Affle India surges 7%, hits record high after Citi initiates coverage with buy

Affle India shares: Shares of IT enabled services provider Affle India rose as much as 6.68 per cent to hit record high of Rs 1,461.10 on the BSE after global investment bank Citi initiated coverage on the stock with a buy rating for target price of Rs 1,600, indicating an upside of 19.5 per cent from its yesterday's closing price of Rs 1,339.

Citi in a note to its clients said that the company is well positioned to benefit from recovery in mobile-ad budgets.

"Affle is well positioned to benefit from recovery in mobile-ad budgets for user acquisitions across digital-first and omnichannel businesses in India/emerging markets (EM) and its RoE focused M&A strategy (recent acquisition: YouAppi) should see business turnaround in large developed markets (DM) like the US," Citi said in a note.

Affle, a prominent player in the ad-tech space, has distinguished itself as a viable alternative to the walled gardens of Facebook and Alphabet, according Citi. The company's strategic focus on verticalisation, a conversions-based business model, and a strong data advantage in India and emerging markets are cited as key competitive advantages.

Affle's strategy to focus on select high-growth sectors and its performance-driven model, where customers pay based on conversions, have been key in its positioning. The company's data advantage in India and other emerging markets, coupled with strategic partnerships with original equipment manufacturers (OEMs) for premium touchpoints, enhances its market presence.

Citi highlights Affle's robust track record in mergers and acquisitions, which have focused on expanding into new verticals, geographies, and capabilities within the ad-tech domain. The strategic approach is expected to drive profitable growth for Affle and deliver high Return on Advertising Spend (RoAS) for its clients.

Recovery and Synergy Unlock in US and India

Affle's financial outlook is promising, with expectations for a significant recovery in the US market, benefiting from the post-integration synergies of YouAppi in FY25E, Citi said. Additionally, Affle's exposure to Connected TV (CTV) through Mediasmart is expected to bolster its market position. In India, the improving funding environment for startups is likely to spur aggressive customer acquisition in the latter half of FY25.

Citi projects a 20 per cent compound annual growth rate (CAGR) in Affle's top-line from FY24 to FY27, with 28 per cent growth in India and 16 per cent internationally. The company's EBIT margins are expected to expand by 130 basis points in FY25, 100 basis points in FY26, and 135 basis points in FY27, driven by the integration of YouAppi and operational leverage from growth recovery.

Affle's target price (TP) is based on a 48 times FY26 estimated price-to-earnings (P/E) ratio, which is a 50 per cent premium to its global ad-tech peers. Despite being one of the smaller players in the ad-tech space, Affle's exposure to high-growth markets and segments, along with its higher-than-average expected growth, justifies this premium valuation, according to Citi.

As of 10:19 am, Affle India shares traded 4.14 per cent higher at Rs 1,426, outperforming the BSE 500 index which was up 0.26 per cent.