Tanla Platforms Ltd

Ladies and gentlemen, good day, and welcome to Q3 FY24 Earnings Conference Call of Tanla Platforms Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded.

I now hand the conference over to Ms. Ritu Mehta from Tanla Platforms Limited. Thank you and over to you.

Good evening and welcome to Q3 earnings call. Joining with us today are Uday Reddy, Founder, Chairman and CEO; Deepak Goyal, Executive Director, and Chief Business Officer; and Aravind Viswanathan, CFO. After his opening remarks, we will be happy to engage with participants and address their questions.

Before I hand it over to Uday, let me draw your attention to the fact that today's discussion may feature statements that are forward-looking in nature. All statements other than statements of historical facts could be deemed forward- looking in nature. Such statements are inherently subject to risk and uncertainties, some of which cannot be predicted or quantified. A detailed disclosure in this regard is mentioned in the results presentation that is uploaded on our website. Audio recording and the transcript will be available on the website soon.

I now hand it over to Uday.

Thank you, Ritu. Good evening, everyone. Very warm welcome and thank you for joining this call. I'm sure you had a chance to go through our investor presentation and my letter to say about us, which are very detailed. Let us straight away get into Q&A. And me and the management team will be happy to get into more details in the call. Yeah, Ritu, let's open the question.

Question-and-Answer Session

Thank you very much. We will now begin the question-and-answer session.

Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets, while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

We have our first question from the line of Balaji Subramanian from IIFL Securities. Please go ahead.

Hi, thanks for taking my question. So, firstly, you have disclosed the ILD and the NLD SMS revenue contribution approximately, which is 25% and 50%, respectively. And you have mentioned that ILD has been facing softness. So just wanted to understand on an organic basis, what would be the NLD business be growing at? Would it be growing in double-digits, high-single digits, mid- teens? What is the approximate number, which the NLD business is growing at.

That is number one and the related question is on the ILD front. You have mentioned that, I know, the worst is behind, and it should no longer decline, even though the growth may be a little sluggish going forward. So, what gives you the confidence that we have seen the bottom of the ILD revenues? So that would be my two questions.

Page 3 of 11 So, we've been talking about a fact that we saw some amount of momentum that we expected in Q3 on the domestic business. I would say, in fact, we have covered it as part of our call also last time. I would say that we kind of showed a growth in the mid-single digits on a sequential basis in Q3 vis-à-vis Q2. So, there was good growth as far as the domestic is concerned. On ILD, I'll ask Deepak to chime in more from a perspective of the market environment, both in ILD and domestic, but like Uday had written in his letter also, right, there was a shift in certain use cases for some tech measures on to OTT channels, which caused a big impact from October. Now we've kind of don't see further shifts at this stage, which is why we are pretty confident that it has kind of comedown. But we do see the growth in this space to be a little sluggish. Deepak, can you chip in?

Yeah, sure. Hi, Balaji, Deepak here. So as Aravind mentioned, see first of all, as far as ILD business is concerned and ILD pricing is concerned, we all know that the price for ILD is almost 40x, 50x as compared to domestic price. I mean, it's around ₹4 to ₹5 compared to ₹10 paisa or ₹12 paisa as domestic message. So, it is always there's a pressure from the customers, and they don't want to pay that kind of money, and they keep looking for alternate channels and alternate mechanisms to see how they can save their costs or, how they can optimise their volumes, okay by not sending so many messages, just to save the cost.

So, this is a continuous exercise from the customer side. And last quarter, we saw that, even some of these volumes move to WhatsApp. I don't know how many of you use Microsoft, but if you see Microsoft messages are coming from WhatsApp rather than coming from ILD routes. So, that has actually dented the overall business to a certain extent. But as Aravind said that is the bottom. We already touched the bottom. Now going forward basis, why we don't see that will not go further down is one of the reasons is that even WhatsApp is it's kind of, but they are going to from March onwards or maybe April onwards, they are going to increase the prices, or they are going to completely stop supporting ILD messages on WhatsApp. So that could be one driver where we would see that the volumes can come back. But overall, I mean, the major customers are, I hope we all know, there is Amazon, there is Snapchat, there is Microsoft, and few others, which are the -- these are large ones. And these are the guys who always they are sending message only when it's absolutely necessary. And that's why Aravind said that the growth is going to be a bit sluggish as far as volumes are concerned.

