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Tanla Solutions: Creating a Niche

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DQI Bureau
New Update

The woes of the middle market companies in the software segment

never seem to end. After the dotcom bust and the waves of consolidation in the

industry, the recent fall of the dollar against the rupee has been crippling for

many small players. It could not really have come at a worse time as the

industry is going through a massive shortage of people and rising salaries.

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Yet amidst these trying times, there are success stories from

mid market and even small companies that have taken up the challenge and built

defensible business models that can withstand the ever changing business

environment.

Among such companies is Hyderabad-based Tanla Solutions that has

focused on a few areas where, due to its domain knowledge and intellectual

properties, it has been able to create a small niche for itself in specific

markets.























FACT

SHEET

Website:www.tanlasolutions.com



Tanla Technology Center


Hitech City Road, Madhapur, Hyderabad 500081


Tel: +91-40-40099999


Fax: +91-40-23129999


Area

of Specialization:


Provider of telecom signaling solutions to MNOs, MVNOs

and MVNEs, and offshore services
Consolidated

Revenues
:

Rs 229.21 crore (Year ended March 31, 2007)
Offices:

India and UK
Listing

(Stock Exchanges):
National,

Mumbai, Hyderabad, Madras, and Ahmedabad
Face

Value:


Rs

2 per share
Current

Market Price:
Rs 469.69
52-Week

High/Low:
Rs 521.95 / 269.80
BSE

Code:
532790
NSE

Code:
TANLA
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Founded in 1999 by a group of professionals, Tanla Solutions is

a profit making company with its software development center in Hyderabad and

Andhra Pradesh in India, and worldwide marketing office in the UK. The founder

and CMD of the company, D Uday Kumar Reddy, is an MBA from UK and leads the

management team. The promoters of the company hold 35.53% shares of Tanla.

Private corporates own 12.47% while foreign institutional investors holding

stands at 34.49%. The Indian public and others hold 15.9% and 1.61%

respectively.

The company specializes in developing mobile applications and

platforms for the mobile telecom, media, and digital communications sector. The

company has partnership with mobile operators across Asia and Europe to deliver

and bill mobile content over SMS, WAP, MMS, and video applications. Tanla

Solutions claims to be Indias first company to make short message service

center (SMSC) and voice mail server (VMS). Its clientele includes leading

cellular operators from India and abroad. Their SMSC has been deployed with

clients like Reliance, BPL, Hexacom, Airtel, and Essar. Even as telecom remains

the companys core area, the company has diversified into new areas using both

the organic and inorganic route to include offshore development and maintenance,

and infrastructure management services in its portfolio.

The financial results for the year ended March 31, 2007 reflect

the significant progress the company has made in penetrating new markets and

clients, though at the cost of margins. Turnover for the year was up 252% at Rs

222 crore against Rs 63 crore last year. Net profits grew by 207% to Rs 93 crore

against Rs 30 crore last year. The main growth driver was the mobile transaction

and billing aggregation business, which grew from Rs 33 crore in fiscal 2006 to

Rs 157 crore in fiscal 2007. The offshore services business, which grew from Rs

8 crore last year to Rs 26 crore this year. The operating profit came at 110.5

crore. The operating profit margins stood at 49.8% against 56% achieved in the

previous year.

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Financials

Year ended 31st March

2006

2007

2008*

Sales

63

222

388

Other Income

0

7

5

Operating Profit

35

111

155

Operating Profit (%)

56

50

40

Net Profit

30

93

120

Equity

7

10

10

EPS (Rs)

9

19

24

*Projection



All figures in Rs crore unless indicated otherwise. All figures are
rounded-off

The company announced substantial profit growth for the first

quarter ended June 30, 2007. Tanla reported total revenues of Rs 94.5 crore

against Rs 39.7 crore for the corresponding quarter of 2006 on a consolidated

basis, a rise of 138%. Net profits have jumped 107% to Rs 33.3 crore on an

annualized basis.

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The company has also reported that it is conducting research in

the area of telemetry and telematics to start marketing some of these

technologies and products in the coming years. The company has utilized Rs 77

crore approximately of the follow-on-issue proceeds of Rs 421 crorethe rest

of Rs 344 crore remains unutilized. The company is evaluating companies in the

US for acquisitions or joint ventures to enter the US market.

Given the inductions into the senior management team as well as

the continued focus on the niche mobile solutions markets with newer products

and services, we believe that Tanla would be able to maintain its momentum in

terms of sales growth. Given the early stage of the company, sales would,

however, continue to be lumpy across quarters. Further, increasing marketing and

administrative overheads are likely to impact margins in the short and medium

term.

The shares of Tanla Solutions trade at Rs 470 discounting its

estimated earning of 2008 by 19.6 times. While this may seem high given the

small size of the companys operations, the high growth and the promise of

high margins of the products business has resulted in a higher valuation of the

company vis--vis its peers. As the company increases its exposure to the

services business, its margins are likely to come down further in the medium

term. We, therefore, do not expect any substantial change in the valuations in

the medium term. Longer-term success of its product line would determine the

direction the stock will take. Market Performer.

Sushanto Mitra





The author is director, Techcap India



sushanto@techcapIndia.com




The views reflected here are of the author and not of this publication.


No liability is accepted for losses based on the information presented here

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