DG - Investor's Eye dated May 02, 2008

 

Investor's Eye [May 02, 2008] Please see the attachment for details Sharekhan www.sharekhan.com

Summary of Contents PULSE TRACK  ·         Inflation rate higher than expectations STOCK UPDATE Genus Power Infrastructures   Cluster: Ugly Duckling Recommendation: Buy Price target: Rs673 Current market price: Rs563 Price target revised to Rs673 Result highlights Genus Power Infrastructures Ltd (GPIL) reported a 27.4% growth in the revenues. The sales were below our expectation. The meters sales continue to be robust, however the project sales were deferred due to rising input costs. The operating profit grew by 75.9% year on year (yoy) to Rs35.1 crore, which was way above our expectation. The operating profit margin (OPM) reported a sharp 500-basis-point improvement to 18.1% on the back of a steep decline in the other expenses. The other expenses as percentage of sales decreased to 2.5% from 11.7% in Q4FY2007. The interest cost was up 12.4% to Rs4.4 crore, while the depreciation charge rose by 107.5% to Rs1.4 crore. Aided by better-than-expected operating performance the net profit of the company reported a growth of 102.1% to Rs25.5 crore. This was in line with our expectation, but higher than street expectation. The current order book of the company stood at Rs417 crore with close to 60% coming from the meters business. The company was also the lowest bidder for orders worth Rs450 crore. The full year sales were lower than our expectation. Hence we have revised our earnings and our fully diluted earnings per share (FDEPS) for FY2009 now stands at Rs48.7. We are also introducing our FY2010 estimates and expect GIPL to deliver compounded annual growth rate (CAGR) of robust 32.7% and 41.6% in its revenues and profits respectively over FY2008-10E. Our FY2010 FDEPS stands at Rs63.5. GPIL is a leading manufacturer of electronic energy meters. In our view the company is well poised to benefit from the government's plan to spend on the country's power transmission and distribution sector. We maintain our positive outlook and our Buy recommendation on the stock with an upward revision in price target to Rs673. At the current market price, the stock trades at 11.6x its FY2009E and 8.9x its FY2010E earnings. Bank of India   Cluster: Apple Green Recommendation: Buy Price target: Rs458 Current market price: Rs361 Results above expectations Result highlights Q4FY2008 results of Bank of India were above our expectations. The profit after tax (PAT) was Rs757 crore, indicating an impressive growth of 69.2% year on year (yoy).  The net interest income for the quarter came in at Rs1, 216.8 crore, up 25.7% yoy on the back of continued robust growth in advances and expansion in net interest margin (NIM).  The reported NIM for the quarter stood at 3.24%, indicating an expansion of 10 basis points yoy. The improvement in NIM was largely driven by margin expansion in international business, while the margin for the domestic business was flat at 3.71%. The non-interest income was up 13.3% yoy to Rs653.3 crore from Rs576.7 crore a year ago. Importantly, the year-ago non-interest income included a one-time gain of Rs52 crore from Nigerian oil bonds and a Rs14 crore gain from sale of fixed assets. Excluding these one-time gains from the year-ago period, the non-interest income for Q4FY2008 indicated a robust 27.9% year-on-year (y-o-y) growth. The operating expenses during the quarter were up marginally by 1.3% yoy to Rs657.9 crore. The operating expenses growth was contained due to a 7.6% y-o-y decline in staff expenses, which helped to partly offset the 20.9% y-o-y increase in the other operating expenses. Consequently, the cost-income ratio improved significantly to 41.7% from 52.1% a year ago. Provisions and contingencies were down by 6.5% yoy, which in turn boosted the bottom line. The asset quality of the bank improved during the quarter as evidenced by a 8.1% y-o-y decline in the gross non-performing assets (GNPAs) and a 27.1% y-o-y drop in the net non-performing assets (NNPAs). In line, the provisioning coverage ratio