Okay. Thanks for the elaborate answer. I just had a couple of quick follow-ups.

So, I know a couple of years back, the narrative used to be that A to B messages are likely to grow in mid-teens, not just in terms of volume, but also in terms of numbers. With all these developments, what do you think is closer to the steady state growth for your enterprise business? Again, platform is a completely different cup of tea, and their growth is fairly robust. So that would be the first follow-up. And the second follow-up is with the ILD contribution coming off, what will be the typical gross margin impact? Will it be significantly diluted considering that you did see pretty healthy realisations there?

Okay. So, first of all, about the industry growth and about the volumes growth, okay. So, what I spoke about was specifically to ILD volume. And if you see though ILD, it is about 25% of our overall revenues, but in terms of volumes, the volumes are very, very small compared to our overall volumes, right, because ILD revenues are high because the price points are very, very high. So, if you look at our domestic market, it is growing very well, All right. I mean, there is lot of new use cases are coming up, market is growing, it's in double-digit for sure.

And the good part is that now, customers are adopting alternate channels. So, the dependency is not just on SMS now. So now, OTT is the play where we are seeing lot of traction on WhatsApp, we are seeing lot of traction on RCS, which is Google's owned channel. We are seeing traction on Truecaller. So these

Page 4 of 11 channels, what is they are growing very well. And with that, the number of use cases are growing and overall number of messages are growing. So overall growth in India is pretty good.

And final question on gross margin impact?

So, I will take that Deepak. So, Balaji, while the realisations are higher, the cost is also higher. So, it's not that the margin profile of ILD is significantly better. In fact, I would say it's probably lower. Absolute terms per message you make more money, but as a percentage it is lower than what you make in domestic, is a classic onset offshore kind of construct. So higher realisation, but higher costs.

So, percentages are actually not high. So, you will not see a percentage dilution because of the softness in ILD.

Okay. Thank you. That is super clear and all the best.

Thank you. Next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.

Yeah, thanks for the opportunity. My question is, firstly, on the ILD part of the revenue. So, you mentioned that the worst is behind for ILD, but seeing the kind of cost cutting initiatives these larger measures are taking in terms of finding alternatives. Do you see the shift to other channels to continue in ILD? And also, in terms of the volume break up, so the transactional messages, which are the compliance link, so that can remain on the normal channel, but the promotional part of the ILD messages can actually move to RCS, WhatsApp. So how do you see that evolving? And also, from the NLD aspect, do you think that with the rising popularity of RCS, you think the promotional messages of NLD can actually shift to RCS, which is much effective mode of communication. And although the regulations are higher, but the impact is also higher in terms of the promotional messages in NLD.

Hi, Amit. So, first of all, you asked about promotional messages on ILD going away. So just to tell you that, nobody does any promotions on ILD for past till many quarters now. I think it used to happen about four or five years back. But when the prices have gone up, no customer sends any promotional messages on ILD. I mean, barring could be very negligible, I would say or maybe nothing, right? So, it is mostly OTPs you would see, or you would see like, I mean, if you buy things from Amazon, you would see messages coming in like, hey, your parcel is out for delivery, is your PIN, right? So, you get such kind of messages, these are more informative in nature or transactional in nature. So, this is what they've been sending. And then moving to other channels, which I've already answered. Yes, some part of these messages did move to, let's say, WhatsApp and last quarter. But going forward basis, as because we keep talking to Meta and everybody, even Meta is planning to increase the prices and we don't see that continue for a longer time. So, this is an update on ILD, but we will let you know as and when it happens.

Now, coming to on the domestic side and the promo on RCS, yes, you are absolutely right. RCS is our great channel, because it supports rich media compared to SMS, where you can send only a plain text message. So, when a promo message is being sent, obviously, when you're sending an RCS message, you can display your brand very well, you can send a rich media message, you can have a banner, you can have multiple banners in fact and all of that. So, the ROI is far, far better as compared to SMS. And as I mentioned earlier, Karix and ValueFirst combined today, we are having the largest share in the RCS market in India today that is upwards of 40%. And we are onboarding lot of customers. We are doing really very well in RCS. We are seeing great success on RCS.

