Stock Review: OnMobile Global

 

The stock of OnMobile Global has fallen by 8% since its third quarter results in late January. The market cap of mobile value-added services provider has fallen by over one-third in the past three months. Its latest announcement to offer bonus shares could give an immediate sup-port to the stock. But in the long term, its progress in international markets and domestic 3G opportunities are critical to its performance.

OnMobile has proposed to issue one bonus equity share for every existing share. If approved by shareholders, the decision will double its equity base to nearly. 118 crore. Since it will also halve the earnings per share, the stock price would fall by an equal measure after the listing of the bonus shares to retain the current stock valuation.

The depressed movement in the company's stock price is due to a stagnant domestic business, which contributes more than two-third to the total revenue. During its third quarter analyst call, OnMobile stated that the value-added services (VAS) revenue, excluding SMS, roaming and mobile internet usage, had not seen improvement for domestic telcos.

The picture is not expected to change soon since operators are currently focusing more on issues such as tariff cuts, mobile number portability and 3G investments that have impacted their growth. What could, however, trigger growth for OnMobile is its faster expansion in overseas markets. The company launched its services in three Latin American markets during the December quarter taking the total number of markets in the region to six. The current penetration rate of less than 2% is expected to increase to 10% in the next five years. It has also seen traction in Europe, Asia, and Africa.

The launch of its products in overseas markets has increased the share of its international revenue to 31% in the past four quarters from 23% a year ago. This is expected to improve further thereby reducing its exposure to the subdued Indian telecom market.

OnMobile's acquisition of USbased Dilithium Networks in October 2010 has added 3G-based products to OnMobile's repertoire. This should help in taking advantage of the proposed 3G launch by domestic telcos.

At the current price of . 223, the stock trades at a trailing P/E of 18, which is much lower than its historical P/E of above 30. The traction in its overseas operations may offer some trigger to the stock in the coming quarters.