In the US, the rally in the shares of Facebook, Amazon, Apple, Netflix and Microsoft has been well-documented, because of heavy investor bets on tech companies, and so has been the 820 per cent gravity-defying surge in the shares of electric car-cum-technology company Tesla.
In India too, technology and internet economy companies like Info Edge, IndiaMART Intermesh and, to some extent, Mukesh Ambani’s Reliance Industries (read R-Jio) have benefited from investors’ penchant for such companies.
However, it is a little-known cloud service providing company based in Hyderabad, which has trumped all of the big shots named above. The stock is Tanla Platform.
Shares of Tanla Platform, which is a communication platform as a service company, have seen a parabolic rise in the 12-month period ended on Friday, rising a little more than 1,000 per cent.
The company is promoted by first-generation entrepreneur Dasari Uday Kumar Reddy, who formed it in May 1999 at the height of the ‘dot com’ bubble. The company is backed by some of the marquee names in global private equity and asset management industry such as Blackstone, Akash Prakash-owned Amansa Capital and Capital Group.
In November, the company’s largest public shareholder — Banyan Investment (an affiliate of Blackstone) — decided to book some of the profits by selling 11.03 per cent out of its 16.17 per cent holding in the company. The stock remained unfazed, as the entry of Amansa Capital and Capital Group in the same month helped it nearly double over the subsequent two months.
In December, IIFL Securities started the first sell-side coverage on the company with a ‘buy’ call and a price target of Rs 850 for the next 12 months. “An increase in use cases, up-selling to existing clients, new client additions and overseas expansion would drive growth for Tanla,” IIFL Securities’ Balaji Subramanian and GV Giri wrote in a note.
Rally such as the one seen in the shares of Tanla Platform can be characterised as fluke and bubble, especially if it’s not backed by fundamentals or earnings performance. There are several stocks that have seen such stratospheric rise driven by an exuberance among retail and high net-worth investors.
In the case of Tanla Platform, investors can point to the strong earnings growth enjoyed by the company over the past two quarters as signs of emerging demand for its services.
Tanla Platform, which renamed itself from Tanla Solutions in October to embrace its identity as a cloud platform provider, reported 18 per cent on-year revenue growth in April-September period while operating profit nearly tribled from the year ago period, regulatory filings showed.
A major factor driving Tanla Platform’s performance has been the receding risk of losing one of its biggest clients in Vodafone India, which averted the chokehold of bankruptcy after the Supreme Court allowed the telecom operators to pay their adjusted gross revenue (AGR) dues over a 10-year period.
Another major factor in the stock performance was the rise in revenue share from the company’s blockchain technology deployed through Trubloq, which currently handles around 70 per cent of India’s application-to-person messaging traffic.
IIFL Securities believes Trubloq could be a further game-changer for the company, as it could drive revenues of Rs 500 crore by 2022-23. It is the only blockchain platform deployed by Vodafone Idea and MTNL and one of the two used by Bharti Airtel.
This is not the first time Hyderabad-based Tanla Platform is tasting success.
After the stock debuted in 2007 at Rs 265 apiece, it managed to nearly double in a year. But as the twin recessions of 2008 and 2011 took their toll on its biggest markets in the UK and Europe, the stock crashed to as low as Rs 2.4 by 2013.
Recently, some market participants raised concerns over the company’s accounting practices and also the frequency of business dealings with related party entities. Further, they expressed surprise over the share buyback done in early 2020 at a whopping 55 per cent premium to the prevalent stock price.
Doubters also point to the lack of institutional ownership in the company besides a handful of foreign investors and high net-worth individuals. Even retail investors, who have bought smallcap and midcap stocks in droves in recent months, seemed to have used the recent rally in the stock to book profit.
For Tanla Platform, its switch to a more India-oriented business with a focus on the cloud platform that leverages the burgeoning digital economy of the country is a second shot at success. This time, the company will hope that the success becomes sustainable.