Okay. And like moving on to the platform side of the business, so there also we have seen some softness. So there the softness is largely linked to the Vi deal going away or is there any some other reason in the platform side of the business? And also, we mentioned that we have closed some deals on the ATP side. So how do we see that, how the commercials are looking there? And is it going to come in like from the next quarter onwards?

So, if you look at it, Amit, from a platform business perspective. We've grown 22% YoY and 24% YoY on GM, right. So if you look at that trend, that has largely remained in line with our growth rate. We've seen some impact in Q3 on the Vi, more driven by the reduction in international messaging market that we talked about, right. And we expect to see the further impact in Q4 on the Vi contract exit. But we've also kind of been growing in other platforms quite a bit, right. So that's why you've seen us maintain this 20% growth trajectory for more than 14 quarters now in a row, right. Wisely ATP, we announced that on 10th of Jan in terms of the first customer that we have signed a commercial contract with. We expect that to go live in the current quarter, we'll start seeing revenues. And obviously, there is a pipeline that we are aggressively pursuing in terms of. We labelled a full impact of all of the customers that we're looking at onboarding may happen in Q1, but you will see some impact in Q4 also.

Yes. To add to that, Amit, Uday here. Just to add to that side, the beauty of this ATP is like, it is more offered on a subscription model, meaning we say that the customers are paying per user per month, okay. So, they have to buy the subscription for their users, and they have to pay every month. So, the contract that we've signed, they bought one-year subscription. So that's the beauty of this. This is a typical SaaS platform.

Okay. So is it fair to assume so that the new deal on the ATP side can totally offset the Vi impact or is it in terms of size going to replace, I mean what we have lost on the Vi side?

No, we're not trying to compare this to in a sense like whatever we lost, we lost it for good. That's what I strongly believe it. But I'm not too worried about the Vi going out. In fact, we lost at least 30%, 40% of the traffic on the Vi hub for the last 2 months in Q3. And so, and it will continue for the next couple of more months. I mean, it will continue up to end of March. So, we don't see any effect of the Vi on platform business coming quarter. By the time, we should be able to close other platforms mainly on ATP, should go live with even other customers. So, I'm not too worried about Vi going out in terms of that, it will not have any effect on our platforms.

Okay. And last question on the like WhatsApp revenue like target that you have mentioned about around ₹100 crores per quarter, so what is the run rate as of now and by when we expect this to reach ₹200 crores?

So, Amit, we have already reached ₹100 crores, that's the message, right. So we've gone exponentially on OTT, it's been a big area of focus, right. So we've crossed the ₹100 crores quarterly run rate mark in Q3.

So, Amit, we have already reached ₹100 crores, that's the message, right. So we've gone exponentially on OTT, it's been a big area of focus, right. So we've crossed the ₹100 crores quarterly run rate mark in Q3.

Page 6 of 11 Okay. Great. Thank you. And all the best.

Thank you. Next question is from the line of Deepak from Reed Capital. Please go ahead.

Thank you. Good afternoon. I have three, four questions, so if you can kindly allow me, I'll be quick. First is on Slide 36, where we are talking of Era 3 in Tanla's journey. Could you spend a minute or so and just explain us what are we trying to say here? Will it be largely driven by platforms.

So, it's an interesting question. So, if you look at it, we've kind of captured our history in many ways. And we've talked about how we have built the platform business from scratch and how we've scaled our enterprise business. I think when it comes to Era 3, definitely the big trust is on platforms across the dimensions that we have talked about, while also scaling the enterprise business. We're not looking at either or, but there is a lot of innovation that we are doing that will come through from a platform side.

OTT is another big area of discussion point that we will see come. We will come into our own in that aspect also. So, there is a little bit of structural investment that we have made, and I think that will come out in terms of Era 3. You will get more details of it over the course of this quarter as we make announcements.

So, you've seen it in Uday's letter on our plan, so that is the direction you will see.

