Subscribe to OnMobile Global IPO: Emkay

Source : moneycontrol.com


Emkay Share and Stock Brokers has come out with research report on OnMobile Global IPO. The firm has recommended subscribing to the issue.

OnMobile Global, a leading provider of telecommunications value added software products and services in India with an expanding international presence, has opened for subscription with an initial public offering of 10,900,545 equity shares of Rs 10 each for cash at a price to determined through a book building process.

The issue will close for subscription on January 29, 2008. The price band has been fixed between Rs 425 and Rs 450 per equity share.

Emkay Share and Stock Brokers report on OnMobile Global IPO

OnMobile Global is a leading provider of telecom value added services (VAS) in India and is expanding its international presence, especially in the emerging markets of Asia. The company offers value added services such as ringback tones, voice portals, ringtone downloads, etc. to its carrier customers. OnMobile not only rides on the telecom growth with increasing subscribers, but also enables operators to protect their ARPUs by providing innovative services, thus generating a pull from them.

Service offerings

OnMobile's offerings include services like ringback tones, voicemail, missed call alerts, voice SMS, music solutions, information and entertainment solutions (stock alerts, sports & news updates, etc) interactive media solutions, m-commerce solutions (mobile ticketing, bill payment, etc) mobile marketing solutions, etc.

Strong customer base

OnMobile's customers include major telecom operators like Bharti Airtel, BSNL, Vodafone, Tata Teleservices, Reliance Communications and Idea Cellular in India. It also offers the services to international operators such as Sheba Telecom Bangladesh, Maxis Malaysia, BTEL and Indosat in Indonesia and SingTel Optus Australia and media companies like AOL, Disney, ESPN, etc.

Robust growth opportunity

The Indian mobile telecom industry is witnessing a robust growth, with the mobile subscribers increasing from 13mn in 2003 to 230mn in December 2007. The lower penetration (~20%), along with the falling handset prices and widening network coverage together provide huge potential for further growth in the mobile subscribers. With robust monthly subscriber additions, Gartner expects the mobile subscriber base to increase by a CAGR of 27% to 462mn by 2011.

While the mobile subscriber base is rapidly growing, the average revenue per user (ARPU) is consistently declining, provoking the mobile operators to find ways to generate higher ARPU thus making a strong business case for companies like OnMobile.

OnMobile's service offerings create new revenue sources for its customers primarily the telecom operators, who are desperately exploring ways to increase their ARPUs. OnMobile derives its revenues on a revenue sharing model from the revenues generated by the carriers using the value added services provided by the company. OnMobile's revenue share typically ranges between 15-40% averaging at 20-25%.

The rising demand for value added services along with the want of higher margins by the operators are the primary drivers for the growth in this segment. The value added services segment of the mobile sector in India is expected to grow at a 36% CAGR from Rs65bn in 2007 to Rs225bn in 2011. With the normal person-to-person (P2P) SMS contributing around 45-50% of the VAS market, the remaining 50-55% of the market is the target market for OnMobile.

Valuation & recommendation

With strong presence in the value added services market and very good relationships with carriers, OnMobile is likely to benefit from the growth in the Indian and international telecom markets. Considering the strong growth opportunity in Indian as well as international telecom markets, and healthy operating margins enjoyed by the company (~45%), we believe that OnMobile is poised for a robust revenue growth in excess of 50% over FY07-10E and an even higher earnings growth due to higher operating leverage. The company also has strong ROE and ROCE of over 30%, which is not only sustainable but also likely to improve. At upper end of the price band of Rs 450 per share, the stock is offered at around 10x EV/EBIDTA and 15x earnings for FY10E. Thus we recommend subscribe on the issue.

Concerns

* OnMobile's business depends on technological and product innovations. Inability to innovate new solutions that are accepted by the market could affect the future growth of the company.
* A reduction in the end-user pricing by the carrier customers could result in loss of revenues as the company primarily derives revenues on sharing arrangement with the carriers.
* OnMobile's major carrier customers operate in a regulated environment and any changes in regulation could affect the operations of the company.