Tanla Solutions Ltd.

Background:

• Tanla Solutions Ltd. (TSL) incorporated in the year 1995 as Maruti dairy products Ltd. The name of the company was changed to Prism foods Ltd in the year 1996.Subsequently it changed its name to the present one in the year 2000 and became a telecom solution provider from a dairy company.
• TSL is in the business of providing integrated telecom solutions and products for the wireless market. TSL operations are segregated into three categories viz telecom signalling solutions, aggregators services (Messaging Applications & Billing services) and offshore services.
• Operators of mobile communications network use company’s telecom signalling products and TSL`s aggregate services facilitate content providers in connecting to mobile operators.
• Company came out with its IPO in 1996 and company’s shares are already listed on Hyderabad Stock Exchange (HSE), Ahmedabad Stock Exchange (ASE) and Madras Stock Exchange (MSE).

Objects of the issue:

• For Setting up infrastructure facility for a development centre at Hyderabad.
• For Setting up the infrastructure facilities for a backup / disaster recovery centre at Bangalore.
• To Establish overseas marketing offices.
• For expansion & Upgradation of Existing Research & Product Development facilities.
• To fund regional / global expansion and acquire and invest in strategic business.
• For general corporate purposes.
• To meet Issue expenses.

Strengths: Mobile communication market can be classified into voice segment and non-voice segment. The major businesses of company are in the Non-Voice Market segment, which is expected to grow at a CAGR of 25.38% till 2009. Going forward growth in telecom business will come from the non-voice segment.

• Tanla is India's first company to make SMSC (Short Messaging Service Centre) and VMS (Voice Mail System) indigenously. These are accepted as robust products by several leading cellular operators from India and abroad and have already been deployed with prestigious clients like Reliance, BPL, Hexacom, Airtel and Essar.
• TSL offers end-to-end solutions to mobile network operator clients and aggregator service clients who do not have extensive internal technological capabilities. End-to-end solutions also help company’s clients in quickly getting their new service offerings to market.
• TSL has been flexible in offering pay-for-use and revenue sharing pricing options to many customers. By this TSL facilitate its clients to convert large fixed costs into variable costs.
• In coincidence with marketing and selling of products and services overseas, company maintains substantial portion of its cost base in India. It facilitates TSL to earn better margins.

Weakness:

• The company operates in a highly competitive market, which is rapidly changing. Competitors, especially outside India, with greater brand name & superior technology can adversely affect the operational efficiency & financial condition.
• Significant percentage of TSL consolidated revenue (98%) in FY 2006 and approximately 99% of its consolidated revenue in half year ended September 30, 2006 was earned in foreign currency. Going forward company expect to earn substantial amounts of our revenue in foreign currency. Any adverse movement in foreign exchange rates may adversely affect its financial performance.
• Collection period of the company for FY 2006 was 127 days and is considerably high from 38 days and 56 days in FY 04 and FY 03. It reflects high bargaining power of TSL`s customers.

Valuation:

• There are no comparable listed companies in India doing the same business. TSL`s total income (unconsolidated) has been increasing at a robust CAGR of 168% from Rs. 0.86 crores in FY 2002 to Rs. 41.9 crores in FY 2006. Consolidated total income of the company increased by 178% to Rs. 63.12 crores in FY 2006 from Rs. 22.72 crores in FY 2005. Total income for the half-year ended September 2006 stood at Rs. 87.1 crores.
• OPM and NPM of the company have been increased from 15.58% and 6.49% in FY 03 to 68.26% and 62.15% in FY 06. However it was 70.79% and 66.85% in the FY 05.
• TSL`s return on capital employed and return on Networth have been increasing at a robust pace and reported at 75.89% and 70.17% for the FY 06.
• Company’s net worth as on 30th September 2006 stood at Rs. 58.7 crores. While the book value was at Rs.17.48 for the same period.
• Post issue Annualized EPS based on 30th September 2006 earnings comes out to be Rs. 14.28. Shares are being offered in the price band of Rs. 230 to Rs. 265. At P/E multiple of 16.1 to 18.5.