising. As per the company, emerging markets penetration of mobile advertising is 20% of overall marketing spend vs. 50% globally, representing robust growth potential in the coming years. In addition, we believe that with higher android based share (90-95% of revenues), exposure to emerging markets and strategic tie ups (like Bobble AI & OEM's) for data generation makes the company confident of achieving revenue growth of 25-30% over the next five years.

We expect 35% CAGR growth in organic revenues

Affle has been a key beneficiary of a shift of advertising budget to digital medium. This, coupled with increasing smart phone penetration and rising online shoppers from (120 million to 450 million CAGR of 24% in the next five years) is expected to drive 35% CAGR in the Indian region (50% of revenues). As majority of regions outside India where Affle has a presence are mostly emerging markets, we believe there is tremendous growth potential outside India also. In addition, Affle sees healthy traction in 10 verticals viz. e-commerce, entertainment, ed tech, foodtech, fintech, FMCG, gaming, grocery, government, healthcare, which is expected to drive revenues, going forward. This, coupled with Affle's strategy to make inroads into developed markets (Europe, North America, South Korea) and geographic expansion (via recently raised QIP of Rs. 600 crore) bodes well for long term growth. Hence, we expect 35% revenue growth over FY21-23E.

Valuation & Outlook

The company saw healthy organic growth in revenues (up 45% YoY). Going forward, we expect this improving revenue growth to continue mainly led by shift of advertising budget towards digital medium, higher online shopping and improved penetration in tier-2, tier-3 cities of India. This, coupled with geographic expansion and significant shift among consumers to adopt digital technology globally will drive long term revenues. Hence, we maintain BUY recommendation on the stock with a revised target price of Rs. 6,225 (72x FY23E EPS) (earlier target price Rs. 5100).

Source : Equity Bulls

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