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Affle India Limited (AIL) is scheduled to launch its maiden public offer on Monday, 29 July 2019. The mobile marketing technology company has priced the IPO in the range of INR740 – 745 per share (check more details) with the aim of mobilizing INR459 crore (INR4.59 billion). Out of this amount, the company has already raised INR206.55 crore by placing shares to 15 anchor investors at the upper end of the price range. These investors include Goldman Sachs India, Malabar India Fund, Abeerden Asian Smaller Companies Investment and Franklin Templeton Investment Funds. Meanwhile, several brokerage houses have also come up with Affle IPO recommendations. Here is a brief snapshot of analyst views:
Centrum Wealth has recommended investors to subscribe to the offer citing scarcity premium and growth prospects. “At higher end of the price band of INR745, the issue is priced at P/E of 38.9x (post dilution) on FY19 consolidated basis and 36.7x on proforma basis, which we believe is fully priced. The company has no listed peer. Affle has been building and improving its Consumer Platform resulting in products spanning the entire value chain. In addition, following the acquisition of Vizury, Shoffr and RevX, the service offerings have increased. Affle could be a key beneficiary with the ad tech market expected to register global CAGR of 10% to $54 billion and India CAGR of 39% to $808 million over 2017-22 (Frost & Sullivan Report). Expansion of customer base and market penetration could aid volumes of Cost Per Converted User (CPCU). Despite the highly competitive nature of the market, Affle has reported decent financials (PAT INR49 crore, RoE 67.4%, debt to equity 0.1x – FY19 consolidated). Being the first of its kind issue and growth prospects, despite mature valuations, investors can subscribe to the issue from a long term perspective,” noted analyst Mrinalini Chetty.
Angel Broking noted that the company has a high dependency on top 10 customers which contributed 64.5% of its consolidated revenue in FY19. “At the upper end of the price band, AIL is valued at PE multiple of 37.1x of FY19 EPS. AIL has no listed peers in India. International peers such as Trade Desk and Criteo trades at 129 & 14 PE respectively. Considering the inherent risk in the business, we have a NEUTRAL view. Investors with high risk appetite and short term view can subscribe to the issue for listing gains,” opined the brokerage house’s research note on Affle IPO.
While SMC Global Securities acknowledged that the company has a unique low-cost and asset light business model, it also highlighted the risk factors around client concentration and tough competition. ” The company is having a unique business model and the company earns 70% from its global business and the rest 30% from home. The company runs the asset-light business model with debt-free status. The company has stated that it has applied for 10 patents in India covering various algorithms in the area of digital fraud detection, all of which are pending. It has no listed peers to compare with,” said the research report which has a Neutral rating on the IPO.
However, SPA Securities boosted positive Affle IPO recommendations with its subscribe rating. “As transactions on mobile apps keep getting more traction and become mainstream, we believe that the demand for Affle’s user acquisition and retention solutions to grow manifold. Asset light model imparts immense potential for margin expansion and its presence across advertising value chain provides strong moat to the business model. Management’s focus on profitability has created a combination of sustainable high growth, margins and cash flow generation. We believe high sales growth and operating leverage to play out resulting in margin expansion which can result in sharp increase in profitability and improvement in ROE going ahead. However execution of the same will remain a key investment risk. At the upper price band of INR745, the issue is priced at FY19 P/E of 38.9x. We recommend SUBSCRIBE on the issue,” said analyst Ravikant Sangepag in the report.
Choice Broking is also positive about the prospects of the company and has highlighted a reduction in valuations from pre-IPO levels. “Estimated valuation of Affle during the stake sale to Malabar Investments was around USD 375mn. However, with this IPO, Affle is demanding a valuation of Rs. 18,995mn (USD 275.7mn). Lower valuation can be primarily attributed to subdued global economic outlook and negativity in the domestic equity capital markets. Nevertheless, the fundamental of the company is intact and is expected to excel both in the domestic and global markets.”
“There is no listed entity in India comparable to the business profile of Affle. At the higher price band, Affle is demanding a standalone P/E valuation of 113.9x (to its FY19 EPS of Rs. 6.5), which at a premium to its peers (i.e. The Trade Desk, Inc. and Mobvista Inc., selected based on the business model and profitability margins) average of 68.6x. However, based on its FY19 consolidated financials, Affle is demanding a P/E valuation of 38.9x and is discount to the peer average. Thus, considering the growth outlook coupled with dominant domestic market position and expected benefit from the operating leverage, we assign a “SUBSCRIBE” rating for the issue,” added the analyst from the brokerage house.
Hem Securities also put out a note with a subscribe rating on the IPO. “The company is bringing the issue at p/e multiple of approx. 39 on post issue FY19 eps basis at higher end of price band of Rs 740-745/share . Company being in a leading position in India has a high growth market with substantial barriers to entry. Also, company has proven international track record. Company with its profitable, low-cost business model built on an asset light, automated and scalable platform is well placed to tap opportunities present in the sector. Hence we recommend “Subscribe” on issue,” said its analyst Astha Jain, adding further to positive Affle IPO recommendations.
As one can see, analysts are largely positive in recommendations for Affle IPO. It helps to know that its shares are commanding a healthy premium in the grey market. For more details about the IPO, head to this discussion page.