Capitaline

Analyst Meet / AGM 06-May-09

Conference Call

Tanla Solutions

Net margins for FY10 expected around 23-24%

Tanla Solutions held a conference call to discuss the fourth quarter results and future prospects of the company. Mr Uday Reddy, Chairman and Managing Director addressed the call.
Highlights of the call

Going forward, the management expects OPM to be at Q4FY09 level of 31.4%. The net margins for FY10 are expected to be 23-24% down from 29.5% for FY09.

The drop in margins is mainly due to the volumes of Premium SMS services revenues tapering off or moving down going forward. The management expects the share of mobile payments in revenues to increase. The PAT margin for mobile payments is about 25%.

Going forward, the focus of the Company would be more on video chat and mobile content services.

Regarding the UK business, the management believes that the worst is over and volumes would pick up gradually.

Effective tax rate for FY10 would be about 10-12%. For FY09, the effective tax rate was 11.6%. For the quarter, tax was credit of Rs 5.44 crore due to carry forward losses in Tanla Oy (Openbit) not considered in previous quarters resulting in a tax write-back of Rs 3.62 crore. Tanla Oy received an advance ruling in Q4FY09 from the Finnish tax authorities that the company will be allowed to deduct the accumulated losses from previous year before paying corporate tax. Depreciation allowance not considered in earlier quarters resulting in a tax write-back of Rs 5.11 crore and tax restructuring based on advice from KPMG resulting in a tax write-back of Rs 2.32 crore.

The domestic revenues for the quarter were down Rs 3.86 crore against Rs 6.13 crore in the sequential quarter on the back of loss of 2 large clients. The clients have stopped operations in India due to low sharing ratios with telecom operators.

For the fourth quarter ended March 2009, Tanla reported 15% sequential dip in consolidated operating revenue at Rs 142.43 crore on the back GBP depreciation and impact of change in regulation regarding billing to clients in the UK. Openbit contributed Rs 32 crore against Rs 31.8 crore in the sequential quarter. Product business revenues grew 12% at Rs 13.3 crore Aggregator business revenues dipped 19% at Rs 87.6 crore and professional services revenues dipped 19.8% at Rs 12.2 crore.

Forex loss on translation for the quarter was Rs 5.1 crore.

The number of SMS dipped to 6.7 million from 8.9 million in the sequential quarter due to change of regulations by PayPhonePlus, the telecom regulatory authority of the United Kingdom. The new regulations require all services (old and new) to obtain a prior approval from the regulator, plus an opt-in every month from all service subscribers for renewal of the service. The change in regulations combined with the current market conditions resulted in a lower marketing spend by the content providers leading to decline in overall traffic and revenue.

The Company has entered into JV with Zed Worldwide Holdings, the market leader in mobile content with annual revenues in excess of US$ 1 billion with operations in more than 54 countries. The investment in the JV is about Euro 10 million. The operations would commence by June 2009. The JV has been formed to tap the VAS market in India.

The US and Spain markets are challenging whereas the Company is seeing faster growth in Africa & Asia market. The margins in these two geographies would be lower.

Openbit had revenues of Rs 32 crore with PAT of Rs 8.12 crore for the quarter. For FY09, the operating revenues stood at Rs 88.1 crore with profit of Rs 18 crore. The management has plans to integrate Openbit with Tanla.

For FY09, aggregator business revenues grew 33.5% at Rs 471.4 crore, product revenues grew 22% at Rs 61.9 crore, Professional services revenues grew to 65.9 crore and mobile payment revenues were at Rs 88.1 crore.

Debtors at the end of the quarter stood at Rs 260.39 crore of which 52% are telecom operators, 11% are aggregators and Handset manufacturers are 12.6%. The DSO days are up at 138 days from 119 days at the end of sequential quarter. 0-30 days: Rs 42 crore, 31-60 days: 46 crore, 61-90 days: 48 crore, 91-120 days: 115 crore and more than 120 days: Rs 8.6 crore.

Loans & advances at the end of the quarter stood at Rs 107 crore. The increase over last year was Rs 46 crore: factoring of receivables: Rs 20 crore, employee loans: Rs 4.5 crore, advances to content providers: 12.8 crore and rental deposits: Rs 11 crore.

The geographical mix of revenues for the year: India: Rs 182 crore, UK: Rs 173 crore, Singapore: Rs 40 crore, US: Rs 22 lakh, Dubai: Rs 167 crore and Finland: Rs 90 crore.

Gross fixed assets at the end of the FY09 stood at Rs 318.87 crore up from Rs 177.07 crore at the end of previous year. Capital WIP stood at Rs 78.08 crore: advance for campus development – Rs 62.5 crore, platform development – Rs 8 crore, investments in UAE – Rs 15 crore. The management has cancelled the development of campus in Hyderabad. IT would take the necessary approvals from the board and get refund of money.

The Company has cash & cash equivalents of Rs 171. 27 crore up from Rs 151.3 crore at the end of sequential quarter. Amount in FD is at Rs 74.36 crore.

The company reduced manpower to 372 employees down from 490 employees at the end of sequential quarter.

R&D expenses for the year was at Rs 22 crore.

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