improved to 69.3% from 61.3% a year ago. The capital adequacy ratio (CAR) moved up to 12.95% from 11.58% a year ago, helped by qualified institutional placements (QIPs). Advances witnessed a strong growth of 32.3% yoy and stood at Rs114,793 crore at the end of Q4FY2008. Meanwhile, the deposits grew by 25.1% yoy to Rs150,012 crore. At the current market price of Rs360.7, Bank of India trades at 7.4x 2009E earnings per share (EPS), 4.1x 2009E pre-provisioning profit (PPP) per share and 1.8x 2009E book value (BV) per share. We maintain our price target of Rs458 and Buy recommendation on the stock. Subros  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs63 Current market price: Rs40 Price target revised to Rs63 Result highlights The Q4FY2008 results of Subros are marginally ahead of our expectations.  The top line for the quarter grew by 2.4% year on year (yoy) to Rs187.8 crore led by a growth of 7.6% in the volume. The realisation declined by 4.8% during the quarter. The realisation dropped because Subros supplied only components for newer models of passenger cars during the quarter instead of full kits comprising compressors and components. The operating profit margin (OPM) improved by 110 basis points leading to an operating profit growth of 12.3% to Rs24.4 crore. Higher interest and depreciation charge led the profit after tax (PAT) to grow by 9.8% to Rs8.87 crore. For FY2008, sales saw a growth of 2.4% to Rs662.7 crore and PAT stood at Rs29 crore, giving earnings per share (EPS) of Rs4.8. The company has bagged order from Maruti Suzuki to supply compressors for the latter's new export vehicle A Star. This is expected to boost Subros' sales volumes for FY2009 and FY2010. We are downgrading our EPS estimate for FY2009 to Rs6.2 due to some delay in the company's exports and the substantial decline in the realisation. We are also introducing in this note our EPS estimate for FY2010—Rs9.0. At the current market price of Rs40 the stock is trading at compelling valuations of 4.3x FY2010E EPS and 1.9x FY2010E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). The stock's valuations are at a huge discount to that commanded by its peers. We maintain our Buy recommendation on the stock with a revised price target of Rs63. Grasim Industries   Cluster: Apple Green Recommendation: Buy Price target: Rs3,002 Current market price: Rs2,369 Price target revised to Rs3,002 Result highlights Grasim Industries (Grasim) Q4FY2008 results were below our estimates. The company reported a top line growth of 10.8% year on year (yoy) to Rs2,742.4 crore. This was on account of higher revenues from all its divisions especially the cement division. The cement division reported a 14.7% increase in the revenues on account of a 8.9% year-on-year (y-o-y) increase in volumes to 4.27 million metric tonne (MMT) and a 9.7% y-o-y increase in grey cement realisation to Rs3,267 per tonne. The viscose staple fibre (VSF) division reported a 9.6% growth in revenues to Rs714.9 crore on account of 21.1% higher realisation at Rs107.4 per kilo. Higher realisations compensated for 10.1% lower volumes, which stood at 61,650 tonne for the quarter. Revenues from the sponge iron and chemical divisions recorded growth of 14.1% and 7.3% respectively. The operating profit margin (OPM) for the quarter declined by 390 basis points to 24.2% on account of an increase in the cost pressure across all the divisions. The earning before interest, depreciation, tax and amortisation (EBIDTA) margin of the cement division declined by 330 basis points yoy to 28.8%. The EBIDTA margin of the VSF division dropped by 400 basis points yoy to 26.7% mainly on account of higher pulp and sulphur prices. Sponge iron division managed to improve its EBIDTA margin by 140 basis points to 16.7%, on account of a 32% y-o-y increase in realisations. The chemical business was the worst performer with EBIDTA margin falling by 1,140 basis points yoy to 24.9%. This was mainly because of the increase in raw material and coal prices along with higher maintenance cost. Consequently the operating profit of the company