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Cellebrum Files DRHP; Nine Month Operating Income of Rs. 734.56 Million; Pre-IPO; Lehman Stake Sale

Cellebrum Technologies Ltd, the Mobile VAS company owned by the BK Modi Group has filed a Draft Red Herring Prospectus (DRHP) with SEBI, which you may download here. We’ve gleaned the following information from the DRHP:

Dependancy on Spice Communications
Note that, like OnMobile Global, which did an IPO earlier this year, Cellebrum has a significant dependancy on a few major carriers. What’s more important is that there is significant dependancy on Spice Communications, which was, until recently, also a part of the BK Modi group. What’s very interesting is that Cellebrum signed a contract for services with Spice Communications on June 25th 2008, the same day it was informed that Spice Comm was has been acquired by Idea Cellular.

The contract includes roaming and VAS services (mobile radio, BGM, CRBT) for three years, and SMS, GPRS, roaming and outbound dialer services for nine months. Note that the standard length of a contract with carriers is between 1-3 years, with a notice period of 30 to 90 days. But now that Spice Communications has been sold to Idea Cellular, Cellebrum is not guaranteed Spice as a client, and this is critical. Importantly, Cellebrum has only one client for roaming and enterprise services – Spice Communications.

Dependancy on Music
As per the DRHP, Spice’s contract with Hungama / Virtual Marketing has expired, and they are negotiating a new contract. As of May 31, 2008, Spice had more than 140,000 songs in more than 17 languages, as well as logos, wallpaper and 12,000 ringtones in their content database, and as indicated in the chart, 61 percent of the company’s operating income for the 9 months ending Dec 31 2008, came from Music; that’s Rs. 448 million, while for the previous year – Rs. 416.92 million.

One of the subsidiaries, Mobisoc Technologies, incurred a loss of Rs. 14.03 million for the nine months ending Dec 31st 2007. By that date, Cellebrum had invested Rs. 100 million in Mobisoc.

International Expansion and Acquisitions
Cellebrum is going to use the money to expand operations into international markets – Cellebrum has set up an office in Singapore (Spice Mobile VAS Pte Ltd) focusing on the Asia-Pac market, and is evaluating Bangladesh, Indonesia, Malaysia, as well as Africa. The company will also look at strategic acquisitions and investments.

Lehman Bros Stake Sale
Lehman Brothers had invested $15 million in Cellebrum in 2005. During the IPO proceedings, they are selling 2,571,454 Equity Shares, which will bring their holding down from 17.27 percent (7,405,787 shares) to 9.69 percent (4,834,333 shares).

— The DRHP mentions that Cellebrum is considering a Pre-IPO placement.
— Cellebrum CEO Saket Agarwal owns 0.64 percent, or 273,928 shares in the company
— Promoter owned Omnia Investments is selling 1,717,516 Equity Shares in the listing. Post listing, the promoters will hold 65.85% shares in the company.

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