India’s largest Communication Platform as a Service or CPaaS player and among the top 10 globally. Enterprises and Mobile Network Operators use their solutions for voice, email, SMS filtering, analytics, and monetization.
Since listing in late 2020, both Sales and Profits have grown 3X.
Despite intense competition from both local and international players, company has been able to grow its market share.
The management is filled with technocrats who have over 2 decades of experience.
Recently, the company has decided to merge with a global MNC called Proximus Group to gain a foothold in the US market. The erstwhile promoters will continue to run the show while taking advantage of the synergies from the merger. The deal is expected to close in Q1CY24.
They intend to use Proximus Group’s offering – Telesign which is a leader in Digital Identity solutions.
Operating margins are currently at 13%. Management has guided for this to grow to 15% over the next 3 years.
India comprises 48% of their total revenues. This makes them resilient against global slowdown vs other IT industry peers.
Lots of marquee FIIs, DIIs have a stake. Currently, total institutional holding is around 27%. Proximus Group has indicated their intention to launch an open offer for 17% shares when they have acquired control, so institutional holding will reduce going forward leading to lesser supply which is good. In my opinion, stock is over owned and this will be beneficial for shareholders.
As per charts, the price has been in long term consolidation and is expected to break out soon. This fast-growing company is available at a fair valuation of 27 PE.
Risks:
If for some reason, the Proximus deal falls through, the narrative will change, and stock might get derated. Promoters have struggled to break into the profitable US market for years and this seems to be a great chance to do so. If they fail, market will be unhappy.
Communication technology is rapidly evolving. The company has made some acquisitions in the AI and Blockchain space but their impact can’t be predicted in advance. We’ll need to be watchful.
Company doesn’t have enough pricing power over its peers as customers want to go for the lowest cost operators. We need to track how this changes with the combination of Proximus’ offerings.
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