Tanla Slutions - Buy Stocks Rating From Religare Securities

Religare has advised buying stocks of Tanla Solutions anticipating positive value creation and a stock price rerating over the longer term investment duration, triggered by the some of the important factors.

In its stock report, the brokerage said, “We anticipate positive value creation and a stock price rerating for Tanla Solutions over the longer term, triggered by the following factors:
a) the acquisition of Openbit – a mobile payments company,
b) centralisation of its proprietary CREAT platform in tax-haven Dubai, which would bring capex, opex and tax benefits,
c) appointment of KPMG, one of the big 4, as the auditor for Openbit,
d) the tie-up with Zed, and
e) the launch of 3G services in India in which TSL has rich experience.

TSL has witnessed severe price deterioration over the last six months due to a confluence of several negatives:
a) Regulatory changes in the UK, which impacted operations in Q3FY09,
b) a depletion of cash balance on account of the Openbit acquisition, and higher capex and working capital requirements,
c) impact of the Satyam scam on all Hyderabad-based entities, and
d) the overall decline in the markets.”

According to the report, “TSL is currently trading at historical lows of 1x FY09E and FY10E earnings (net of cash of Rs 15/share as on December ’08). We expect the stock to outperform the broader market over the next 9–12 months, and hence maintain our Buy rating with a target price of Rs 80 based on 4x FY10E earnings.”

Tanla Solutions has tied-up with Spain-based Zed as an equal joint venture partner, with a proposed joint investment of €10mn (Rs 630 million). Zed is a leading global player in mobile valued added services (VAS) in terms of revenue and geographical footprint. The company develops and markets entertainment and community products for mobile phones and the internet, with operations in 54 countries and tie-ups with 130 wireless operators across the globe. It posted a turnover of US$ 545million in 2007 and ~US$ 870 million in 2008.

Religare has maintained buy stocks call on Tanla Solutions and expects a target price of Rs 80 per share on the stock, an upside of 133 per cent from its current market price of Rs 34.30.