Financials Year ended 31st March 2006 2007 2008* Sales 63 222 388 Other Income 0 7 5 Operating Profit 35 111 155 Operating Profit (%) 56 50 40 Net Profit 30 93 120 Equity 7 10 10 EPS (Rs) 9 19 24 *Projection All figures in Rs crore unless indicated otherwise. All figures are rounded-off

The company announced substantial profit growth for the first quarter ended June 30, 2007. Tanla reported total revenues of Rs 94.5 crore against Rs 39.7 crore for the corresponding quarter of 2006 on a consolidated basis, a rise of 138%. Net profits have jumped 107% to Rs 33.3 crore on an annualized basis.

The company has also reported that it is conducting research in the area of telemetry and telematics to start marketing some of these technologies and products in the coming years. The company has utilized Rs 77 crore approximately of the follow-on-issue proceeds of Rs 421 crorethe rest of Rs 344 crore remains unutilized. The company is evaluating companies in the US for acquisitions or joint ventures to enter the US market.

Given the inductions into the senior management team as well as the continued focus on the niche mobile solutions markets with newer products and services, we believe that Tanla would be able to maintain its momentum in terms of sales growth. Given the early stage of the company, sales would, however, continue to be lumpy across quarters. Further, increasing marketing and administrative overheads are likely to impact margins in the short and medium term.

The shares of Tanla Solutions trade at Rs 470 discounting its estimated earning of 2008 by 19.6 times. While this may seem high given the small size of the companys operations, the high growth and the promise of high margins of the products business has resulted in a higher valuation of the company vis--vis its peers. As the company increases its exposure to the services business, its margins are likely to come down further in the medium term. We, therefore, do not expect any substantial change in the valuations in the medium term. Longer-term success of its product line would determine the direction the stock will take. Market Performer.

Sushanto Mitra
The author is director, Techcap India
sushanto@techcapIndia.com
The views reflected here are of the author and not of this publication.
No liability is accepted for losses based on the information presented here

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