OnMobile Global: Disconnect! | Value Research The company could potentially see stress on its cash balances and return ratios can take a knock
Stock Analyst Choice

OnMobile Global: Disconnect!

The company could potentially see stress on its cash balances and return ratios can take a knock

OnMobile is one of the few software companies in which FIIs have reduced their stake sharply (from 18 per cent a year ago to 5.96 per cent). The company provides value added services (VAS) to mobile phone operators. Ring back tone is the company's primary revenue generator accounting for over half of OnMobile's topline. Despite talk of huge under-tapped opportunities, VAS is not a very high return business - OnMobile's RoE averaged at only 11 per cent in the last five years.

Around a year back, OnMobile's founder-CEO, Arvind Rao, stepped down after lapses in corporate governance came to light. A couple of months earlier, the top management saw a churn following exits of key personnel including the CFOs Rajesh Moorti and Amit Rastogi, R&D head Sanjay Bhambri, M&A head Sandhya Gupta and board members Sridhar Iyengar and Jayanth Rama Varma.

Should you follow the FII route?
In June this year, OnMobile announced that it would acquire the US-based VAS company Livewire for $17.8 million (around Rs 105 crore), to be financed with debt of $13 million and equity of $5 million.
Livewire is not a particularly hot property. With losses of $3.6 million in FY12, Livewire could remain in the red (at Ebitda levels) till FY14 -- further straining OnMobile's resources. OnMobile has a cash balance of Rs 180 crore. Sections of the market have been calling for a buyback for some time now but the company has not indicated that it is looking into any such option at the moment.
With chance of any meaningful contribution from Livewire not looking apparent before FY15, OnMobile could potentially see stress on its cash balances and return ratios could take a further knock.
Till the time the company can demonstrate that the Livewire acquisition does indeed have payoffs, investors would be advised to follow the way of the FIIs and make a quick exit.




Other Categories