Update: One97 has delayed its IPO by 12 days, reports VCCircle, largely on account of volatile stock market conditions. The IPO will now open for subscription on December 13th. Note that at this point in time, competitor OnMobile Global is trading close to its 52 week low. In response to a query from MediaNama yesterday, OnMobile said that some of its early investors (through US based OnMobile Systems Inc), who have been with the company for almost 10 years now, are selling their shares. ARGO, which owns a significant majority stake in ONSI remains invested, though.

November 24th, 2010: The Initial Public Offering (IPO) of mobile VAS company One97 Communications (please see disclosure below) opens for subscription on December 1st 2010. Download its Red Herring Prospectus (RHP) here (pdf). The company is is looking to raise Rs. 120 crore from the offering, but hasn’t disclosed the offer price yet. CRISIL has given the IPO a rating of 3/5 (Average). Notes on financials, with details of revenues from its top 5 customers, details of sale of WaveSecure, and industry trends and business details:

Financials

For the quarter ending June 30th 2010, One97 Communications reported a total income of Rs. 36.12 crore, and a profit after tax of Rs. 6.47 crore. Its net worth at the time was Rs. 140.84 crore. As of June 30, 2010, One97 had 772 employees.



– For FY10: One97 says that its operating income increased primarily due to an increase in income from sale of services of 43.29% to Rs. 114.65 crore in FY10, from Rs. 80.01 crore in FY09, due to addition of new clients and new services: services like 530305 shortcode services, premium celebrity chat consumer service, and the addition of clients like Uninor and MTS in India, and telcos in Nigeria, and Bangladesh. They also added enterprise clients in banking, financial services and insurance, consumer durable goods and DTH sectors.

– Segment Dependency: For One97, Network Services accounted for 50.33% of revenues, Consumer Services accounting for 43.95%, while enterprise services accounted for 4.18%. Network services include SMSCs and USSD Gateways, customer lifecycle management services and marketing services.

Note: If you know who these customers are, please let us know in the comments

– Customer Dependency: One97 says that for quarter ended June 2010, no single customer accounted for 25% of its total income. However, its top 5 customers accounted for around 80% of its total income. One97’s dependency on its top 5 customers has remained high: 78.26% in FY10, 91.38% in FY09, and 89.79% in FY08. Thus the loss of a customer could hit revenues significantly. Revenues of competitor OnMobile Global were impacted last fiscal, wherein it lost RCOM as a customer for its CRBT platform, though it has acquired the same customer back this fiscal.

One97 says that they offer network component services to four telecom operators in India, customer lifecycle management services to nine telecom operators in India, and one each in Bangladesh, Afghanistan and Nigeria.

– One97 promoter and MD Vijay Shekhar Sharma sold 600,000 Equity Shares to SAIF partners on February 23rd 2010, at Rs. 175 per share. He retains 9.85 million shares, which amounts to 38.52% shares, while SAIF owns 36.70%. Intel Capital owns 9.7%.

Peeyush Aggarwal has sold significant stake pre-IPO: to Reliance Capital (348616 shares), IDFC Investment Advisors (1,357,323 shares, amounting to 5.3% shareholding), Intelsys Software & Consultants (160384), as well as 50,000 shares to four other buyers. Aggarwal also sold 2,000,000 shares to SAIF on March 2nd 2010, and currently has only 0.41% shareholding.

– The company mentions that two of its key management personnel – Sanjay Singh and Vineet Kaul, have resigned recently. We’d reported Singh’s resignation earlier this month. He’s joined Dialogic.

Comparison with competitors

Plans

– Strategic alliances with telecom operators to offer enterprise services.
– Launch 3G compatible video services
– Expand operations to South East Asia, Africa and a few pre-paid minutes dominated European markets.
– Intends to sell network services and consumer services outside India.
– Incur a total capital expenditure of approximately Rs. 83.49 crore to fund the purchase of telecom equipments for its office (Rs. 10.54 crore), and at customer sites. It’s computers and software,including internally generated software, currently account for 91.10% of its Fixed Assets

Details of Services

– Content Services: In terms of consumer services, they offer content, applications and commerce services via SMS, voice and WAP. They offer caller ring back tones and ring tones, Contests, Quizzes and Puzzles, SMS subscription content, as well as animation, screensavers, themes, wallpapers, Voice portals (educational – Learn English, astrology, devotional). The company says it has four in-house studios where voice content is developed, with 40 employees. They also pay royalty as revenue share for content. As of October 15, 2010, One97 had 11.19 million subscribers for SMS content, and 6.24 million subscribers for its Voice Portals.

