OnMobile Global: Jaypee Research Report

A VAS major forays into the next big opportunity in the Telecom Sector: On 5th October 2010, OnMobile Global (the leader in Value-Added Services in India) declared that it has acquired US based Dilithium Networks for its foray into the 3G related services to capture the 3G opportunity in India. This will enable OnMobile Global to provide the video related enhanced 3G services and hence strengthen its share in the Indian VAS market. VAS which accounts for 10% of the revenues of the Telecom operators is expected to increase at a fast pace with the allocation of the 3G spectrum and increasing demand among users for mobile internet and data services. 3G will enable high speed internet over the mobile phones making it possible to download content and use services like mobile TV, gaming and video surfing in a better way. We believe that the event is positive for OnMobile Global as:

• It will give OnMobile Global a new revenue stream coming from the 3G related services which are expected to grow at a fast rate.

• Moreover, it will help OnMobile Global to have a more diversified business given that presently a large portion of its revenue comes from the CRBT services.

• Dilithium has a wide range of 3G services and a large platform which comes with an experience of 8 years, 175 patents and customers over 60 countries. Moreover this acquisition has occurred at low cost ($ 10 million) without any debt which is positive for OnMobile Global.

Stock Performance and Outlook: The OnMobile Global stock has rallied up in the past month rising over 20%. The stock was trading at Rs.306 on 16th August, 2010 when we had initiated coverage with a Buy recommendation and a Target price of Rs.366. Presently the stock of OnMobile Global is trading at Rs.380. We still see an upside in the stock and hence have upgraded our 12-month Target price to Rs.403 a 10% increase over our previous Target price of Rs.366. This is on account of the additional revenues that can be generated from the 3G related services post Dilithium acquisition. We have mentioned the assumptions for the 3G revenues and the calculations at the end of this note. We believe that this event is positive for OnMobile Global and will increase the revenues and profits of OnMobile Global. We have however only included the impact of 3G services provided by OnMobile Global in India and have not factored in the impact of 3G services which it may launch in other markets through Dilithium.