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ICICI Direct
Affle (India): Buy
CMP: ₹1,395.95
Target: ₹1,530
Incorporated in 2006, Affle is a technology platform that enables advertisers to do targeted advertising. It helps advertiser to measure the effectiveness of advertisement as it charges only when a user downloads an app or completes a transaction. In FY19, consolidated revenues rose 49.1 per cent y-o-y while PAT increased 75.4 per cent y-o-y. Despite this robust growth, revenues are just a fraction of the overall mobile advertisement market, representing tremendous scope for growth. Going forward, we expect revenues and PAT to increase at a CAGR of 32 per cent and 31 per cent, respectively, over FY19-22E.
Valuation & outlook: Affle has an asset light business model while its marketing efforts and more precisely targeted and personalised advertisements has bought in higher revenues while cost have remained relatively unchanged. This network effect has led the EBIT margins to improve from 1.9 per cent in FY17 to 24.1 per cent in FY19. Going forward, we expect the network effect to continue to impact revenues and profitability over a sustained period leading to an RoIC of more than 60 per cent over a long period. Hence, we have a ‘Buy’ recommendation on the stock with a target price of ₹1,530/share.
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