In line with our estimates, OnMobile announced that it has signed a business agreement with Telefonica Internacional for deploying Mobile Value Added Services (MVAS) on an exclusive and non-exclusive basis.
This comes on the heels of signing a deal with Vodafone Group for providing MVAS services in emerging markets in April 2009. The monetisation of these deals is expected once OnMobile completes its deployment in these countries.
The company has indicated that deployment would start from Q1CY2010 and it is believed that most of the countries would be under its fold by December 2010.
OnMobile would provide around 23 MVAS services in 13 countries covering 130 million subscribers. Of the services some (~8-9) would be exclusively OnMobile.
The deal spans five years from the date of launch of service with a renewal clause at the end of the period. OnMobile has envisaged an investment outlay of US $50 million for this.
The Latin American market offers huge potential for MVAS services as it is highly underpenetrated at this point.
Most services consumed by subscribers are internet-based data services and services such as RBT are not available in come of the key markets in Brazil. Lack of applications, inferior technology resulting in poor user experience has restricted the penetration of MVAS services in the country.
Based on the deal, we are revising our earnings outlook for FY11. Over FY09-FY11E, we expect OnMobile’s EPS to grow at 38% (earlier 29%) CAGR.
Given the growth opportunities available in both domestic and international markets and OnMobile’s strong fundamentals, we are valuing the stock at 25x FY11 EPS.
Based on this, we maintain BUY on OnMobile with a revised target price of Rs700, an upside of 25% from current levels.
We continue to remain convinced about the company’s ability to forge new alliances going forward.