Poised for growth…

OnMobile Global is a niche player in the domestic VAS industry. Although the domestic telecom industry is going through a rough patch, OnMobile has been able to weather the storm with an increasing presence in the international market. The company has been gaining commendable traction in the international market with new deals being signed every quarter. The deals with Telefonica and Vodafone group companies would open up new markets and lead to handsome revenue growth in FY11E. We expect the revenue and PAT to grow at 19.4% and 45.0% CAGR, respectively, over FY10-12E.  

• Margin to improve considerably post FY11E

The company is in the process of developing and implementing various new products with international operators, which has led to suppressed margins in the recent past. However, as the company starts rolling out services with its two major international clients, we expect the margin to improve considerably post FY11E. The EBITDA margin is expected to improve from 18.3% in FY10 to 24.9% in FY12E.

• Commendable traction in international markets

Though the company's recent performance has not been as exciting in the domestic arena due to hyper intensive competition, OnMobile has been able to weather the storm while increasing its presence in the international arena. It has won numerous deals with telecom operators spread all over the globe. The company is expected to gain momentum on account of the full deployment of solutions within Telefonica and Vodafone group companies. These deals look promising and would open up new revenue streams. We expect the contribution from international revenue to go up to 31% in FY11E from 25% in FY10E.  

Valuation

Although the recent performance has remained subdued, on account of continuous investment in new products, the business model and the technological superiority of the company look positive. With an increasing international presence, we expect the revenue and PAT to grow at 19.4% and 45.0% CAGR, respectively, over FY10-12E. At the CMP of Rs 277, the stock is trading at 27.0x FY11E EPS of Rs 10.3 and 18.0x FY12E EPS of Rs 15.4. We recommend OnMobile Global as our Pick of the Week with a potential upside of 10%.