declined by 4.6% yoy to Rs662.3 crore. The adjusted net profit of the company increased by a meagre 1.5% to Rs455.6 crore. The growth in the net profit was mainly due to an increase of 53.1% in the other income to Rs118.7 crore and a 25.9% decline in the interest expense to Rs27.2 crore. During the quarter ended, the company had a profit on sale of subsidiary of Rs180.3 crore (net of tax) and a write back of provision for diminution in value of investment/loans of Rs31.52 crore (net of tax). Thus, the reported net profit of the company increased by 40.6% to Rs667.4 crore. For the quarter ended March 2008, on a consolidated basis the net sales increased by 15.3% to Rs4,714.7 crore, and the reported PAT stood at Rs880.8 crore, up 51.2%. For the year ended FY2008, on a standalone basis the net sales increased by 18.9% to Rs10,278.1 crore and the adjusted PAT stood at Rs2,016.1 crore, up 33.5%. On a consolidated basis, the net sales increased by 20.5% to Rs17,036.9 crore and reported net profit stood at Rs2,891.4 crore up 47% yoy. At the current market price of Rs2,369, the stock is trading at 9.5x its estimated FY2009 earnings per share (EPS). Based on our sum-of-the-parts valuation, we maintain our Buy recommendation on the stock with a revised price target of Rs3,002. Television Eighteen India   Cluster: Emerging Star Recommendation: Buy Price target: Rs486 Current market price: Rs355 Price target revised to Rs486 Result highlights TV18 has posted robust performance across businesses for Q4FY2008. The operating revenues for the quarter grew by a healthy 64.7% year on year (yoy) to Rs132.4 crore. All the segments—news, Internet, and newswire--continued their strong growth trend. The news business revenues grew by 52.9% yoy to Rs109.9 crore, as the TV channels CNBC TV18 and Awaaz continue to maintain their stronghold over Indian business news viewers. The operating profit margin (OPM) for the segment was up 56 basis points quarter on quarter (qoq) to 44.8%. Web18 continues in investment mode. Inspite of a stupendous 112.2% year-on-year (y-o-y) growth in the revenues to Rs18 crore, the operating loss for the segment stood at Rs13.2 crore, as the company continued with the policy of writing off all the costs incurred, including the capital expenditure incurred on the development of new portals. Thus, Web18 is spending heavily towards its growth, the results of which we believe would be seen over the longer term. Newswire18 posted a 25.6% quarter-on-quarter (q-o-q) growth in its revenues to Rs4.5 crore. The operating loss stood at Rs2.0 crore. The business is witnessing rapid subscriber addition and we expect the business to break even in FY2009.  The consolidated OPM of the company during the quarter stood at 25.7% against 39.4% in the corresponding quarter last year (and 28% in Q3FY2008). The overall OPM continues to be impacted by the heavy spend on augmenting Internet and newswire businesses. Thereby, the operating profit growth was restricted to 7.4% yoy to Rs34 crore. Higher depreciation, interest and substantially higher tax rate led the adjusted profit after tax (PAT) pre-ESOP charge during the quarter to be at Rs15.2 crore against Rs23.1 crore in Q4FY2007. Though the fundamental attributes of TV18’s business model remain on a strong footing, on the back of potential increase in competition, dependence on stock market participants and unlocking of value in Web18 appearing distant we are reducing our sum-of-the-parts price target to Rs486 and maintain a Buy recommendation on the stock. 