As
a part of Diwali Dhamaka I had written about OnMobile Global (OG) as being a
company with a good business model and in a growth sector then. Since then lot
of things have transpired for OG. OG is a Mobile VAS player with significant
presence in Latin America as well as domestically.
A
bit of a background of OG is in order here. OG was incubated within Infosys in
2000, and had arguably the best pedigree in the Indian business world. It was
co-founded by Arvind Rao, an IIT-B alumnus and Mouli Raman who headed the
(then) Internet group at Infosys before quitting setup OG. Its customer list
covered almost every operator, attesting to the value of its services. With
over 100 million subscribers for its services, including for the once wildly
popular ringback tune, it had grown rapidly from just over Rs 2 crore in income
in 2002 to over Rs 500 crore by 2010. At 20-plus %, its profit margins were a
source of envy and puzzlement to many, given the razor thin margins prevalent
in the mobile value-added services (VAS) industry. Under Rao, OnMobile had gone
international, generating nearly a third of its revenue from over 50 other
countries. Nearly half of their revenue comes from Europe and Latam (South
America).
OG
came out with an IPO in Jan ’08 @450/share which went on to hit 700 sometime
later. Since then they have also given a 1:1 bonus in Mar. ’11.
In
Nov. ’10 Rao, already owned over 10% of the company’s shares, bought a further
6 lakh shares of from the open market, representing a little over 1% of the
company’s total shares, with borrowed money. Rao felt it was just an
aberration—the market hadn’t realised the value of his baby. The world was at
the cusp of the mobile revolution; billions of people around the world had yet
to experience phone services beyond voice; and OG was just getting started on
its international journey. But the script didn’t play out as he expected. OG’s shares
continued to fall from those levels, while Rao’s interest payments ballooned.
And
then the inevitable happened. Rao could not come up with the funds to pay back
his lenders who encashed his pledged shares. He had to quit and that plunged OG
shares to their life-time lows. Rao was after all a respected industry figure
and OG’s most well-known face to the world.
OGL
witnessed steep decline in EBITDA margin over the last 7 years on account of
following: (1) various international acquisitions done earlier (2) high
integration costs, (3) consolidation of low margin or loss making business, and
(4) high R&D expenses on new projects. The margins were further impacted by
decline in revenue growth and increasing employee and other cost due to
overseas expansion.
However,
things are set to change. They have a new CEO, a telecom industry veteran and
an IIT-D alumnus, on board and have a strategy in place to regain their lost
profitability. They have divested some of their loss-making overseas businesses
and also optimised their operations. Since 2014, their operations seem to be
turning the corner with the graph showing an upward trend, from the downhill of
earlier years.
This
strategy is similar to what Maxwell Industries about whom I had written in the
same article, adopted, and has successfully implemented, doing wonders to their
stock price. If OG also goes the same way in its strategy implementation, its
growth story should unfold over the next few years and it should regain its
lost glory.
The
only risk being that in a highly technical niche telecom field, OG will have to
be on its toes to keep abreast of the technology as well as its peers and
competitors. But the advantage is that they have no listed peer in the Indian
market, have cash-flow positive operations, have been in the field for the last
decade and hence know the industry well and are a turnaround story, all factors
which most sharp investors would like and latch on to. The stock price has
already nearly tripled from the 30-40 range to 100-110 range now, but still far
from its earlier days. With all-round improvement, they should be able to
regain their past glory.