Okay. So, I just want to expand a bit, Aravind. I believe it will be largely driven by the Platform business and given the current state of Platform business, it's a run rate of ₹400 crores, ₹500 crores per annum with a huge potential going ahead. You guys are investing a lot of Capex, lot of platforms are in the pipeline and flat margins are around 50%, 60%, which is pretty chunky. With my past experience as a banker, I think maybe the management should think of how to unlock this Platform business and create value.

What I'm trying to say is that, why not think in the direction of de-merging the platform business and listing it separately? Because the way I think is the Enterprise business will continue to grow, but the growth in Platform business and the kind of multiples we can get in the Platform business will be far superior versus Enterprise business. And if I as an investor want to invest in Platform business, just that Platform business, unfortunately, I don't have that option. And I again believe given the numbers of Platform business, the kind of valuation which Tanla as a whole is getting, just the Platform business can potentially achieve that.

Deepak, Uday here. First let us build the business, then we think about the valuations, right?

Okay. Just a point for the management to consider going forward.

Yeah, first, we are putting all our energies to build the platform business. There is no doubt about that. We are investing, as you rightly said, you will see a lot of upside in the platform business going forward. So we have all the energies, I mean they investing behind building the business.

Okay, fair enough. My second question is on the TAM slide, which is Slide number 34. As I can see that presently the TAM is around $2 billion to $3 billion, which can more than double to $5 billion to $6 billion by '27. So my question is, is this largely back ended or will it be spread equally for the next three, four years? And can then one imply that Tanla will also grow in a similar kind of fashion?

Page 7 of 11 So, it's not back ended, but obviously there are new dimensions where the growth rates are going to be larger. So, if you look at it from a communicate standpoint, it will be much more even, but maybe from an experience point it's a little more exponential. So, the different categories actually will grow differently within the bucket. So, I think there are certain portions of the TAM, which is more steady state Deepak, and you will see us and grow in that manner. But there are big bets that we are taking, and you will hear more about it as we detail it in nowadays, where the opportunity becomes larger, right.

So that's how one should read this. So, the opportunity, at least when we look at it in our innovation hub, this is where we say we want to play. That's very clear. And we are also seeing how you want to innovate to capture this TAM. So that's how we are looking at it. This is the opportunity that is in front of us.

So, is it fair to say that we are becoming, and the focus is more on the tech side going forward? Is that fair to say more innovation, more tech?

Absolutely. I think deep tech has always been something, which is very core to us, as is innovation. So clearly the future will be a congruence of both of these coming together.

Okay. On ATP, I mean I know you can't share the numbers, but just to understand I mean a big size bank, how many users can actually use the product and within the organisation, is it scalable? So, let's say you start with 10 users a month. Is it scalable within the same firm and just abroad, how many users in a big bank can use it per month basis?

Unfortunately, we cannot really diverse this name, Deepak, but all I can see is one of the largest private banks in India. We're not allowed to mention that. But definitely they have very, very massive user base. So, it's not a small bank, okay.

So, we have done the PoC, which we have announced as part of our updates to exchanges earlier. So, this is one of the banks. So, we have done the PoC's, they have seen the results, we went back and forth in terms of regulation side.

So, they finally said, okay, we'll be kind of convinced about the impact. So, that's how they closed the commercials. But as I told you, it is purely on subscription basis wherein they have to pay us on monthly basis per user, per month. That's what the deal is.

Yeah, I understand that. What I'm trying to understand is, within the bank, is it scalable? So, let's say you start with 10 people using on a subscription basis within the bank.

No, it all depends, Deepak. For example, if the bank has got just the sake of our illustration, they have 1 million users, okay. They may take to a 100% of 1 million users. They may start with 50% of the 1 million users, right. But for this bank, they have taken 100% of users, okay. So, they have gone -- they want to ring fence their entire user base so because they have seen the PoC results. So,they have decided to ring fence their entire user base.

Okay, so just on that. Sorry, I'm extending it a bit. Why aren't organisations willingly coming forward to adopt this? I mean you did mention or share your frustration about the lack of urgency from regulators. What's stopping the organisations or the regulators to push this?

That's what we are also struggling to understand, Deepak. We have been working with various regulators including RBI, IRDAI, SEBI and various regulators. So, we are trying to understand their regulations. We are also trying to navigate the discussion. That's how we could be able to close with many very large bank where RBI is governing them. So, they have their own understanding.

