Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
OnMobile Global Ltd.
International Business Drives Growth
OnMobile reported better than expected operational
F3Q11 results, driven by the international business:
Revenues were up 13% QoQ and 29% YoY at Rs1.5bn.
EBITDA margins expanded 144bps sequentially to
22.6%, leading to EBITDA growth of 21% QoQ and 46%
YoY to Rs336mn. Profits were down 8% QoQ due to
extraordinary income in the previous quarter. However,
on a YoY basis profits grew 59% to Rs209mn.
Revenues, EBITDA and profits were 5%, 13% and 32%
higher than our expectations, respectively. The positive
surprise came from international revenues ,which were
up 53% QoQ vs. our expectations of 10% QoQ growth.
What we liked: 1) International revenues grew 53%
QoQ and 37% YoY, driven by both core and new
investments like Telefonica and Vodafone launches.
New investment revenues alone grew 2x this quarter to
Rs119mn. 2) Core margins rose 100 bps to 33%.
What concerned us: 1) Domestic revenue growth was
muted at 1% QoQ vs. our expectation of 7%. 2)
Depreciation was up 26% QoQ to Rs162mn largely due
to the newly acquired Dilithium assets.
Impact on our views: We see upside risk to our F2011
revenue and EBITDA estimates for the company of ~4%
and ~8%, respectively; however, accounting for higher
depreciation could imply positive impact on profits of
~5-6%. However, we await further discussion with
management and maintain our estimates for the
company currently.
Sell-off provides opportunity to accumulate
OnMobile: The stock has underperformed the BSE
Sensex by ~50% in the last 12 months on regulatory
uncertainty, as well stunted operational performance.
We believe the sell-off is overdone; with F11, the year of
investment, behind the company, we estimate strong
revenue, EBITDA, and PAT CAGR of 30%, 45% and
47%, respectively, during F10-13.
Other highlights from the quarter:
• OnMobile has launched services in Brazil, Argentina and
Venezuela in F3Q11 as part of the Telefonica launches.
• It is now live with six countries in Telefonica, covering 80%
of the total subscriber base of Telefonica Latin America
of~130 million
• Following the acquisition of Dilithium in October 2010, the
company has completed the integration of teams that
joined as a part of this acquisition. This acquisition has
increased its geographic presence by 21 countries, taking
the total to 52 countries as at end of December 2010.
Valuation Methodology
We use Discounted Cash Flow (DCF) analysis to derive our
bear, base, and bull values. We use the base case, which is at
the mid-point of our bear and bull values, to derive our price
target on a one-year forward basis, assuming a terminal growth
rate of 6% and cost of capital of 12.8% (Exhibit 1).
Based on these assumptions, we arrive at an enterprise value
of Rs23bn (Rs392/share). Adding net debt of Rs262mn
(Rs5/share), the equity value stands at Rs22.4bn
(Rs388/share). We then adjust it to reach our one-year forward
price target of Rs400/share, equivalent to P/Es of 23x F11 EPS
and 19x F12 EPS (Exhibit 2).
Downside risks:
• Pressure on domestic business
• Loss of a major customer
• Execution risk
Exhibit 1
OnMobile: Cost of Capital Assumptions
Risk Free Rate 7.8%
Beta 1.05
Equity Risk Premium 6.5%
Cost of Equity 14.6%
% of Equity 75%
Cost of Debt 11%
Tax Rate 31%
After Tax cost of debt 7.6%
% of Debt 25%
WACC 12.8%
Source: Company data, Morgan Stanley Research estimates
Company Description
OnMobile offers value-added services (VAS) for mobile,
landline, and media service providers. Products and services
include ringback tones, voice portals, SMS portals, music
search, and phone back-up. Investors through OnMobile
Systems Inc. include Argo Global Capital and Infosys
Technologies Ltd. OnMobile will deploy VAS services in
emerging markets for Vodafone Group and Telefonica via
exclusive long-term market rights agreements.
India Telecommunications
Industry View: Attractive
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
OnMobile Global Ltd.
