>ONMOBILE GLOBAL (ICICI DIRECT)

Bracing for the future…

OnMobile Global reported its Q1FY10 results that were below our expectations. The topline for the quarter stood at Rs 107.2 crore against our expectation of Rs 119.9 crore. It grew 37.8% YoY while declining 7.0% QoQ. The EBITDA stood at Rs 24.4 crore at 22.8% of net revenues. The EBITDA margin declined by 408 bps QoQ and 1070 bps YoY due to increase in content fee and other sales and services expenses, which grew 9.4% and 60.1%, respectively. The PAT margin stood at 8.1% as against 19.9% in the last quarter. The company posted a PAT of Rs 8.7 crore against our expectation of Rs 23.9 crore.

Highlight of the quarter
First Vodafone Operator went live with RBT in Europe under the global Vodafone agreement that OnMobile had signed in Q4FY09. The company also launched voice portal and RBT services with a new GSM operator in India. Revenues during the quarter declined by 7.0% QoQ due to a seasonal trend in the company’s earning pattern. The de-growth was also a result of an internal restructuring in one of the operators that impacted the topline. Two large handset manufacturers have selected Onmobile’s Phone Backup solution for Android phones. The company has also partnered with Nokia to launch Life Tools, the first initiative to package agriculture, education and entertainment services on the handset for the large rural market.

Valuations
At the CMP of Rs 547, OnMobile is trading at 35.1x its FY10E EPS of Rs 15.6 and 22.6x its FY11E EPS of Rs 24.2. We have used the DCF approach to value the stock at Rs 606. Our target price discounts the FY10E and FY11E EPS by 38.9x and 25.0x, respectively. We are upgrading the stock from HOLD to PERFORMER.

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