3i Infotech   Cluster: Emerging Star Recommendation: Buy Price target: Rs180 Current market price: Rs132 Results below expectations Result highlights 3i Infotech's consolidated revenues grew by 10.3% quarter on quarter (qoq) and 66.5% year on year (yoy) to Rs349.9 crore in Q4FY2008. While, the organic revenue growth was 7.1% sequentially, acquisitions contributed 3.2% to the sequential growth in the top line during the quarter. The operating profit margin (OPM) was flat at 24.8% in Q4FY2008. The operating profit grew 9.9% qoq to Rs86.7 crore during the quarter. The company's net profit grew by 0.6% to Rs48.8 crore, which was below our expectation of Rs53.7 crore. This was primarily due to lower than expected other income on account of foreign exchange mark-to-market losses in foreign currency convertible bonds (FCCBs). The company reported other income of Rs2.2 crore during the quarter compared to Rs6.1 crore in the previous quarter. For FY2009, the company guided a top line growth of 40% to ~Rs1,700 crore and an earning growth of around 30%, leading to a fully diluted earnings per share (EPS) of Rs13-Rs13.5. The guidance has factored in only the organic growth and the fully diluted capital including FCCBs. The company proposed a dividend of Rs1.5 per share for FY2008. 3i Infotech acquired Regulus for $80 million. Regulus generated sales of $148 million and earnings before interest, depreciation, tax and amortisation (EBITDA) of $20 million in CY2007. The acquisition is funded through syndicated loans with interest rate of Libor plus the premium (base rate of 7%). The company has acquired Regulus at attractive valuation of enterprise value (EV)/EBITDA of 4.0x CY2007. The acquisition appears to be cash accretive since this will directly contribute ~$15 million (EBITDA of $20 million-interest expenses of $5.6 million [7% on $80 million]) to the bottom line next year. To fine tune our earning estimates, we have revised our FY2009 earning estimates by 3.4% and have introduced FY2010 earning estimates in this note. At the current market price, the stock is trading at 9.8x FY2009 and 8.4x FY2010 earning estimates. We maintain our Buy recommendation on the stock with price target of Rs180. State Bank of India   Cluster: Apple Green Recommendation: Buy Price target: Rs2,680 Current market price: Rs1,822 Q4FY2008 results: First-cut analysis Result highlights State Bank of India reported a profit after tax (PAT) of Rs1,883.3 crore, indicating a growth of 26.1% year on year (yoy) and 4.1 quarter on quarter (qoq). The bottom line was above our expectation of Rs1,703 crore. The net interest income for the quarter came in at Rs48,00.6 crore, up a muted 5.6% yoy. The non-interest income was up 16.5% yoy to Rs2,817.2 crore on the back of strong growth in CEB (up 30.9%), while the treasury income was largely flat at Rs296.5 crore. The operating expenses were flat at Rs3,244.7 crore. The flattish operating expenses, was primarily due to a 22.4% year-on-year decline in staff expenses. Meanwhile, other operating expenses grew by 37.1% yoy. Provisions and contingencies during the quarter were up 37.7% to Rs1,619.1 crore primarily driven by higher loan loss provisions. The effective tax rate for the quarter at 31.6% was lower compared to 41.6% a year ago and helped boost the bottom line. Net advances registered a growth of 23.4% during the quarter to Rs435,521 crore, while deposits were up 23.6% to Rs337,336 crore. Asset quality deteriorated marginally on relative and absolute basis. In absolute terms, the gross non-performing assets (GNPAs) increased by 28.4%, while the net non-performing assets (NNPAs) increased by 41.2%. In relative terms, the %GNPA inched up to 3.04% from 2.92% a year ago, while the %NNPA reached 1.78% from 1.56% a year ago. Capital adequacy ratio helped by the mega rights issue came in at 13.47%, registering an improvement over 12.34% a year ago. At the current market price of Rs1,822, the stock trades at 16.2x 2009E earnings per share, 7.4x 2009E pre-provisioning profit per share and 2x 2009E book value per share. SECTOR UPDATE Automobiles Positive beginning across segments Automobile sales, across all the segments, have begun on a positive note in FY2009. Both two-wheelers and passenger cars have reported good sales growth in April 2008. However, how sustainable would this revival be is yet to be seen. In the case of four wheelers, the sales have been pushed due to the impending price hike (to be effective from May 2008). Sales of automobiles were expected to revive from April onwards on the back of the excise duty cut on two wheelers and small cars announced in the Union Budget 2008-09.

