The company’s operations are growing fast and profitable with strong return ratios and no long-term debt. Its demanded valuation appears to take into account the future growth potential. Considering these factors and higher stock market volatility, investors with higher risk appetite may consider investing in the initial public offer (IPO).
Business And Financials
The company was incorporated in 1994 as Tejus Securities Pvt Ltd. It received a fresh certificate of incorporation in 2006 after it changed the name to Affle (India) Pvt Ltd. In 2018, it was converted to a public limited company named Affle (India) Ltd.
Leading global advertising agencies and large companies in the consumer and e-commerce spaces are clients of Affle (India). Over 97 per cent of the revenue is from the consumer platform driven by the cost per converted user (CPCU) model.
This means the company receives payment only when a mobile user either downloads the application of Affle’s client or carries out a transaction through its platform. This offers a better value proposition to clients compared with other advertising solutions that rely largely on number of clicks or visits per web page.
On a proforma basis, that is after including the full-year revenue from the acquired entity Vizury Interactive solutions, Affle (India) reported Rs 269 crore in revenue and Rs 52 crore in net profit in FY19. Of this, 44 per cent was from India and the rest was from South East Asia, Middle East and Africa, North America, Europe, Japan, South Korea and Australia.
Risk Factors
Affle’s business relies on advertising volumes, which depends upon consumer demand and propensity. During uncertain economic scenario, any reduction on advertising budgets by clients will affect business. In addition, entry of other companies in future will increase competition, reducing profitability.
Valuation
At the upper end of the price band and considering the post-IPO equity, the price-earnings ratio works out to be 36.5 on proforma basis. There are no listed peers in India. Listed firms such as Brightcom Group, which provides in-video advertising, differs from Affle in its business model.
Affle (India) reported return on equity of 67 per cent in FY19. While the company operates in a fast growing sector, the rich valuation and uncertain market outlook makes the IPO more suitable to investors with higher risk appetite.
(Disclaimer: Bennett, Coleman and Company Ltd (BCCL), the publisher of ET, holds 5.2 per cent stake in Affle Holdings Pte Ltd, the promoter of Affle (India).)
