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OnMobile Global (ONMO.BO)
Value and Some Volume
Why still a Buy — The stock has had a bad run, with the domestic slowdown hitting
EPS. However, we believe it is still a Buy and offers 50% upside from current levels on
the back of ramp-up in the international segment. With the international execution on
track, OnMobile should increasingly be de-risked and offer good growth. EBITDA is cut
20%-28% over FY12-14E on the domestic slowdown. The EPS cut is sharper due to a
small base. The new TP is based on 13x FY13E P/E (prev. 20x Mar-12E) and is now
broadly in line with the market multiple (premium earlier). Multiple is cut primarily to factor
in deceleration in earnings growth & some uncertainty surrounding domestic business.
Overseas operations supporting growth — After two slow quarters, revs in the Sep-
11 quarter rebounded, growing 18%yoy to Rs1.6bn (Rs1.5bn exp) as tepid domestic
segment was more than offset by ramp-up in the international segment. Margins stayed
flat vs. expectation of an increase on salary hikes and product-mix changes led to a
rise in content costs. Despite this, EBITDA grew a healthy Rs325m (20%qoq; 17%yoy).
Reported PAT was significantly ahead, boosted by Rs466m gains on investment sales.
Adjusting for this, PAT was below estimates on a higher amortization charge.
International business growing in leaps and bounds — The international segment
posted a strong growth rate of 51%yoy and accounted for 42% of the revenues. The
execution of Telefonica LatAm deployment remains on track, and is now cash positive.
The company’s operations in Africa and developed markets too are doing well. The
rising contribution of international revenues bodes well for earnings because of: (a)
higher and stable contracted revenue share and (b) op leverage – software has been
expensed, high incremental contribution margin.
Domestic market should remain challenging — The Indian VAS market is likely to
remain anemic due to: (a) TRAI regulations still in the works have increased
uncertainty; (b) The “true addressable” mkt is already quite well penetrated.
Incremental subs do not have the ability to pay for VAS; and (c) Operators are focused
on 3G rollouts. As a result, we expect a meaningful slowdown in domestic revenues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OnMobile Global (ONMO.BO)
Value and Some Volume
Why still a Buy — The stock has had a bad run, with the domestic slowdown hitting
EPS. However, we believe it is still a Buy and offers 50% upside from current levels on
the back of ramp-up in the international segment. With the international execution on
track, OnMobile should increasingly be de-risked and offer good growth. EBITDA is cut
20%-28% over FY12-14E on the domestic slowdown. The EPS cut is sharper due to a
small base. The new TP is based on 13x FY13E P/E (prev. 20x Mar-12E) and is now
broadly in line with the market multiple (premium earlier). Multiple is cut primarily to factor
in deceleration in earnings growth & some uncertainty surrounding domestic business.
Overseas operations supporting growth — After two slow quarters, revs in the Sep-
11 quarter rebounded, growing 18%yoy to Rs1.6bn (Rs1.5bn exp) as tepid domestic
segment was more than offset by ramp-up in the international segment. Margins stayed
flat vs. expectation of an increase on salary hikes and product-mix changes led to a
rise in content costs. Despite this, EBITDA grew a healthy Rs325m (20%qoq; 17%yoy).
Reported PAT was significantly ahead, boosted by Rs466m gains on investment sales.
Adjusting for this, PAT was below estimates on a higher amortization charge.
International business growing in leaps and bounds — The international segment
posted a strong growth rate of 51%yoy and accounted for 42% of the revenues. The
execution of Telefonica LatAm deployment remains on track, and is now cash positive.
The company’s operations in Africa and developed markets too are doing well. The
rising contribution of international revenues bodes well for earnings because of: (a)
higher and stable contracted revenue share and (b) op leverage – software has been
expensed, high incremental contribution margin.
Domestic market should remain challenging — The Indian VAS market is likely to
remain anemic due to: (a) TRAI regulations still in the works have increased
uncertainty; (b) The “true addressable” mkt is already quite well penetrated.
Incremental subs do not have the ability to pay for VAS; and (c) Operators are focused
on 3G rollouts. As a result, we expect a meaningful slowdown in domestic revenues.
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