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Affle (India) IPO opens today: Five things to know before you invest

Key shareholders in Affle (India) include Microsoft Global Finance, a subsidiary of Microsoft Corp, which owns 6.23 per cent stake

IPOs
Illustration: Binay Sinha

The initial public offer of Affle (India), the Indian unit of global technology company Affle, opens today. The IPO will be the first offer under the new Unified Payment Interface (UPI) mechanism, which was made mandatory for retail investor category with effect from July 1, 2019.

On Friday, Affle (India) raised about Rs 206.55 crore from 15 anchor investors by allotting 2772,483 equity shares at a price of Rs 745. Among the 15 anchor investors, Abeerden Asian Smaller Companies Investment and Franklin Templeton Investment Funds has subscribed over 3.05 lakh shares each.

Here's a look at the five key important things that you need to know before you decide to invest:

ABOUT THE COMPANY

Affle (India) is a global technology company with two business segments – the consumer platform and the enterprise platform. The consumer platform aims to enhance returns on marketing spend through delivering contextual mobile advertisements and reducing digital ad fraud. The enterprise platform, on the other hand, primarily provides end-to-end solutions for enterprises to enhance their engagement with mobile users.

It owns platforms such as mobile-audience-as-service (MAAS), mFaaS for mobile ad fraud detection, ‘ad2campaign’ for mobile marketing, ‘Ripple’ for cross screen advertising and ‘mTraction TVSync’ for TV-linked digital advertising, among others. Apart from India, the company operates in South East Asia, MENA, Europe, US, Japan, South Korea and Australia.

Key shareholders in Affle (India) include Microsoft Global Finance, a subsidiary of Microsoft Corp, which owns 6.23 per cent stake.

ABOUT THE OFFER

Affle (India) plans to raise up to Rs 459 crore through the IPO, which is a combination of fresh issue and OFS (offer for sale). The offer consists of a fresh issue of Rs 90 crore (20 per cent of the issue size) and an offer for sale of Rs 367-369 crore (80 per cent) – by the promoter. The money raised through fresh issue will be used for funding working capital requirements (Rs 69 crore) and general corporate purposes. The price band of the offer is fixed at Rs 740 - 745 apiece.

FINANCIALS

As per reports, the company reported a 31.6 per cent compound annual growth rate (CAGR) rise in standalone operating revenue over the financial year 2015-19 (FY15-19) to Rs 117.79 crore in FY19. Top-line growth was primarily aided by 28.6 per cent CAGR rise in the business from the consumer platform, which contributed an average of around 92 per cent to the total revenue over FY15-19. 

EBITDA (earnings before interest, tax, depreciation and amortisation) increased 91.3 per cent CAGR over FY15-19 to Rs 24.75 crore. EBITDA margin expanded from 4.7 per cent in FY15 to 21 per cent in FY19.

PAT (profit after tax) increased 64.9 per cent CAGR during this period to Rs 16.68 crore in FY19. PAT margin expanded from 5.7 per cent in FY15 to 14.2 per cent in FY19. The company had a positive standalone operating cash flow over FY15-19, which increased 152.5 per cent CAGR to Rs 17.53 crore in FY19. Average standalone return on invested capital (RoIC) and RoE (Return on equity) over FY15-19 was 26.1 per cent and 26.5 per cent, respectively.

KEY STRENGTHS AND RISKS

Over the years, Affle has focussed on improving its consumer platform which has helped evolve its algorithm resulting in better targeted advertisements, says Mrinalini Chetty, assistant vice-president at Centrum Broking. 

“This could provide an edge over the peers given the requirement of real time operation to drive better volumes. Besides, it follows an asset-light business model and has been acquiring companies in synergy with its business. The strategy could help provide additional services to customers thus ensuring further penetration and delivery of more converted users,” Chetty wrote in an IPO note.

Rapid change in digital technology trends, reduction in digital ad spends by companies, high dependence on top customers, slowdown in global economic expansion and the emergence of competition are the key risks to the company's prospects.

SHOULD YOU INVEST?

Most brokerages have assigned 'subscribe' rating to the issue. At the IPO price band of Rs 740-745, the stock is available at a P/E (taking PAT of proforma consolidated financials) multiple of 36.4x-36.7x FY19.

“Affle India looks promising considering its strong growth in the last three years. Even though the ad tech industry is competitive, Affle outperforms its peers with a higher number of consumer profiles and data points leading to a network moat. Hence, the high valuations justify the listing premiums it deserves,” says Umesh Mehta, Head of Research at Samco Securities.

Centrum Broking and Choice Broking, too, suggest investors can subscribe to the issue from a long-term perspective.