Tanla Platforms Limited, the cloud communications player, has been creating a stir in the sector with its technological solutions and expansion strategies. While the company sails through an evolving market, shareholders are interested to know its strategy for growth, future prospects, and if it is a suitable investment. Through this article, we explore Tanla’s expansion plans, critical developments, obstacles, and if the stock is a buy for long-term shareholders.
Growth Strategy
Emphasis on OTT and RCS Platforms
Tanla Platforms has been investing heavily in Over-The-Top (OTT) and Rich Communication Services (RCS) platforms. Tanla’s OTT business has grown immensely, with contributions increasing from 15% to 23% of total revenue. WhatsApp and RCS have been the driving factors, with RCS experiencing a 4x increase. Tanla also received the “RCS Growth Partner of the Year” award, reflecting its leadership position in this area.
Platform Business Expansion
Tanla has been monetizing its platform business, which spans solutions such as MaqP, Trubloa, and SMSC. These platforms are long-term usage-based and have witnessed strong growth. For example, MaqP, an RCS platform, reached a billion volumes in a month after launch. Tanla’s strategy of creating SaaS-based platforms allows it to ensure long-term stickiness of customers and recurring revenue streams.
International Expansion and Acquisitions
Tanla is also seeking to increase its global presence. Acquisition of VF International is an important component of this, although approvals are pending. The company is also seeing opportunities in international markets, especially in the enterprise communication segment.
Cash Deployment and Shareholder Returns
Tanla has been yielding robust free cash flows, with a free cash flow of 180% of PAT in Q3FY25. The management intends to invest this cash into three priority areas:
- Organic Investments: Further investment in innovation and people.
- Inorganic Growth: Considering acquisitions and strategic collaborations.
- Shareholder Returns: The company has announced an interim dividend of INR 6 per share and intends to return 30% of profits to the shareholders.
Future Outlook
OTT and RCS Growth
The OTT and RCS segments should be the growth drivers for Tanla. As WhatsApp and RCS gain popularity, particularly in marketing and promotional messaging, Tanla is well set to leverage the trend. Tanla is also engaged in building agnostic platforms that enable customers to use the communication channels of their choice, enhancing its market share further.
Margin Stability
In spite of industry-wide pricing pressures, Tanla has been able to hold steady gross margins of 25-27%. The company is confident of holding these margins, even as it is facing challenges in the ILD (International Long Distance) business, which has been shifting towards OTT platforms.
Global Expansion
Tanla’s global business, especially in the enterprise communications sector, is anticipated to increase. The firm also wants to exploit its platform business to grow geographically, and this could inject a huge increase in revenue over the next couple of years.
Challenges
Pricing Pressure in OTT and SMS Markets
The OTT and SMS sectors are extremely price-sensitive, and there is severe competition from the telecom operators as well as other technology giants. Tanla has experienced pricing corrections, especially in the WhatsApp business, which have affected margins. The company will have to go through these price pressures while not losing its market share.
Regulatory Hurdles
VF International’s acquisition is yet to receive regulatory clearances, which may hold back Tanla’s plans for international expansion. Moreover, the industry that the company operates in is heavily regulated, which may be challenging in terms of compliance and operational flexibility.
Dependence on Key Clients
Tanla’s business has a degree of dependence on primary clients, especially in the enterprise segment. Losing a principal client, like Vodafone Idea, has affected revenue in the past. The company shall have to diversify its customer base to mitigate this risk.
Key Advancements
MaqP Platform
The release of the MaqP platform has been a major milestone for Tanla. The platform has already reached a billion volumes in a month, indicating its scalability and future growth potential.
RCS Growth
Tanla has been a leader in RCS adoption with 4x growth in the segment. Its capacity to innovate and develop stickiness with enterprise customers has been a driving factor behind this achievement.
Cash Flow Management
Tanla has reflected solid management of cash flows, where free cash flow is at 180% of PAT during Q3FY25. Such financial capability enables the company to fund growth plans while also rewarding shareholders.
Is Tanla Platforms a Good Buy?
Pros:
- Robust Growth in OTT and RCS: Tanla is well-placed to leverage the increasing usage of OTT and RCS platforms.
- Stable Margins: In spite of industry headwinds, the company has recorded stable gross margins.
- Cash Flow Strength: Robust free cash flow generation gives leeway for future investments and shareholder returns.
Cons:
- Pricing Pressure: The company experiences high pricing pressure in its core markets, which may affect margins.
- Regulatory Risks: Delays in receiving regulatory approvals for acquisitions would stifle plans for growth.
- Client Concentration: Reliance on major clients risks the stability of revenue.
verdict
Tanla Platforms Limited offers an attractive investment proposition for long-term investors, especially those optimistic about the growth of OTT and RCS platforms. The firm’s robust cash flows, stable margins, and innovative platform offerings make it a good bet in the cloud communications segment. Investors should, however, be cautious of the pricing pressures and regulatory threats that may affect short-term performance.
Key Terms Explained
OTT (Over-The-Top): Pertains to content or services delivered over the internet and not through conventional cable or satellite television. In Tanla’s context, it pertains to messaging applications such as WhatsApp.
RCS (Rich Communication Services): A sophisticated messaging protocol supporting richer communication capabilities such as read receipts, typing hints, and multimedia sharing.
ILD (International Long Distance): A type of communication services that enables the user to place calls or send messages overseas.
SaaS (Software as a Service): An application distribution method in which the software is maintained by a service provider and distributed to customers over the internet.
PAT (Profit After Tax): The profit after deducting all the expenses incurred by the company, including tax.