Page 8 of 11 They have to go to their regulators to get their approval before they go live with these kind of products, right? So, I cannot really discuss in detail, why the regulators are going slow, but we are pretty frustrated. But that's the beauty of the platform, first couple of one or two deployment, it takes bit of time. Somebody has to take the decision. Once you take the decision, RBI and other banks and other entities are going to follow it.

Sure. All the best on that. My last question, Aravind, and maybe you can answer this by when is the VF Middle East Indonesia merger expected?

So, we've been kind of getting delayed on it because the regulatory approvals are taking longer, Deepak, but we are confident to close it in this quarter.

Okay, that's it for me. Thank you so much.

Thanks, Deepak.

Thank you. Participants, you may press star and one to ask a question. Next question is from the line of Anil Nahata. Please go ahead.

Deepak, you want to give a view on how the market is playing out from the messaging perspective?

Yeah, sure, Anil. So, as you know, our majority of our customers and our volumes come from the BFSI sector and also the banking and finance sector.

And initially we saw a huge growth in volumes because of UPI transactions and a lot of other volumes were there. But then for last few months we saw because the bills were going through the roof and banks have started looking at the volumes, how they can optimise it.

Let's say for example, they looked at, I'm just giving you a few examples just for you to understand that, hey, there are certain messages which are more than 160 characters. So how they can and if it is more than 160 characters, then you would charge for two messages. So, they just wanted to bring it down. So, they're doing their own stuff. They decided, banks have decided to not to send messages for less than ₹100 UPI transactions, though RBI very clearly mandates that you are supposed to send message on every transaction. But we saw that some banks have cut down on those. Some customers have cut down on the promotional spend for last six or eight months, which is not just for BFSI, this is almost for everyone.

We also saw gaming company; I mean gaming was another sector which was very big for us. And we saw the gaming companies cutting down on the budgets in a big way, primarily because of all those, the tax issues they are facing with and GST issues and blah, blah, blah. So because of that, we saw some volumes coming down. But overall, if you see number of transactions are going up, okay.

All our customers are growing. So, I would look at it as, it's like a temporary

Page 9 of 11 thing. It is behind us and going forward, we are seeing growth. In fact, even the gaming companies are coming back. Things are getting settled now. Even our promotional volumes are coming back. We also seeing, as I mentioned earlier, customers were looking for a better ROI and we are providing options via WhatsApp and RCS. And we have onboarded some very large customers on WhatsApp. We have onboarded some very large customers on RCS as well.

And our customers are seeing a great ROI through these channels for promotions. So overall, I would say that things are getting better going forward basis.

Okay. Thank you, Deepak. So, we are confident of double-digit volume growth in the coming financial year fiscal '25?

Absolutely.

Okay, fantastic. My second question is more of data oriented. Like we have been spending quite a bit on different, different products. So, what has been the R&D spend in the third quarter? And what has been the nine-month R&D spend?

So, the total R&D spend I would say would be about, and I'm talking purely with respect to the platform side would be about ₹40 crores over nine-month period.

Okay.

And we spend on an average about ₹12 crores to ₹14 crores a quarter on R&D.

Okay. My last question is for Uday. Once again, Uday, congratulations on this much awaited sale to one of the three top banks. I'm sure that other banks in the same grouping and even outside the grouping would now feel more confident about stepping up and all. And also, in particular, you were insisting on subscription-based and you have got the subscription base. So, congratulations once again, because the quality of revenue is much higher because bank accounts don't get closed, like they are always on. And as long as your technology is doing the job, the bank should have no reason to discontinue your services. In that way, it becomes an annuity income stream, so which strengthens our company quite well.

My question was within a ballpark, what is the revenue implication of one of these banks, like the one that has already happened and maybe a few others will happen. Per bank, how much of ballpark revenue can be achieved? Because we know the number of customer, the account holders and it is per month, and so there are 12 months. So roughly what quantum of revenue is possible from a single, or let's say from this category of Wisely ATP that you have recently had success with?

