Shares of Affle India Ltd is a leading mobile marketing company came under selling pressure on Friday sliding over 1.4% despite the firm’s bright growth prospects. Profit-taking appeared to be the primary driver behind the pullback after the stock’s blistering 22% rally over the past year.
Affle India’s stock fell as much as 1.8% to Rs 1,105.85 during the session before recovering some ground to trade at Rs 1,108.65 as of 3:29 pm still down Rs 16 or 1.42% on the day. Over 200,000 shares had changed hands compared to Affle’s average volume of 227,513.
Stellar Q4 Performance
The selling emerged even as Affle India reported strong results for the March 2024 quarter earlier this week. The company’s consolidated revenue jumped 27% year-over-year to Rs 343 crore beating Street estimates.
Net profit grew at an even faster 31% clip to Rs 77 crore as operating leverage kicked in. This translated to earnings per share of Rs 5.46 for Q4 up from Rs 4.16 in the prior year period.
For the full fiscal 2024, Affle’s topline increased 26% to Rs 1,280 crore while net income rose 18% to Rs 274 crore or Rs 19.41 per share.
Riding the Mobile Marketing Boom
Affle’s outperformance is being driven by the rapid growth in mobile advertising and marketing across India and other emerging markets. As consumer behavior shifts online and towards mobile devices brands are increasingly adopting mobile-focused ad platforms and technologies offered by Affle.
The company’s vertically integrated mobile marketing platform enables app developers, telecom operators, and brands to analyze consumer behavior and engage with customers through targeted campaigns.
With smartphone penetration in India still below 50% and rising rapidly the mobile marketing space is expected to grow at over 20% annually over the next five years. Affle is positioning itself to capture a sizeable share of this growth.
Aggressive Expansion and New Growth Drivers
To this end, Affle has been expanding aggressively across new geographies through acquisitions and partnerships. The company recently entered the Middle East with the acquisition of Precision Mobile Ads while also growing its presence in Europe and other emerging markets like Southeast Asia.
Management has highlighted verticals like mobile gaming as a new growth opportunity. The firm’s acquisition of Appnext’s app discovery and recommendation engine earlier this year has provided additional capabilities in mobile app marketing.
Analysts expect Affle’s dealmaking spree to continue funded by its healthy cash reserves of around Rs 500 crore. The company has an active pipeline with several potential acquisition targets across geographies and technology areas that can complement its existing platform.
Premium Valuation Amid Lofty Growth Expectations
These aggressive growth plans have investors willing to pay a premium for Affle India’s shares. The stock currently trades at a one-year forward price-to-earnings multiple of around 47x well above the IT sector average of 34x.
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However, the premium valuation is backed by expectations of over 30% annual earnings growth over the next two fiscal years. Sell-side analysts have an average price target of Rs 1,355 on Affle implying a further 22% upside from current levels.
Of the 10 brokers actively tracking the stock, 7 have a buy or outperform rating with a positive view on the company’s robust mobile marketing capabilities and long growth runway. Just 2 analysts have a sell rating citing Affle’s expensive valuation.
Technical Outlook Positive
From a technical perspective, while Affle’s relative strength index of 54 signals a neutral momentum over the near-term the longer-term trend remains firmly positive.
The stock continues trading comfortably above its 50-day and 200-day moving averages of Rs 1,063 and Rs 1,080 respectively. It has found strong support at its 200-DMA level on multiple occasions over the past year.
Analysts view any dips towards the Rs 1,050-1,070 zone as an attractive entry opportunity for prospective investors looking to gain exposure to Affle’s secular growth story.
Robust Institutional Participation
Aiding Affle India’s positive outlook is the high-quality composition of its investor base. Foreign institutional investors raised their stake in the company to 14.79% as of March 2024 from around 12% in the year-ago period.
Domestic mutual funds have also been consistent buyers with their holding inching up to 3.35% recently. However, Affle’s promoters trimmed their stake by around 50 bps over the past quarter to 56.92% of outstanding shares.
Overall, despite Friday’s dip the long-term fundamentals surrounding Affle India remain as compelling as ever. The company’s market-leading position in mobile marketing coupled with its aggressive growth strategies and reasonable valuation should continue driving investor interest in the foreseeable future.