International Business Drives Growth
OnMobile reported better than expected operational
F3Q11 results, driven by the international business:
Revenues were up 13% QoQ and 29% YoY at Rs1.5bn.
EBITDA margins expanded 144bps sequentially to
22.6%, leading to EBITDA growth of 21% QoQ and 46%
YoY to Rs336mn. Profits were down 8% QoQ due to
extraordinary income in the previous quarter. However,
on a YoY basis profits grew 59% to Rs209mn.
Revenues, EBITDA and profits were 5%, 13% and 32%
higher than our expectations, respectively. The positive
surprise came from international revenues ,which were
up 53% QoQ vs. our expectations of 10% QoQ growth.
What we liked: 1) International revenues grew 53%
QoQ and 37% YoY, driven by both core and new
investments like Telefonica and Vodafone launches.
New investment revenues alone grew 2x this quarter to
Rs119mn. 2) Core margins rose 100 bps to 33%.
What concerned us: 1) Domestic revenue growth was
muted at 1% QoQ vs. our expectation of 7%. 2)
Depreciation was up 26% QoQ to Rs162mn largely due
to the newly acquired Dilithium assets.
Impact on our views: We see upside risk to our F2011
revenue and EBITDA estimates for the company of ~4%
and ~8%, respectively; however, accounting for higher
depreciation could imply positive impact on profits of
~5-6%. However, we await further discussion with
management and maintain our estimates for the
company currently.
Sell-off provides opportunity to accumulate
OnMobile: The stock has underperformed the BSE
Sensex by ~50% in the last 12 months on regulatory
uncertainty, as well stunted operational performance.
We believe the sell-off is overdone; with F11, the year of
investment, behind the company, we estimate strong
revenue, EBITDA, and PAT CAGR of 30%, 45% and
47%, respectively, during F10-13.
Other highlights from the quarter:
• OnMobile has launched services in Brazil, Argentina and
Venezuela in F3Q11 as part of the Telefonica launches.
• It is now live with six countries in Telefonica, covering 80%
of the total subscriber base of Telefonica Latin America
of~130 million
• Following the acquisition of Dilithium in October 2010, the
company has completed the integration of teams that
joined as a part of this acquisition. This acquisition has
increased its geographic presence by 21 countries, taking
the total to 52 countries as at end of December 2010.
Valuation Methodology
We use Discounted Cash Flow (DCF) analysis to derive our
bear, base, and bull values. We use the base case, which is at
the mid-point of our bear and bull values, to derive our price
target on a one-year forward basis, assuming a terminal growth
rate of 6% and cost of capital of 12.8% (Exhibit 1).
Based on these assumptions, we arrive at an enterprise value
of Rs23bn (Rs392/share). Adding net debt of Rs262mn
(Rs5/share), the equity value stands at Rs22.4bn
(Rs388/share). We then adjust it to reach our one-year forward
price target of Rs400/share, equivalent to P/Es of 23x F11 EPS
and 19x F12 EPS (Exhibit 2).
Downside risks:
• Pressure on domestic business
• Loss of a major customer
• Execution risk
Exhibit 1
OnMobile: Cost of Capital Assumptions
Risk Free Rate 7.8%
Beta 1.05
Equity Risk Premium 6.5%
Cost of Equity 14.6%
% of Equity 75%
Cost of Debt 11%
Tax Rate 31%
After Tax cost of debt 7.6%
% of Debt 25%
WACC 12.8%
Source: Company data, Morgan Stanley Research estimates
Company Description
OnMobile offers value-added services (VAS) for mobile,
landline, and media service providers. Products and services
include ringback tones, voice portals, SMS portals, music
search, and phone back-up. Investors through OnMobile
Systems Inc. include Argo Global Capital and Infosys
Technologies Ltd. OnMobile will deploy VAS services in
emerging markets for Vodafone Group and Telefonica via
exclusive long-term market rights agreements.
India Telecommunications
Industry View: Attractive
No comments:
Post a Comment