Regards, The Sharekhan Research Team myaccount@sharekhan.com

 

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DG - Friday Telefolio : Blue Dart Express : Apr 25

 

Blue Dart Express

On the express way

The company is transforming itself from being just a courier company to a complete logistics company

Buy	Blue Dart Express
BSE Code	526612
NSE Code	BLUEDART
Bloomberg	BDE@IN
Reuter	BLDT.BO
52-week High/Low	Rs 857 / Rs 442
Current Price	Rs 648 (as on 25th April 2008)

Emergence of India as a "global hub" for manufacturing activities in sectors such as consumer durables, electronics, automobiles and their components and the retail boom have fuelled the demand for logistics in the country. These sectors are major consumers of supply chain solutions and outsourced logistics services and, are major growth drivers for the logistics sector. To capitalise on this huge opportunity, Blue Dart Express (Blue Dart) is transforming itself form being just a courier company to a complete logistics company. With experience and technological backing of DHL Express (which holds 81% equity stake), Blue Dart has strong chance of succeeding in this emerging field.

Today, the company is the market leader with 41.7% market share in the domestic air express segment, which grew from 40% at the beginning of 2007. An integrated air and ground network that involves over 1 million sq.ft. of facilities, 47 domestic warehouses and 10 express hubs, dedicated air services with a fleet of four Boeing 737-200 freighters and three B757-200 freighters are all part of the company's infrastructure.

Blue Dart is the only express company offering an unmatched delivery capability encompassing the entire spectrum of distribution services including express, air freight, ocean freight, supply chain solutions, freight forwarding, customs clearance, project handling and charters through its synergies with the 3 DHL Business Units-DHL Express, DHL Global Forwarding and DHL Exel Supply Chain. It offers secure and reliable delivery of consignments to over 17,600 locations in India and 220 countries worldwide.

'Freight services' include domestic, early morning airport-to-airport deliveries to the seven metros - Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Ahmedabad and Hyderabad, serviced by Blue Dart aircraft. Blue Dart has ‘Interline’ agreements with twenty-six international airlines and bonded warehousing and transshipment facility. ‘Charters’ offer palletized capacity for carriage of urgent and large volumes to eighteen airports in India and four international airports in the region.

The Bangalore International Airport (BIAL) is one of the two greenfield airports scheduled to open in 2008. Blue Dart Aviation has been leased 9917.2 sq. mtrs. of land for a period of 10 years, extendable for another secondary term of 10 years, from BIAL to build and operate a state of the art airside/cityside integrated express terminal, the first of its kind in the country. The facilities will be operationalised along with operationalisation of BIAL.

The alliance of Blue Dart and DHL brings together two strong brands with premier offerings in the domestic and international express and logistics arena, and offer increasing future opportunities. DHL's market leadership in international air express complements its established domestic strengths and unique infrastructure. As part of the DHL Group, it gets access to the largest and most comprehensive express and logistics network worldwide, covering over 220 countries.

Solid financial performance

For the quarter ended March 2008, the company registered a solid 32% rise in its revenues to Rs 239.70 crore. OPM expanded by an impressive 260 basis points to 20.3% from 17.7% taking OP up by 52% to Rs 48.70 crore. PBT rose 95% to Rs 45.70 crore. Due to higher provision for tax (up 111% to Rs 15.00 crore) PAT was up 88% to Rs 30.70 crore.

For the CY 2007, the company registered 21% rise in its revenues to Rs 808.70 crore. OPM improved by 90 basis points from 14.9% to 15.8% taking OP up by 28% to Rs 127.90 crore. PBT was up 37% to Rs 106.60 crore and PAT was up 39% to Rs 69.90 crore.

In 2007, the company delivered 72 million domestic and 649,708 international shipments, weighing 191,800 tonnes.

Flying to new routes and adding new facilities for success

In 2007 Blue Dart added 43 new facilities and its total facilities across the country now stands at 257 with a fleet of over 4,800 vehicles, 40 domestic warehouses and 10 express hubs. Blue Dart also augmented its market share from 5.0% to 5.8% in the ground express space and plans to achieve market leadership in the next 5 years.

In 2007, Blue Dart added a new route to its aviation network Chennai-Delhi-Chennai sector to serve the growing needs of the Northern and Southern regions of the country.

A recent addition to Blue Dart’s product portfolio is Import Express, which is the only importing service in India to offer a door-to-door facility for importing shipments from over 200 countries around the world.

The company is also exploring the opportunities for cold chain products related to perishable things.

During CY2007, Blue Dart augmented its fleet with a third Boeing 757-200 and the existing fleet now is 3 Boeing 757-200 and 4 Boeing 737-200, which have the unique capability to offer an unrivalled payload of 300 tonnes each night to 60 route connections across an expansive and diverse Indian geography.