Yeah, a little tricky question, right? A couple of things, all I can say at this point of time is we have done the PoC with up to three top banks and one bank went ahead and closed the commercials and another bank, what they did was they asked us to do one more PoC, which we started probably 15 days ago. And this two PoC is likely to end around 15th or 20th of February. Post that, they should be able to touch the call and let's hope for best. That's the first point. The second point is I cannot really talk about the revenues per bank. All I can say is it will definitely add a meaningful impact to our pack. Probably if I have to generalise, each bank should be able to contribute around ₹10 crores net profit per annum in terms of pack.

That is fantastic. And just one follow-on, Uday. This is just a starting banks and I hope, and I'm confident that other banks will also step forward, because these three banks are the opinion leaders, they are the biggest brands that we have.

Page 10 of 11 Other banks will also then feel encouraged to come. So that's a very happy outcome, which whenever it happens it will be great. But an even bigger opportunity lies overseas where you can tie up with the telecom companies and we all know that telecom revenue, telecom charges are much higher in other parts of the world compared to what they are in India. So, if you can convince the telecom companies outside of India, the revenue per subscriber can be much higher over there, even though the number of subscribers given the small populations in other parts of the world. But net-net, it will still be meaningful. It would be great if you can throw some light on that opportunity and any initiatives you are taking towards that opportunity?

Yeah, good question, Anil. As I mentioned in my letter, okay, right, so most of the neighbouring countries, mainly Saudi, Singapore, and Australia, the local regulators, whether it is banking regulator or a telecom regulator, they came out with what they call for the paper?

Regulatory framework.

Yes. So, they came out with the paper where we are, in fact, we have given feedback which I mentioned as part of my letter, okay? So, we are closely monitoring different countries, okay. So once the regulation is in place, okay, whether it's telcos or the banks or any enterprise, they have to adopt such products. So, we're closely monitoring the regulations around different countries and we're also helping them to shape up the regulations. That's what I have written. In fact, I have left even the links also where we have contributed. It took a lot of time for us to put a lot of efforts and updated those papers. So, let's hope for best. Our intent is to go outside India and deploy this platform. But this platform is mainly driven by the regulators, okay? Once the regulators sign off the regulations and it will be easier for any bank or the telcos to adopt this platform. So, we need to go step by step.

Okay, great. Absolutely. The last question, you have been mentioning on Twitter as well as in other public forums that you've been accumulating, you have been adding a lot of top tier talent. So, if you could, for everybody's benefit, talk about any new products that are in the pipeline, that would be helpful.

As you mentioned, we have as Aravind mentioned, we spent already ₹40 crores, ₹45 crores towards Capex. That all went towards R&D. I'm not sure whether you have visited our R&D centre. That's where we are trying to work on the platforms, products, and solutions like. Yes, definitely we will let the market know once we release these products.

Okay, great. Thank you and wish you all the best.

Thank you.

Thanks.

Next question is from the line of Ram.Please go ahead.

I just want to understand, for the digital platform, what kind of growth are we expecting for the next three to four years. Now I see we are picking around 20 plus in terms of gadget when it comes to digital platform. So can we sustain the same numbers, or we can have better numbers because we have Wisely ATP and more platforms that are coming in, and also, we are focusing more on the digital platform. What kind of growth numbers can we expect in the next three to four years as for the total addressable market, the market potential for this digital platform?

Page 11 of 11 So, Ram, as we covered in earlier discussion, we are investing in the platforms.

We see huge opportunity. We are always up to the greenfield opportunity. We are not here to copy someone. We are not here to refund and replace any other platforms. We always look for greenfield opportunities. So, we have been building that the platforms for quite some time. We see a lot of opportunity here.

So, to answer your question, of course, unless and you go 20%, there is no reason for us to put in so much of effort in terms of the energies as well as the money. So, we should be able to grow a minimum 20%. There's no doubt about that.

That's all from my side. Other questions I got answered from the questions of others. Thank you.

Thank you very much. I will now hand the conference over to Ms. Ritu Mehta for closing comments.

Thank you, everyone. That was the last question for the day. In case we could not take your questions due to time constraint, please reach out to Investor Relations team. Good evening.

Thank you very much. On behalf of Tanla Platforms Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.