IPO Analysis : Affle (India) Limited

IPO Rating - 47 (Invest with limited exposure)*

Affle India (AIL), which started as ‘Tejus Securities Private Limited’ is a Gurugram-based company that helps businesses acquire, engage and transact by delivering contextual mobile ads through its proprietary consumer intelligence platform. The company is hitting the primary capital market with its initial public offer (IPO) of equity shares of Rs 10 each.  The price band has been fixed between Rs 740 and Rs 745.

The issues comprising a fresh issue of shares up to shares worth Rs 90 crore and the total issue size is between Rs 456.5 to Rs 459 crore at lower and upper price band respectively. At upper price band the offer for sale is 49.53 lakh shares.

About the company

AIL has two business segments that is Consumer Platform and Enterprise Platform. In 2019 AIL derived around 92% of its revenue from Consumer Platform while the balance was contributed by Enterprise Platform. Consumer Platform majorly provides services of new consumer conversions (acquisitions, engagements and transactions) through relevant mobile advertising. . The company primarily earns revenue from consumer platform on a cost per converted user (CPCU) basis, which comprises user conversions based on consumer acquisition and transaction models. It also earns revenues through awareness and engagement type advertising. The Enterprise Platform provides end-to-end solutions for enterprises to enhance their engagement with mobile users.

As on March 31, 2019, AIL’s consumer platform had around 2.02 billion consumer profiles and has accumulated over 300 billion data points over the preceding 12 months, which power its prediction and recommendation algorithm for the platform. . Revenue from top 10 customers constituted Rs 160.8 crore, which represented 64.5% of revenue in FY19.

The overall market in which company is operating is likely to show good growth rate. Digital segment is fuelling growth in mobile advertising, driven by 4G penetration, cost-effective data packages, proliferation of mobile apps and social media, m-commerce and rapid growth in smartphone penetration. Mobile advertisement spend is expected to grow at a CAGR of 32.7% to USD 1.93 billion in 2022.

Financials

For the financial year ending March 2019, the company’s total turnover stood at Rs 249.4crore compared to Rs 71.4 crore at the end of FY16 showing a CAGR of 51.02%. However, most of the growth has come in last one year where its revenue has increased by 197.8 per cent on yearly basis.  The net profit of the company between FY16 and FY19 has increased at a CAGR of 103 per cent again most of the growth has come during last one year, where its profit grew from Rs 8.8 crore to Rs 48.8 crore. The EBITDA margin of the company has witnessed a continuous increase since FY17 and has increased from 5.4% at the end of FY17 to 28.2% in FY19

Valuation and recommendation

At the higher price band of Rs 745, the offer is demanding price to earnings (PE) ratio of 37.1 times its FY19 earnings. While at lower price band it is demanding 36.4 times.  In terms of market cap to sales (FY19) the offer is available at 6.46 times. There are no comparative listed players right now, however, some of the international listed player are available at extreme level and hence cannot be compared. The issue is not priced attractively and nothing much is left for the investors. Nonetheless, still you can subscribe because company is from a new sector with no peers and may command premium valuation for some time.  

 *40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment