OnMobile May Be a Takeover Target
Indian telecom companies
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OnMobile Global Services
Q1 not good
The telecom services company OnMobile Global Services Ltd has not produced a good result for the quarter ended 30.06.11 as compared to the quarter ended 31.03.11. Revenue has marginally increased from Rs.108 crore to 118 crore. Revenue for the whole year 2010-11 was at Rs.455 crore. Net profit declined steeply from Rs.31.68 crore to Rs.12.39 crore. Operating profit margin eroded from a high of 51% to 26.33%. Net profit margin declined from 29.17% to 10.50%. The shares of OnMobile are traded in the Indian stock markets at Rs.67.95 now (05.11.11). But the shares attract more than average volume in the bourses. The highest price of the shares in the last one year was at Rs.172 on 05.11.10 and the lowest price was at Rs.54 (19.08.11). The present price is close to its lowest price in the last one year, giving temptation to the investors to buy the shares at the current price.
September quarter results better
The company has just now come out with its quarterly results for the quarter ended 30.09.11. Revenue increased by 13.8% sequentially to Rs.155.2 crore. Net profit increased to Rs.47.7 crore. By increasing traction in its global business, the company was able to achieve this feat. The company was able to more than triple its net profit. This was possible because of huge inflows that resulted in sale of VerSe Innovation. International revenue increased by 50.5% sequentially. With players like Telefonica (Latin America) and Vodafone in Africa, the company has multi year rollout deals. The company’s sizeable investment in these geographical areas is paying rich dividends to the company now. International revenues account for more than 42% of its total revenues. The company is aiming to derive more than half of its revenues from international operations. This seems to be achievable within a short time.
Domestic Revenues are Declining
But the sore point for OnMobile is that its domestic revenues are declining. During the latest quarter ended 30.09.11, the domestic revenue saw a decline by 3.6%. Inspite of the fact that tariff wars among mobile operators have subsided in India, ARPUs have continued to slide down. Value added services have not taken off to any appreciable level. For the next few quarters, OnMobile expects its domestic revenue to be subdued. The launch of 3G services has not seen a big welcome from the subscribers.
Buy-back of Shares
OnMobile announced buy-back of its shares at a price 25% higher than the prevailing price in the stock markets in order to boost up the value of its shares. The company is a cash rich company and so can afford to do this. Seven other companies also have announced buy-back of their shares. These companies are Allied Digital, FDC, HEG, Infinite Computer, Reliance Infra, SRF and Zee Entertainment. The offer ends in the first quarter of 2012 for all the eight companies. Recently, another media company Deccan Chronicle also announced a buy-back scheme to buy 34500000 shares. It has achieved the target and the buy-back offer was closed on August 24th.
Acquisition of US Company
OnMobile offers value added services like mobile commerce, screaming video, music, interactive television and social networking to more than 100 million mobile users spread over more than fifty nations. OnMobile announced a bonus issue in the ratio of 1:1 in March. OnMobile expects to increase its penetration in its six existing Latin American markets to 10% from the present 2% over a period of five years. In October last year, OnMobile acquired the US-based Dilithium, which is the leading international provider of mobile video infrastructure solutions. This has enabled the company to offer multimedia services from any network to any device. The acquisition of Dilithium has enabled OnMobile to extend its services to 21 new nations and makes it well positioned to expand in India’s 3G market place. The company has achieved traction in Europe, Asia and Africa.
India’s Largest VAS Managed Service Provider
OnMobile is India’s largest VAS managed service provider. India’s largest IT services company Tata Consultancy Services (TCS) is eyeing to takeover OnMobile. Management holds a little over 50% stake in OnMobile. TCS plans to acquire the entire stake through negotiations and then go in for the mandatory offer to the other shareholders. There is also an alternative route for TCS. First it can buy a part of the promoter’s stake through negotiations and then try to acquire the stake held by the FIIs and other shareholders in the open market. For TCS, it could be a well planned diversification move into the sectors like SMS, voice, video, web and WAP. Telecom operators are currently focusing on issues like tariff hike, mobile number portability and 3G investments. Even before the domestic telecom operators introduced 3G in India, OnMobile had added 3G services to its portfolio through acquisition of the US-based Dilithium.
Takeover Attempt may Shoot Up the Share Price
At the current price of Rs.67, investors can acquire the shares of this company for medium term holding. If any takeover attempt takes place, the share price will shoot up even in the short term.
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