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OnMobile Global Services: Buy

OnMobile Global Services is well placed to benefit from the rising demand for mobile value-added services, with telecom tariffs stabilising and the launch of 3G services. Given its return to the growth path and strengthening international operations, investors can buy the stock.

At Rs 240, the share trades at 12 times its estimated per share earnings for FY12. This is at a substantial discount to the valuations that the company has enjoyed historically.

The launch of mobile services by several new operators resulted in an intense tariff battle in the mobile telephony space in the last two years. This led to falling average revenues per user and affected the share of value-added services usage as well. OnMobile witnessed a marginal rise in revenues in FY10, while profits nearly halved.

With tariff wars stabilising, new domestic client wins and the commencement of rollout in Latin America and Africa, there has been a revival of sorts for the company. In the first half of FY11, revenues grew 18.3 per cent to Rs 255.3 crore over the same period in the previous year, while net profits zoomed 123.8 per cent to Rs 41.4 crore.

The company has multi-year rollout deals with players such as Telefonica and Vodafone and substantial investments there over the past year are beginning to pay off. Implementation has been done for key geographies such as Mexico and Egypt and over the next few quarters execution for a total of 13 Latin American countries is slated. Within months of launching value-added services, there has reportedly been a substantial increase in subscribers for these operators, indicating OnMobile's sound execution capabilities.

Telefonica's subscribers in countries such as Brazil, Mexico, Chile, Argentina and Venezuela, its key markets, generate high ARPU of $10-30, which is substantially higher than the $5 levels that the Indian market generates. OnMobile would stand to make a lucrative share of those revenues.

These two deals may contribute over 50 per cent of OnMobile's overall revenues in a span of two-three years. Revenues have already started to flow in and would pick up momentum over the next three-four quarters. In India too, the company has a strong existing relationship with most of the top operators and has now added a public sector operator for offering ring back tones to its subscribers in Mumbai and Delhi. The ARPUs of major operators are starting to stabilise, going by the results in the last couple of quarters.

In the next few quarters, top Indian operators would also be rolling out 3G services, with some already having done so. This would offer OnMobile a platform to improve realisations. In this regard, the company has acquired Dilithium Networks' 3G video technology, whose products are deployed for operators such as BSNL, China Unicom, and Deutsche Telekom.

K. Venkatasubramanian

BL Research Bureau

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