To capitalise on the improving road infrastructure in the country, Blue Dart relaunched its ground express product, Dart Surfaceline. This is another step towards strengthening its capability of offering end-to-end express distribution services. The launch has enabled us to expand its reach to over 17,600 locations. This new feature-rich product is fortified with value add-ons ‘Freight on Delivery’ (FOD), ‘Demand Draft on Delivery’ (DOD) and ‘Freight on Value’ (FOV), etc.

Huge rise in capex shows the company’s confidence in growth prospects

The company incurred capex of Rs 48.7 crore in year 2007 and plans capex of about Rs 300 crore in the year 2008. The management estimates a substantial capex over next 5 years. The company plans to fund the capex from internal accruals.

The company plans to enhance capacities within the network by inducting additional dedicated air and ground carriage vehicles oven a period of time. The company also plans to expand into the ground transportation segment to seize the opportunities provided by the Golden Quadrilateral Project, North-South and East-West Corridor, and improving infrastructural landscape.

The Tier II and Tier III cities offer increasing opportunities for Blue Dart's Surfaceline. Owing to the growing affluence of consumers, these areas witnessed rapid growth in demand in the recent past. The emergence of SEZs, EPUs and IT parks also present exciting prospects for the company’s services.

Attractive valuation

In CY 2008, we expect the company to register sales and net profit of Rs 992.22 crore and Rs 97.85 crore respectively. On an equity of Rs 23.7 crore and face value of Rs 10 per share, EPS works out to Rs 42.9. The share price trades at Rs 648. P/E works out to just 15.7, which is very low for an industry leader with a strong MNC parent and which is transforming itself to fully capitalise on the growing opportunities in Indian logistics sector.

Blue Dart Express: Financials

 

	0503(12)	0512(9)	0612 (12)	0712 (12)	0812 (12P)
Sales	458.30	415.10	668.00	808.70	992.22
OPM (%)	17.9	17.8	14.9	15.8	17.3
OP	82.20	74.00	99.70	127.90	171.36
Other inc.	1.10	0.80	1.80	3.10	3.90
PBIDT	83.30	74.80	101.50	131.00	175.26
Interest	4.70	2.30	1.60	0.40	0.15
PBDT	78.60	72.50	99.90	130.60	175.11
Dep.	15.30	13.10	22.00	24.00	26.10
PBT	63.30	59.40	77.90	106.60	149.01
EO	-3.20	6.80	0.00	0.00	0.00
PBT after EO	60.10	66.20	77.90	106.60	149.01
Tax	21.10	22.80	27.70	36.70	51.16
PAT	39.00	43.40	50.20	69.90	97.85
EPS* (Rs)	17.3	21.9	21.2	29.5	41.3
* Annualised on current equity of Rs 23.73 crore; Face Value of Rs 10 (P): Projections EO : Extraordinary item EPS is calculated after excluding EO and relevant tax Figures in Rs crore Source : Capitaline Corporate Databases

 

Blue Dart Express: Results

 

	0803 (3)	0703 (3)	Var. (%)	0712 (12)	0612 (12)	Var. (%)
Sales	239.70	181.60	32	808.70	668.00	21
OPM (%)	20.3	17.7		15.8	14.9
OP	48.70	32.10	52	127.90	99.70	28
Other inc.	0.90	0.70	29	3.10	1.80	72
PBIDT	49.60	32.80	51	131.00	101.50	29
Interest	0.00	0.10	-100	0.40	1.60	-75
PBDT	49.60	32.70	52	130.60	99.90	31
Dep.	3.90	9.30	-58	24.00	22.00	9
PBT	45.70	23.40	95	106.60	77.90	37
EO	0.00	0.00	--	0.00	0.00	--
PBT after EO	45.70	23.40	95	106.60	77.90	37
Tax	15.00	7.10	111	36.70	27.70	32
PAT	30.70	16.30	88	69.90	50.20	39
EPS* (Rs)	51.8	27.5		29.5	21.2
* Annualised on current equity of Rs 23.73 crore; Face Value of Rs 10 (P): Projections Var(%) exceeding 999 has been truncated to 999 LP : Loss to profit ; PL : Profit to loss EO : Extraordinary item EPS is calculated after excluding EO and relevant tax Figures in Rs crore Source : Capitaline Corporate Databases

