Down 60% From Its High, This Beaten Down Stock To Consider Share Buyback


Tanla Platforms is a cloud service provider enabling businesses to communicate

If this year’s market volatility has taught us anything, it’s that no matter how strong or fundamentally sound a company may be, no one can precisely predict how its future would look like.

Did you imagine your favourite bluechip stock falling more than 40%? It happened this year when even the bluest of bluechips suffered.

Did you imagine a monopoly stock to fall as much as 60%? Not just one but there are several monopoly stocks still trading at big discounts. Among monopoly stocks, one stock which suffered to a great extent was Tanla Platforms.

Tanla Platforms is a cloud communications provider enabling businesses to communicate with their customers and intended recipients. It’s a global A2P (application to person) messaging platform provider. The company has an almost monopoly in the OTP business.

Due to the global tech stocks selloff and weak quarterly results, the share price of Tanla Platforms was taken to the cleaners.

But now, investors in Tanla Platforms have sighed a relief as the company on Friday announced it will consider a share buyback program next week.

Tanla Platforms Buyback

In an exchange filing on Friday, the company said,

‘This is to inform you that the Board of Directors of the Company will consider a proposal for buyback of Equity Shares of the Company including matters related/incidental thereto, at its meeting which is scheduled to be held on Thursday, September 08, 2022.’

Following this news, the share price of Tanla Platforms spiked 4% intraday on Friday and ended 3% higher.

A share buyback is a corporate action where companies buy back their own shares from existing shareholders. The buyback price is usually at a premium to the current market price. Sometimes, it’s even as high as 50% from the current price.

A buyback indicates the company has adequate cash to buy its own shares and is willing to reward its shareholders.

Buybacks are usually carried out when the management of the company perceives the shares of the company are undervalued in the market. This leaves the shareholder with the hint about the long -term growth expectation of the company.

A word about Tanla Platforms

Once a little-known company, Tanla Platforms came to attention when it delivered mind-boggling returns and turned out to be one of the best multibagger stocks.

From a price of mere Rs 5 in December 2011, the stock zoomed to Rs 1,880 in ten years.

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Rs 1 lakh invested would have turned Rs 1 cr if you had practiced long term investing.

Tanla is one of the world’s largest communications platform-as-a-service (CPaaS) players. It processes more than 800 bn interactions annually. CPaaS players enable enterprises to send OTPs, transaction alerts, and flight status info to end-users.

The company had the grit to survive major recessions of US (2008) and Europe (2013). In August 2013, the stock tumbled to as low as Rs 2.

Tanla Platforms has been around for years but the massive rally post pandemic brought the stock to limelight. It started reporting higher revenues and profits from the September 2020 quarter. But good quarterly results are not the only thing which triggered the rally.

The company made acquisitions and diversified its revenue stream by looking at overseas clients. It also launched new products including its fully blockchain enabled CPaaS platform Trubloq.

If all was well, what stopped the rally?

Tanla Platforms started falling in 2022 owing to a fall in global tech stocks. All Indian IT and tech stocks mirrored the trend and fell big time.

Tanla Platforms was no exception.

A major blow came post June 2022 when the company reported weak financial performance.

While revenues and profits were affected, EBITDA margin also corrected sharply. It was impacted by headwinds such as market disruption, modernisation of the company’s legacy systems and foreign currency impact of Euro depreciation.

This weak performance left investors disappointed. Shares of the company were already trading at exorbitant valuations. All it needed to come down was one bad quarter.

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As per Gartner, technological research and consulting firm based in the USA, by 2023, 90% of global enterprises will leverage the CPaaS offerings to enhance their digital competitiveness, up from 20% in 2020. Gartner estimates the CPaaS market can grow at a CAGR of 33%.

The pandemic accelerated the switch to digitisation. From Zoom work calls to e-consultations with health experts, there has been a massive haul in technology. Companies want to adapt and digitise their core faster than before to survive and thrive in the emerging new economic order.

Tanla has seen high adoption of CPaaS as enterprises moved towards digital transformation. With a strong outlook for the CPaaS industry, the long-term growth prospects for Tanla Platforms are bright.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com.



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