OnMobile Global Ltd.
Acquisition of Dilithium,
Directionally Positive
OnMobile Global (OnMobile) has acquired Dilithium
Networks: This leading Silicon Valley-based 3G video
technology and mobile solutions provider has over 175
patents in the world’s most advanced video
technologies.
We expect the market to take this announcement
positively: As highlighted in our earlier report,
acquisitions to enhance service offerings are a catalyst
for the stock. OnMobile has not announced the price for
this acquisition yet, but from a product perspective, the
deal comes at an opportune time in view of the
impending launch of 3G services in India. It will help
OnMobile to add mobile video applications, etc. to its
existing portfolio of value-added services (VAS) which
are predominantly voice-based. This will also help
accelerate its launch of value-added services for 3G.
However, we believe this acquisition would benefit the
company more on the technology side than in direct end
customer access.
Our take on the VAS market in India: We are cautious
on the growth of voice business in India in the next five
years – but we are more optimistic about VAS, given the
launch of 3G services in the next 6-9 months. We expect
non-SMS based VAS revenues to grow at 22% p.a.
during F10-15E, reaching US$2.9bn from US$1bn
currently. OnMobile, with over 25% market share in the
segment, should benefit from this growth.
We see favorable risk-reward in OnMobile,
underpinned by: 1) Leading position in the growing
domestic value-added services (VAS) market; 2)
increased global opportunities through agreements with
Vodafone and Telefonica; 3) undervaluation – on P/E to
two-year forward earnings growth, the stock trades at
0.7x. Our price target of Rs466 implies 24% upside from
current levels.
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