Affle India delivered yet another stellar revenue growth during Q3 FY21, aided by strong organic growth and incremental revenue contribution (Rs 35 cr) from Appnext and Mediasmart acquisitions. Affle India’s revenue grew by 59.3% yoy to Rs 150.5 cr, led by broad-based growth in non-CPCU business (Cost Per Converted User) at 136% yoy and 46.4% yoy growth in converted users. Affle reported organic revenue growth of 22% yoy during the quarter. Sharekhan maintains Buy on Affle India with a price target of Rs 5000. Share price of Affle India closed at Rs 4290 up Rs 115.5 or 2.8% on Monday.

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Affle India’s EBITDA margin declined by 340 bps yoy to 25.5% in Q3 FY21, in-line with our estimates, owing to higher employee expenses (workforce addition, wage revision, and staff addition though acquisition) and other expenses (up 66.5% yoy). Net profit came at Rs 30.7 cr (up 14% qoq and 43% yoy) and remained above our estimates, led by higher than expected revenue growth and lower tax provision. Note that inorganic contribution to net profit remained at Rs 3.7 cr during the quarter.

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Given favourable industry tailwinds such as:

1) increasing time spent on mobile and connected devices by customers
2) higher adoption of digital transformation by enterprises, management sees tremendous opportunity for further scale of its business as the digital ad spend would increase RoI of advertisers and higher data focus from the mobile marketing platform.

Further, Affle India’s focus on new geographical expansion, deeper penetration into emerging markets, value-based pricing, and increasing tech capabilities through acquisitions would support its growth momentum going ahead. Affle India’s new product launches such as proprietary audience targeting and household sync technology on Connected TV (CTV), Engage360’s in-store omni-channel platform, Appnext Out-of-Box Experience (OOBE) platform, and new win in South East Asia region would help the company to drive its growth.

Affle India’s Management expects India to post a 30% CAGR in a five-year perspective led by higher smartphone penetration and rising number of shoppers, while the international market would register a 20%-25% CAGR over the same period. Given accelerated transition of organisations to mobile advertising, offerings in high-growth verticals, wallet share gains, and inroad to new geographies, Sharekhan believes Affle India is well positioned to deliver earnings at a CAGR of 28% over FY2021-FY2023E.

Affle India Key positives:

Stronger than expected revenue growth; revenue grew by 59.3% yoy
Cash conversion remained strong; OCF to net profit at 103% in 9M FY21
Expect to achieve 100mn+ conversions (75.7 mn in 9M FY21), Rs. 100 cr+ of net profit (Rs 76.3 cr in 9M FY21), and Rs 100 cr+ OCF (Rs 78.7 cr in 9M FY21) in FY21

Affle India Key negatives:

Higher employee expenses (up 130% yoy) impacted margin

Affle India Key Risks:

(1)    Entry of a large technology player in this space
(2)    Inability to generate relevant data for targeted advertisers
(3)    Government regulations related to management of consumer data and respect for privacy