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OnMobile
Reuters: ONMO.BO Bloomberg: ONMB IN Exchange: BSE Ticker: ONMO
Latam scale-up is the key to stock performance; Buy
Stabilising domestic market, Latam revenue scale-up in sight
Our cut in estimates reflects lower-than-forecast growth in the domestic market
and impact of pre-launch expenses to roll out services in Telefonica’s Latam
operations, not included in previous ests. The domestic market is stabilising and
we expect a return to revenue growth. Further, OnMobile has gone live in key
Latam mkts. These factors should lead to revenue momentum and margin
improvement. It has been some time since we have written on this stock, during
which time the stock price has followed market conditions. Buy, new TP of Rs290.
Domestic business – improving revenue trend
We believe the stabilisation in tariffs due to the reduction in competitive intensity
will lead telecom revenue growth to rise to a level of 15% (YoY) in the medium
term. VAS revenue should follow a similar trend as its share of sector revenues
has remained stable at 10-12%. OnMobile maintains its dominant position in its
core product portfolio of ringback tone (RBT) and voice portal (VP). We expect
domestic revenues to post a two-year CAGR (FY11-13E) of 14%.
Latam market – ready to roll; the key to a stock rerating
OnMobile signed the contract to roll out its VAS products in Telefonica’s Latam
operations, spanning 13 countries, in 2QFY10. The service had gone live in six
countries by the end of 3QFY11, including the major markets of Brazil, Argentina
and Mexico. We expect the Telefonica contract to have a material impact from
3QFY12E. Our analyst David Wright estimates Telefonica’s CY11E Latam revenues
at US$24.6bn, which is comparable to the size of the Indian mobile sector FY12E
revenue base at US$25.4bn. Further, Latam’s better pricing and margin profile
should aid profitability.
Trading at 13.5x FY12E EPS; two-year EPS CAGR (FY11-13E) of 22%
Our target price of Rs290/share is based on a P/E target multiple of 18x FY12E
EPS (vs our previous target multiple of 26x). Our previous estimates did not
include the impact of Latam operations. Our current target P/E is at a 9% premium
to Deutsche Bank’s target multiple for the Sensex, which we believe is reasonable
given the growth trajectory of the company. Key risks include slower-thanexpected domestic VAS growth
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OnMobile
Reuters: ONMO.BO Bloomberg: ONMB IN Exchange: BSE Ticker: ONMO
Latam scale-up is the key to stock performance; Buy
Stabilising domestic market, Latam revenue scale-up in sight
Our cut in estimates reflects lower-than-forecast growth in the domestic market
and impact of pre-launch expenses to roll out services in Telefonica’s Latam
operations, not included in previous ests. The domestic market is stabilising and
we expect a return to revenue growth. Further, OnMobile has gone live in key
Latam mkts. These factors should lead to revenue momentum and margin
improvement. It has been some time since we have written on this stock, during
which time the stock price has followed market conditions. Buy, new TP of Rs290.
Domestic business – improving revenue trend
We believe the stabilisation in tariffs due to the reduction in competitive intensity
will lead telecom revenue growth to rise to a level of 15% (YoY) in the medium
term. VAS revenue should follow a similar trend as its share of sector revenues
has remained stable at 10-12%. OnMobile maintains its dominant position in its
core product portfolio of ringback tone (RBT) and voice portal (VP). We expect
domestic revenues to post a two-year CAGR (FY11-13E) of 14%.
Latam market – ready to roll; the key to a stock rerating
OnMobile signed the contract to roll out its VAS products in Telefonica’s Latam
operations, spanning 13 countries, in 2QFY10. The service had gone live in six
countries by the end of 3QFY11, including the major markets of Brazil, Argentina
and Mexico. We expect the Telefonica contract to have a material impact from
3QFY12E. Our analyst David Wright estimates Telefonica’s CY11E Latam revenues
at US$24.6bn, which is comparable to the size of the Indian mobile sector FY12E
revenue base at US$25.4bn. Further, Latam’s better pricing and margin profile
should aid profitability.
Trading at 13.5x FY12E EPS; two-year EPS CAGR (FY11-13E) of 22%
Our target price of Rs290/share is based on a P/E target multiple of 18x FY12E
EPS (vs our previous target multiple of 26x). Our previous estimates did not
include the impact of Latam operations. Our current target P/E is at a 9% premium
to Deutsche Bank’s target multiple for the Sensex, which we believe is reasonable
given the growth trajectory of the company. Key risks include slower-thanexpected domestic VAS growth
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