Onmobile has had a chequered history. From a high of being funded by Infosys and part of the mobile services revolution, to the low of a CEO-founder who had to leave for 'ethical/corporate governance' reasons, the company has come down in the world. Now, the stock price has surged, almost doubling in a month on rumours of a turnaround. However, we remain sceptical about whether there is anything that justifies this excitement.
Incubated by Infosys it had a blockbuster IPO in Feb 2008, giving it a valuation of about ₹3,000 crores. It became the poster boy of Indian IT startups. In March 2011, its year's revenues crossed ₹500 crores and its profit stood around ₹87 crores. Promoter Arvind Rao rode high as the brains behind the products and was credited for the stupendous performance.
However, in June 2012, Rao resigned after a special internal review by the company on allegations of misappropriation of funds. After this stock touched ₹38 from an all time high of ₹372 (April 08), eventually touching an all time low of ₹19.05 in August 2013. The financials show that though there has been a steady sales growth, the operating profit margin have dipped from a high of about 42 per cent to 15 per cent between March 08 to March 14. Royalty payments have shot up by 85 per cent last year alone.
Revenues from mobile value-added services in India, which are the largest component of total sales, have fallen by about 41 per cent since March 2011 and growth in Africa segment has stabilized. Ring back tunes, which is losing popularity among consumers, still forms about 52 per cent of revenue.
Interestingly in fixed assets, goodwill, patents and rights alone make up above 50 per cent of gross block and 78 per cent of net block, both of which are vulnerable to impairments in such businesses. Profit have been showing a falling trend since Rao's exit. It had a loss of about ₹132 crores (even after excluding the goodwill impairment write off, loss pegs at ₹64 crores) for the year ending March 14. Even after this huge loss, the company paid dividend which questions its sustainability.
This quarter, it had a narrower loss of Rs 1.2 crore (after a profit of ₹6.70 crores from a foreign subsidiary sale) in Q3 compared to about ₹24 crores in Q2. HY1 has a loss of ₹25 crores compared to previous year's PAT of ₹15.58 cores, a decline of 261 per cent. Sales too have shown a minor decline of 2.42 per cent for the same period.
Apparently, Infosys, once a significant stakeholder has sold all its holdings. Its largest shareholder and chairman HH Haight, who replaced Rao on being divested, has resigned. In the quarter ended September 2014, domestic mutual funds almost exited entirely from the company. We believe till we really see fortunes turning significantly, there's no point trying to ride a flimsy rumour. Stay off this stock.
Update: The OnMobile Board of Directors has approved the buyback of equity shares of the company at a price not exceeding ₹86 per share on 11th December.
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