Tunes well
Uday Kumar and Tanuja Reddy took control of Prism Foods (dubbed vanishing company under the original promoters) in 2000 and renamed it Tanla Solutions. The company commenced commercial production of telecom signaling solutions in 2000. It specialises in providing SS7 (Signaling System 7) messaging infrastructure software products including short messaging service centres (SMSCs), high density media servers (HDMSs), optimal routing solutions, welcome roamers, voice mail servers and caller ring back tone servers. It also offers messaging applications and billing services (aggregator services) and offshore services including software development, infrastructure management services and technical support services. Tanla Solutions provides telecom-signaling products to operators of mobile communications networks and aggregator services to content providers in connecting mobile operators.
The head office and delivery centres of Tanla Solutions are in Hyderabad, India. Its UK offices lead international marketing. The company’s subsidiary Tanla Solutions (UK) has a wholly owned subsidiary Tanla Mobile (previously known as Mobizar ) which provides aggregator services to all the major mobile network operators in the UK.
Strengths
- More than 50% of the revenue of Tanla Solutions come from the aggregator segment. As per Strategy Analytics (an international Research and consultancy firm), the non-voice market segment including SMS, EMS, MMS, e-mail, information, entertainment and corporate content is slated to grow from US$ 61 billion in 2004 to US$ 189 billion in 2009. According to Frost & Sullivan, US, the number of subscribers participating in short-code SMS services is likely to increase from nine million in 2003 to 35.9 million in 2007. According to Mobile Messaging, 2005 Edition (brought out by Informa Telecoms and Media), the global SMS market will account for $70 billion in revenue out of the total messaging market of $120 billion by 2010. Highlighting the importance of mobile messaging, IDC (International Data Corporation) estimates this segment of the market, which includes a variety of services such as SMS and MMS, will be worth more than $15.4 billion in revenue in Western Europe by 2010.
- In the UK, Tanla Solutions caters to telecom operators like Vodafone, O2 and Hutchison with a global presence. This will benefit the company to expand geographically.
- Tanla Solutions has a high operating profit margin (OPM) and net margin. The company reported an OPM of 55.7% and net margin of 48% in FY 2006, and OPM of 51.3% and net margin of 41% in the first half of FY 2007.
- On a standalone basis, Tanla Solutions has been able to report a quarter-on-quarter (q-o-q) revenue, profit before interest, depreciation and tax (PBIDT) and net profit growth consecutively for the past eight, seven and three quarters, respectively. In the September 2006 quarter, sales and net profit were up 10% and 20% over the June 2006 quarter, and 97% and 81% over the September 2005 quarter. On a consolidated basis, the September 2006 quarter showed around 19% sales and 22% net profit growth over the June 2006 quarter.
Weaknesses
- Top 5 clients contributed about 49% of the consolidated revenue in the first half of FY 2007. There is a risk of weak performance (especially on a q-o-q basis) if any major client’s business slows down. However, this is common for all small and niche companies. But one should bear this in mind, specially in an IT industry, where q-o-q growth is more important than y-o-y growth.
- The industry in which Tanla Solutions operates is highly competitive and fragmented, specially in the aggregator segment. The company estimates there are about 10-12 players in the UK, and its market share is about 2%, with the largest player controlling about 17% of the market. Tanla Solutions faces competition in telecom products and products business from several participants in the global markets in which it operates.
Valuation
Tanla Solutions’s shares are listed on the Hyderabad, Madras and Ahmedabad stock exchanges but are infrequently traded. The half yearly-annualised EPS for the six months ended September 2006 on post-issue equity works out to Rs 14.3. At the price band of Rs 230 – Rs 265, PE is 16.1 to 18.6. Though there are no strictly comparable listed companies, TTM PE of the Computer Software Medium/Small Industry is 24.