>S MOBILITY: Inch deep - mile wide

Telecom Subscriber - Big Market
S Mobility is building its growth on a strong mobile subscriber base. The remarkable growth in the number of subscribers in India is due to (i) One of the lowest mobile tariffs globally (ii)Local mobile manufactures and cheap Chinese models. The company is planning to capture the data driven growth in mobile business emanating from the onset of the 3G and broadband technologies, hence increasing the application usage by the end customer resulting in a strong growth in Smartphone sales.


HotSpots in a Hot Market
S Mobility is one of the leading players in the Organized retail under the brand Spice Hotspot for selling mobile and laptops through its 887 stores (240 in Delhi). Organized retail contributes 13% to the overall retail market with ~2500 outlets across 15 players. The company, in-order to differentiate itself is moving away from accessories and phone sales towards application demos and customer experience.


Smartphone sales pick up
The company sold 3.8lakh smartphones in Q4FY12 as against 2.2lakh in Q3FY12 growing at 70% sequentially. As the ASP (Average Selling Price) of smartphones is much more than a normal phone it contributes better to the topline. However due to technical advancements and increasing competition the ASP for smartphones saw a sequential decline of -11%. In order to boost its smartphones sales, the company through its retail outlets is increasing application awareness among the customers. The overall smartphone market is expected to contribute 45% to the delta growth of the handsets in the next 3 years. The mobile subscriber base is expanding at 8mn users per month from the present 678mn, thus presenting a big opportunity in the smartphone sales market.


Balance Sheet
S Mobility has no debt and a cash of INR 702mn (FY11 B/S). 30% of its balance sheet is constituted by goodwill emanating out of a fully owned subsidiary "Hindustan Retail India Pvt. Ltd.". It has a healthy RoE of 14%, though the conversion of EBITDA into Operating Cash has been lower at 7% due to increase in working capital on the back of an expanding business.


VAS - significant growth potential
The company through its partnerships with various TSPs (Telecom Service Providers) is providing end customers VAS through Voice, IVR, SMS and applications etc. both locally (83%) and internationally (17%). Mobile VAS revenues are expected to grow at 31.6% CAGR over FY10-15E to INR 482mn.


Outlook & Valuation
S Mobility derives 90% of its revenue from Mobile devices and the rest from services. The data as a % of mobile revenues in India has been 15% which is much lower compared to 30% in China or UK, thus there is a huge market in the VAS business along with growth potential in Smartphone sales. The company is rightly positioned at the brink of this growth, but needs to bring its costs under control which has ballooned due to expansion across various businesses by the company. Once the company is able to identify its niche, it could give significant returns.


To read report in detail: S MOBILITY


RISH TRADER