Mobile VAS company One97 Communications is planning for an IPO in the next two quarters, MD Vijay Shekhar Sharma told VCCircle, and raise around $100 million in order to fund expansion in India and abroad. So far, the company has raised around $25 million from  Intel Capital, SAIF Partners and Silicon Valley Bank in two rounds, and used money raised alongwith internal accruals to invest in capital deployment in the Indian market. Given the state of the telecom market in India, the IPO announcement comes as quite a surprise to us, and we asked Sharma, via email since he is travelling, why he thinks the market is conducive, and what makes him think the company is IPO ready.

A Tough Market To List In?

Of two mobile VAS companies listed in India, OnMobile Global and Tanla Solutions, only OnMobile Global focuses extensively on the Indian market, which accounts for 70% of its topline. OnMobile has warned about a contraction in the VAS market in India, and after deals with Vodafone and Telefonica, looked beyond India to fuel its growth. In a recent earnings call, executives said that many deals with multi-national carriers are in the pipeline, and contribution from International markets is expected to increase. At the same time, India revenue for OnMobile has declined sequentially, alongwith with sequential decline in topline for many telecom operators.

A decline in carrier Average Revenue Per User indicates that customers are spending less on mobile services – both voice and VAS. For on-deck players like OnMobile, Comviva, IMI Mobile and One97, billing is primarily via the telecom operator, hence dependent on ARPU. So what makes One97 believe that the market is right for an IPO?

Sharma said that they’re aggressively chasing the enterprise market, and are looking to establish market leadership in the segment. He believes that the telecom market in India will provide positive returns in the medium to long term, and the decline in ARPU will be addressed by increase in volume of usage and mobile VAS. VAS, he says, has shown such gains whenever prices have gone down; “Whether we can pick the entire balance wallet or a fraction will depend how well applications address market segments. So you need to have a multiple application strategy.”

Is One97 IPO-Ready?

Sharma has said in the past that One97 is not a one product company, but their dependency on voice based applications (37%-38% of revenues, 10 months ago) is still significantly high. The Telecom Regulatory Authority of India is also clamping down on both OutBound dialers and subscription services. Three of their services – Oorja, PayTM and Oc2ps – don’t appear to have had an impact in the market, with limited deployments or none at all. So what gives One97 the confidence to list within two quarters?

Sharma declined to put an exact date to the companys IPO plans, saying that they cannot spell out everything at this stage, but that they are prepared. One97 expects to deliver 100% year on year profit growth this year. He said that they’ve had significant revenue diversification since January: the OutBound Dialer business has been supplemented by uptake in “self care services, which has grown from just 5% to 20%. Prepaid ARPU management has also grown to significant two digits, and Oorja and PayTM are break-even positive, which allows the company greater hedging”. He added that Oc2ps is not revenue generating for the company. Apart from this, there is the revenue from the enterprise segment, which has doubled year on year, on a monthly comparison.

Sharma believes that the company is confident that their dependency on regulatory environment is far less than the industry, and their six business units offer a sizable opportunity. The company will not be raising pre-IPO funds, and they’ll talk about why they intend to raise money via an IPO, in due course of time.

Related

One97 Communications On Voice Service Dependency, Content Arbitrage Model, Low VAS ARPU And “Dakia”
One97 To Invest $30 Million In Organic Growth; $25M Revenues, Targeting $100M in 2010 – Vijay Shekhar Sharma