 

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DG - Friday Telefolio : Tanla Solutions : Apr 18

 

Tanla Solutions

Tuned well for consistent high growth

Focused on global market for mobile content services, the company continues to hold excellent growth potential on the back of faster growth in value added services, expansion in service offerings, new geographies and new technologies

Buy	Tanla Solutions
BSE Code	532790
NSE Code	Not listed
Bloomberg	TANS@IN
Reuter	TNSL.BO
52-week High/Low	Rs 820/ Rs 377
Current Price	Rs 534 (as on 17th April 2008)

Over the past few years Tanla Solutions has become and end-to-end service provider to telecom companies and relevant content providers. Tanla Solutions commenced commercial production of telecom signaling solutions in 2000. It specialises in providing SS7 (Signaling System 7) messaging infrastructure software products including short messaging service centres (SMSCs), high density media servers (HDMSs), optimal routing solutions, welcome roamers, voice mail servers and caller ring back tone servers. It also offers messaging applications and billing services (aggregator services) and offshore services including software development, infrastructure management services and technical support services. Tanla Solutions provides telecom-signaling products to operators of mobile communications networks and aggregator services to content providers in connecting mobile operators.

Mobile penetration levels the world over are peaking. Coupled with this, voice tariffs are falling

due to competition. Mobile operators are thus under intense pressure to find alternate ways to boost their average revenue per user (ARPU). They are looking at consumer data applications such as ringtones,

games, mobile video services and other premium content to augment data revenues and increase ARPUs. Moreover with the advent of data-friendly technologies like 3G and Worldwide Interoperability for Microwave Access (WiMax), it is expected that mobile data usage would contribute substantially to total mobile revenues in future. The value-added service (VAS) for the mobile market will thus grow at a fast pace.

Currently Tanla is focused on UK and Ireland teleom markets. The UK telecom market is one of the most advanced in Europe with a high market penetration of 118% (EU average: 108%), and high Data ARPU (20%-30% of total ARPU). The wireless market is intensely competitive with the top 4 players having almost equal market share. The key differentiation is expected to come from value-added services (VAS) and increased penetration of 3G services. Tanla, with its end-to-end product basket catering to most these leading players, is well placed to capture this opportunity, Tanla Solutions experiencing increasing interest in its new mobile payments service "Payforit" which operates in partnership with all UK Mobile Operators including 3, O2, Orange, Vodafone, Virgin Media and T-Mobile. Tanla Solutions has also signed agreements with mobile messaging and payments partners in Spain and South Africa as part of its global geographical expansion plan.

Tanla Solutions is focused on providing vertical market solutions enabling mobile payments, advertising and entertainment services. The global market for mobile content services is expected to grow to $35 billion per year by the year 2012 according to research firm Informa Telecoms. Additionally the Mobile Advertising and Mobile Payments market will fuel mobile commerce and create a huge revenue opportunity for Tanla Solutions.

There are three important factors which will continue to fuel growth in this sector. Firstly, the introduction of high bandwidth mobile internet services, 3G and multimedia handset capabilities in developed European and American markets is encouraging global brands to launch mobile internet portals and services leading to increased commerce transactions and the consumption of richer content formats and media on handsets. Secondly, the continued subscriber growth in developing Asian, African and Latin American Markets is propping the demand for telecommunication infrastructure, mobile content and applications. Finally, the convergence of digital media, the internet and mobile is creating an enormous opportunity for companies to develop completely new business models, channels and services. It has become imperative for brands to have a mobile web presence and develop a mobile communications strategy.

Hitherto focused on global markets, Tanla has also entered Indian market by signing business agreements with Airtel, BSNL, Idea, Reliance and Vodafone. Tanla will now also be focusing on benefiting from the increasing demand for value added services in India and other developing Asian markets.

