Affle India: Initial Public Offer. Affle India - Initial Public Offer: Adopt a wait-and-watch approach

Affle (India) plans to raise nearly ₹460 crore in the initial public offering, with a fresh issue of up to ₹90 crore and an offer for sale by the promoter Affle Holdings of around ₹369 crores. Affle India is an ad-tech company that offers a mobile advertising platform for e-commerce firms, brands and advertising agencies.

Affle’s various platforms are used by companies in the e-commerce, media, retail and FMCG sectors, to target people in the digital space (that includes mobiles and desktops) for advertisements. A chunk of Affle’s revenue is on a ‘cost per converted user’ (CPCU) basis. This means Affle gets paid every time a user clicks on an advertisement on a mobile device, opens the mobile application or downloads the application. While the business model is novel and has big opportunity for growth in the fledgling market, investors can give the IPO a miss for now.

For one, the business operates in a competitive environment and requires frequent acquisitions to sustain growth. The offer is also steeply priced and there is no comparable listed peer in the Indian market. While the scarcity premium can find favour with investors, for risk-averse long-term investors, a wait-and-watch approach is advisable. Sustainability of high revenue growth and profitability will be imperative to drive valuations. Competition from big boys like Google and Facebook could scuttle the future growth of companies like Affle.

Investors can keep a close watch on the company’s performance in the coming quarters before investing.

Corporate structure rejig

Realignment of Affle Group’s corporate structure, in 2018-19, led to a significant boost to consolidated revenues.

The parent company of Affle India, Affle Holdings, has another subsidiary — Affle Global. Affle India acquired the entire business of Affle Global in 2018-19 through its Singapore-based subsidiary, Affle International Pte Ltd. In this deal, Affle International acquired Affle Global’s consumer and enterprise business platforms, intangible assets and its 100 per cent equity stake in PT Affle Indonesia.

Affle India also made a series of acquisitions. It bought Vizury Interactive Pvt Ltd’s commerce business in 2018-19, which included its retargeting platform for e-commerce and push notification platform (commerce business) for $1.5 million.

In May 2019, Affle International bought Shoffr Pte Ltd’s business for $0.55 million and the US-based RevX Inc’s business for $4.5 million in June. RevX’s business consists of developing and operating mobile marketing platforms.

Post-re-structuring and a series of acquisitions, Affle India’s consolidated numbers for 2018-19 got a fillip. Earlier, the various businesses were housed under Affle Global and, hence, did not form part of Affle India’s consolidated statements. In 2018-19, Affle India earned a consolidated net profit of ₹48.82 crore on revenue of ₹249 crore.

Affle India’s standalone net profit has grown from ₹33 lakh in 2016-17 to ₹16.7 crore in 2018-19. The revenue has grown at 34 per cent CAGR (compounded annual growth rate). Hence, growth does not appear to be a challenge for the company. However, profitability is lower in the market, with average CPCU at about ₹25 as against ₹60 in other emerging markets and around ₹114 in developed markets (in 2018-19).

Hence, the company will have to make acquisitions to drive profitability and grow its international business.

Based on consolidated earnings, the company is valued at 36.82 times the trailing 12-month at the lower end, and 37.06 times at the upper end of the price band of ₹740-745 in the IPO.

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