Onmobile Global

Investors with a one-two year perspective can buy the shares of OnMobile Global, considering its strong focus in the domestic mobile value added services (VAS) market. An expanding product offering, increasing global footprint through well-chosen acquisitions, and a wide client base are other key positives. At Rs 485, the share trades at 28 times its likely 2008-09 earnings. That’s not cheap. But the stock is an attractive option considering its strong growth prospects on the back of domestic mobile operators continuing to add 8-9 million subscribers a month, operating profit margins of over 40 per cent, and absence of listed peers. The stock has retreated 35 per cent from its highs, under-performing the broader market in the fall.

OnMobile works with mobile operators for providing services such as caller ringback tones, ringtone downloads and IVR-based services. All leading mobile operators in the country such as BSNL, Bharti Airtel, RCom, Vodafone Essar and Idea Cellular feature on the client list. The revenue share for any VAS product is between 20-25 per cent of usage. With all these operators witnessing rapid subscribing additions and looking to augment non-voice revenues to stem the falling realisation, OnMobile appears well-placed to benefit from the opportunity.

Caller ringback tones and IVR-based solutions are set to dominate non-voice revenues hitherto dominated by messaging alone. A study by IMRB shows that VAS revenues for Indian operators are expected to grow at 70 per cent yearly to Rs 16,520 crore by 2010, with SMS revenues declining and other VAS products taking over. The IVR-based solutions cater to a rural audience, where a bulk of subscriber additions are happening, where cumbersome dialling of codes may be overcome by the local-language based prompts for their VAS requirements.

OnMobile recently acquired Telsima, a natural speech recognition software player that has capabilities in foreign and several Indian languages. This paves the way for additional license fee in addition to revenue share for OnMobile in addition to geographical expansion. The phone backup service acquired through Voxmobili in France offers a higher 25-35 per cent revenue share and already has several Indian operators interested. The company is also a content aggregator for contests, polls, and score updates run by Web sites, entertainment channels and publication houses. The rollout of 3G services by the middle of next year is another significant opportunity for OnMobile.

Possible vendor rationalisation by players such as BSNL and Bharti Airtel and competition from players such as IMI Mobile, Bharti Telesoft and Servion, are key risks to the business.