With Net Cash at Rs 151.8 crore, investors are trying to push OnMobile Global to buy back shares, but the company said that it doesn’t have any such plans yet. Speaking on the conference call, Tony Haight, the Chairman of OnMobile’s board, said that “We’ve had requests for a buyback and the board has discussed this. Given the investment needs – both organic and inorganic – the company needs capital.” Reacting to this statement, one investor spoke up on the concall against again plans for a large inorganic expansion, saying that investors would be vary of a large inorganic move, given that the Telefonica deal is still being amortized. “If at all any inorganic deal is done, the quantum of the inorganic deal should be laid out to the investors. We would be averse to any large layout. It should be cautious and small.”
The responses from the Onmobile management:
Tony Haight: Until we have good clarity on the decisions we make on what kind of growth we fund and when, we are going to reserve the decision on distribution of any cash for purposes of a buyback. We’re not opposed to a buyback, but we want to know what decisions are best for the company.
Mouli Raman (Onmobile CEO): we will not make any investments as large as Telefonica, but we want to keep our options open. We would like to defer the buyback.
Other notes from the conference call:
– We see 2013-14 as a year in which we will have 100% deployment across all our geographies, and very good cost efficiencies. We are trying to reach a net margin of 8-9%. If we are able to target 8% return on a growing revenue base, that itself would translate into a very good improvement on our return on capital. We are trying to prune down our incremental working capital requirements.
– We will be able to show good improvement on the revenue side
Unbilled Revenue Piles Up
We should be able to get Rs 70-80 crore of cash released in unbilled revenued in the next 3-4 months. We’ve had a higher built up in unbilled revenue. Rs 40-50 crore should be available in June-July.
India was contributing 55%, we had a challenging year due to financial and regulatory pressures. Revenues dropped 19% year on year. Contribution of India reduced to 39%.
– LatAm: Extensive adoption of RBT, and we continue to be bullish on RBT. We’re seeing traction in RBT other operators based on successes in LatAm. LatAm contributes 23% to revenues, as compared with 11% the previous year. You’ll see healthy growth in Latin America this year as well. In India, there was a huge spurt in the first couple of years, but in LatAm there was a steady growth. The quality of the customers that we’re acquiring, and the marketing practices in LatAm are much more conservative. The growth is much more steady.
– Africa: revenue growth of 100% in Africa. LAunched a football service, and are in the process of launching more services in existing customers. We’ve seen moderate growth. Bangladesh is positive. One of the largest operators will becoming online in Bangladesh in the next few weeks. Africa RBT: from a regulatory standpoint is much stricter than in India, but the adoption is much faster. We attribute that to the fact that there were not too many alternatives.
– Customer wins in Spain, Turkey and Italy and will be going live this year.
– North America has seen moderate growth.
– Mexico: new operator, with about 15 million users
For the coming year, we expect international revenues to be 70%, and Indian to be 30%.
Seeing growth in RBT (Ringback Tones), and we’re seeing opportunities beyond music. RBT will continue to be a key player for us. Consumer adoption for RBT in the International market continues to rise. We continue to see a robust growth in the international market.
We’ve extended managed services offering to manage data services. We have three customers and are making a push for this. Data continues to grow at a rapid pace for all our customers.
We’re expanding customer base to cover new customers like handset manufactuers
“We are focused on creating services around education and health because a majority of customers will still not be on data over the next two years.”
On Declining Content costs
The declining content costs are purely a function of the negotiation with our partners. Some operators have started dealing with content providers directly, and therefore the content costs have gone down.
On Music download and streaming
We’re seeing a lot of opportunity in music download, and we’ve worn 4 customers and we are making a push to make this big. Right now, the focus for us is for powering operator branded music services. In North America and Europe, operators are able to bundle along with their core service. We are focusing on operator branded portals, (not compete with Google etc).
Corporate Governance & A Challenging Year
– The issues of corporate governance are a thing of the past, and we have taken steps to ensure that such incidents do not recur in future. We will add independent directors.
– Last year was challenging. We have stabilized the company.
– We’ve focused on improving efficiency, Given the stabilizing trend in India, the robust growth in international markets
Working Capital & Employee Costs
– Some challenges in pruning our working capital. We’ve not been able to get a concessional certificate from the IT department
– Last year, employee cost was 40% of revenue. In the next year, we’re looking to improve this by 10%
– Looking at selective recruitments in the geographies where we are looking to expand to, and we are looking to expand to a few geographies. Outlay for salaries etc will be between Rs 66 and 75 crore in the coming year.
– The board has recommended a dividend of 15%, despite the domestic biz facing challenges.