OnMobile’s deal signed with Vodafone group to provide Mobile Value Added Services (MVAS) in emerging markets is expected to be revenue accretive for the company.
The monetisation of the deal is expected once OnMobile completes its deployment in these countries. Apart from India, OnMobile provides services in neighbouring countries such as Bangladesh, Pakistan, Nepal, Indonesia, and Australia.
The expansion in new geographies is expected to enhance the company’s addressable market.
We expect OnMobile’s revenues to increase by 30% CAGR over the next three years, driven by the huge pent up demand in the domestic market and incremental revenues from international markets.
The company’s operating margins, however, are likely to remain at the same level due to continuous deployment in various markets and new product development.
Over FY09-FY11E, we expect OnMobile’s EPS to grow at 29% CAGR. At Rs 392, the stock trades at 16X FY11 earnings.
Given the existing, underlying growth opportunities and OnMobile’s strong fundamentals, we are valuing the stock at 20x FY11 EPS.
Based on this, we maintain BUY on OnMobile with a target price of Rs 490, an upside of 26% from current levels.