For the third quarter ended December 2007, Tanla Solutions reported 11% sequential growth in operating revenues at Rs 119.34 crore backed by growth in aggregator business. OPM improved 160bps at 47.6%. The net profit was up 18% at Rs 43.27 crore. On y-o-y basis, Tanla reported 110% growth in topline at Rs 119.34 crore and bottomline rose 88% at Rs 43.27 crore.

For the nine months ended December 2007, Tanla recorded 120% rise in consolidated operating revenues at Rs 316.12 crore backed by growth in aggregator business.. PAT surged 93% at Rs 113.11 crore.

During the December quarter Tanla Mobile Middle East FZ-LLC, Dubai started its commercial operations, for which Tanla Solutions Limited provided Service Delivery Platform & technical support services. All inter company transactions are considered in consolidated financials as per Indian Accounting Standards.

From FY0503 to FY0703, Tanal’s consolidated sales have shot up from Rs 22.39 crore to Rs 221.85 crore and consolidated net profit has surged from Rs 6.84 crore to Rs 92.79 crore. For FY2008, Tanla is expected to report consolidated sales of Rs 448.59 crore and consolidated net profit of Rs 161.43 crore, giving an EPS of Rs 32.3, which is expected to rise to Rs 41.7 in FY2009 on current face value of Rs 2. The company has announced split in face value from Rs 2 to Re 1. Current price of Rs 534 discounts the expected FY2009 EPS by only 12.8 times.

Tanla Solutions: Consolidated Financials

 

	0503 (12)	0603 (12)	0703 (12)	0803 (12P)	0903 (12P)
Sales	22.39	63.02	221.85	448.59	605.59
OPM (%)	34.2	55.7	49.8	46.7	46.7
OP	7.65	35.09	110.49	209.38	282.81
Other Income	0.34	0.10	7.37	19.10	21.01
PBIDT	7.99	35.19	117.86	228.48	303.83
Interest	0.00	0.00	0.00	0.00	0.00
PBDT	7.99	35.19	117.86	228.48	303.83
Depreciation	0.26	0.79	8.04	18.47	25.86
PBT	7.73	34.40	109.82	210.01	277.96
Tax	0.89	4.15	17.03	48.58	69.49
PAT	6.84	30.25	92.79	161.43	208.47
EPS (Rs.)*	1.4	6.1	18.6	32.3	41.7
* on equity of Rs 10 crore Face Value: Rs 2 Figures in Rs crore Source: Capitaline Corporate Database

 

Tanla Solutions: Consolidated Results

 

	0712 (3)	0709 (3)	Var. (%)	0609 (3)	Var. (%)	0712 (9)	0612 (9)	Var. (%)	0703 (12)	0603 (12)	Var. (%)
Sales	119.34	107.33	11	56.73	110	316.12	143.80	120	221.85	63.02	252
OPM	47.6	46.0		52.2		46.1	51.6		49.8	55.7	-5.9
OP	56.83	49.33	15	29.63	92	145.80	74.27	96	110.49	35.09	215
Other Income	4.69	4.09	15	0.02	999	13.85	0.08	999	7.37	0.10	999
PBIDT	61.52	53.43	15	29.65	107	159.64	74.34	115	117.86	35.19	235
Interest	0.00	0.00		0.00		0.00	0.00		0.00	0.00
PBDT	61.52	53.43	15	29.65	107	159.64	74.34	115	117.86	35.19	235
Depreciation	5.02	4.45	13	1.05	380	12.80	2.35	445	8.04	0.79	915
PBT	56.50	48.97	15	28.60	98	146.85	72.00	104	109.82	34.40	219
Tax	13.23	12.39	7	5.56	138	33.74	13.25	155	17.03	4.15	310
PAT	43.27	36.58	18	23.04	88	113.11	58.75	93	92.79	30.25	207
EPS (Rs) #	34.6	29.3		18.4		30.2	15.7		18.6	6.0
# Annualized on equity capital of Rs 10 crore. Face value of Rs 2 per share LP: Loss to Profit, PL: Profit to Loss Figures in Rs crore Source: Capitaline corporate database

 

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