OnMobile Global (OnMobile) was promoted in September 2000 by OnMobile Systems, Inc (OMSI) and Arvind Rao, a B Tech from IIT Mumbai and management graduate from Wharton school, University of Pennsylvania, and Chandramouli Janakiraman, a B Tech and a former Infosys Technologies employee, to develop telecommunication software platforms and applications for the mobile telecommunications industry. Initially, it was incorporated as Onscan Technologies India The name was changed to OnMobile Asia Pacific in April 2001 and to OnMobile Global in August 2007.
OnMobile provides value-added services (VAS) in the telecommunications space and software products in India with an expanding international presence, particularly in the emerging markets in Asia. It has a broad range of applications delivered by its carrier customers (telecom service providers) to their end-user subscribers. These products include ringback tones, voice portals, ringtone downloads, subscription manager, contests, music messaging, on-device client software, mobile radio, dynamic voicemail, voice SMS, and missed call alerts. The company sources content for its applications from over 65 content owners and content suppliers and delivers to its customers through its delivery platforms.
Besides delivering interactive media solutions such as tele-voting, interactive programming and mobile auditioning to leading media companies, OnMobile provides a range of mobile commerce solutions, enabling subscribers to buy movie tickets, railway tickets, refill their pre-paid mobile phone cards and pay bills using their mobile phones. It provides end-to-end turnkey solutions to its carrier customers and manages those for them on an outsourced service basis through long-term contracts and receives a share in the revenue generated by the carriers from their end-user subscribers. Most of the company’s applications are not network- or handset-specific and deployable across major networks regardless of the technical capabilities of the mobile device. OnMobile earned about 67% of its net revenue from its ringback tones and music-related services in the financial year ended March 2007 (FY 2007) and half year (H1) of FY 2008. The number of permanent and contracted employees has grown from 58 is FY 2004 to 819 by end December 2007.
The IPO to rise Rs 490.52 crore –Rs 463.27 crore comprises 109 lakh shares in the price band of Rs 425 – Rs 450 per share, including fresh issue of 86.13 lakh shares and offer for sale of 22.87 lakh shares. Of the net proceeds of the issue (Rs 387.60 crore- Rs 366.07 crore), Rs 180.52 crore will be used to purchase equipment for OnMobile’s offices in Bangalore, Mumbai and Delhi and various customers, Rs 5 crore for working capital requirement, Rs 35 crore for repayment of loan, and the balance for acquisition of companies, expansion of facilities, strategic initiatives and general corporate purposes.
Strengths
l The customer base includes all the major telecom operators in India and more than 10 international telecom operators in over eight countries including Optus in Australia, Banglalink in Bangladesh, Maxis in Malaysia, and BTEL and Indosat in Indonesia. In addition, markets products and services to media companies such as AOL, Disney, ESPN, India Today Group digital, Star India and Nokia.
l Due to competitive industry dynamics, mobile tariffs have been falling and there has been pressure on the average revenue per subscriber (ARPU) of telecom operators. Thus, telecom operators would be looking for more VAS revenue at very little incremental capital expenditure. This is a potential lever to counter the trend of falling ARPUs. It will result in decent growth opportunity for OnMobile as VAS will have higher growth trajectory on lower base and increasing acceptability.
l Reaches about 95% of India’s telecom subscribers as all the leading telecom operators are customers. According to Cygnus Business Consulting & Research, India is one of the fastest emerging markets in the world for mobile VAS. Over the years, the VAS revenue in India has been growing at a rapid pace of 70%-90%. The VAS market in India is expected to be about 10% of the service providers’ revenue. The fast-grow telecom subscriber base in India will turn in more customers for VAS.
l Enjoys long-term relationship with customers. Has not lost any major customer since its inception and consistently achieved a year-on-year revenue growth with each of them. Hardware systems and software applications are embedded deeply into carriers’ network infrastructure and integrated into their core network systems. This works as an entry barrier for new players.
Weaknesses
l More than 80% of the revenue from just five largest customers (major telecom service providers), constituting less than 10% of total customers, in the six months ended September 2007. The loss of any major customer or decrease in the volume of work from them or dip in revenue sharing may adversely impact revenue and profitability.
l Substantial portion of the revenue — more than 90% in the first half (H1) of FY 2008, FY 2007 and FY 2006 — was through revenue-sharing agreement with customers. Revenue is earned as a percentage of the retail price that telecom companies charge to their end-user for the use of applications or content. Revenue may be adversely affected on the pricing decisions of telecom companies and competitive scenario.
l VAS would be the next focus area for telecom players. In an attempt to improve the profitability by rationalising costs, telecom service providers may develop some or all of the carrier application services in-house. This could result in significant loss of revenue and may have a material adverse impact on future business as over 90% of the net revenue is derived from carrier-application services.
Infosys Technologies, (17.9% stake in OMSI), issued a letter to the board of directors of OMSI on 1 October 2007 stating Infosys was not consulted when OMSI decided to sell its holding in OnMobile. It indicated the only option was to refer the matter to the appropriate authorities to protect its interests and get relief, including opposing the current IPO.
Valuation
Revenue grew at a CAGR of 99% and net profit at a CAGR of over 100% over the three-year period ended March 2007. However, operating profit margin has been declining over the couple of years though is still decent at above 40%. Performance improved significantly in the six months ended September 2007, achieving revenue of Rs 112.51 crore (82% of the revenue in FY 2007) and net profit of Rs 30.52 crore (87% of net profit realised in FY 2007). Share of revenue with telecom operators is about 20% on an average ranging between 15%-40%. Overseas revenue was about 9.1% of total revenue in H1 of FY 2008 as against 5.1% in FY 2007.
On annualised EPS of Rs 10.2 in the six months ended September 2007 on post-issue equity capital of Rs 60.09 crore, the P/E works out to 41.8 – 44.3 at the price band of Rs 425 – Rs 450. The trailing 12-month (TTM) P/E of Tanla Solutions (broadly providing similar services outside India) is 20.5.