– Enterprise Services: One97 had 244 enterprise customers as of October 15 2010.

– PayTM: Is an m-commerce subsidiary of One97 (please see disclosure below), which allows telcos and enterprises to accept payments from their customers over IVR, SMS, WAP and websites, using credit cards, debit cards, internet banking and prepaid cash cards. It allows mobile prepaid and DTH recharges, movie ticketing, bill payments and mobile shopping.

– WaveSecure Data Backup: One97 Communications’ agreement with TenCube (a company they invested in, which was bought by McAfee) to represent and re-sell its data backup and security app WaveSecure expires on November 29,2010. One97 had bought 21.28% in TenCube in December 2009, and invested Rs 33,700,000 in the company in FY10. McAfee bought TenCube for a total acquisition price of $9.5 million, and One97 “received its proportionate share of the consideration on August 31, 2010”. (ED: approx $2.02 million).

– Oc2ps: One97 says that they’re in discussions with telecom operators for the deployment of their social networking platform Oc2ps. They’ve been working on this product for quite some time now.

– DNC Liability: One97 Communications runs an OutBound Dialler service which is used for marketing mobile VAS services for telecom operators. The company says that its “telecom service provider customers have passed on the burden of compliance with Do Not Call (“DNC”) regulation” to it, involving fines of up to Rs. 1,000 per unsolicited commercial communication to numbers on the DNC list, and penalties of up to Rs. 20,000 for non-compliance with the Telecom Unsolicited Commercial Communications Regulations, 2007). Readers should note that a “Do Call Registry” could effectively kill this revenue stream.

Industry trends and business details

– Premium SMS: One97 says that of the cost of Rs. 3 per premium SMS, the telecom operator retains 85-90%. However, if an SMS costs Rs. 10, the telecom operator is likely to retain 40-50%.

– Bulk SMS margins: A content aggregator buys a bulk deal from a network service provider and adds its own margins, which are usually 10-12%. The margins have decreased considerably with the maturity of this form of advertising, and in some cases, an advertising agency directly approaches telcos, in which case, revenue is distributed 15% to the advertising agency, 12-15% to the content aggregator and the remainder to the telecom operator.

– Off-deck advertising (Mobile Internet & WAP): “Telecom service providers have no control. Yahoo, MSN and Google are penetrating aggressively into this area. The competition is high and prices have declined by 70-80% in 2009.”

– Increasing adoption of multiple SIM cards by subscribers reduces the percentage of successful calling and conversion (probably, of the OutBound Dialler)
– Discovery of content (e.g., selection of songs for CRBT), rather than usage of content itself, was traditionally a major source of revenue. However, the trend has changed towards making content discovery free while promoting increased usage of content. This shift has helped to increase traffic of various network VAS – calls to toll free numbers, outbound calls and SMS for CRBT services, among others
– CRBT traffic contributes the largest portion of network VAS traffic. The trend is expected to continue due to the popularity of this service across all categories of subscribers
– Subscriber growth is mostly expected from rural regions, some of which lack English knowledge and familiarity with SMS. Lack of local language IVR and content make it difficult to target this segment effectively

IMPORTANT UPDATE: We’ve noticed that dispacomments have been made from a single set of IP addresses under multiple anonymous aliases, both on this article, and the one mentioning the resignation of One97 CTO Sanjay Singh, with disparaging, possibly libelous, comments about the company. This appears to be a concerted campaign by a single user against the company, using multiple alias’: we’ve thus moderated comments from that IP address. Criticism is welcome, though, but please refrain from personal comments.

* Disclosure: One97 Communications is an advertiser with MediaNama, as are competing businesses IMI Mobile, Hazel Media and Indiatimes. Furthermore, PayTM (mentioned above) is currently being advertised on MediaNama.