Onmobile Global is entering the capital market on 24th January 20087, with a public issue of 109 lakh equity shares of Rs.10 each in the band of Rs.425 to Rs.450 per share.
The issuer and the book running lead manager have become quite aggressive in valuing IPOs and this is one IPO which belongs to that category. Present market correction would surely force them to give a realistic call on the valuations hereafter.
The company provides music related services like ringback tones, ringtone downloads and music messaging applications by sourcing it from music label companies and provides them to telecom service providers like Bharati Airtel, Idea Cellular, Reliance Infocom and Vodafone on revenue sharing basis.
Financial performance of the company has been showing an improvement in topline and bottomline but net margin is on a declining trend. PAT margin for FY 05 was at 34% which declined to below 30% in FY 06 and below 25% in FY 07. However, for HI FY 08 it is placed at close to above 26%. In this scenario and that too, where the market perception of the industry is quite low, it is difficult to justify investment.
For FY 07 total income was placed at Rs.141 crores with PAT of Rs.34.95 crores, resulting into an EPS of Rs.7.16. FY 08 may have a topline of Rs.250 crores with PAT of about Rs.65 crores, resulting into an EPS on expanded equity of Rs.57.40 crores at Rs.11.30. This implies share issue at the upper band of Rs.450 at a multiple of about 40 times. Grossly overprices.
The business model of the company is largely dependent on both the sides for procurement and supply margin pressure also exists on both the sides and as time goes by, this would only deepen further.
Tanla Solutions, with an expected EPS of close to Rs.30 for FY 08 in ruling below Rs.700 implying a multiple of less than 24 times. Also, the business segment in which the company is operating, is getting crowded with margins shrinking.
In this situation, it is a clear advice to remain away from the issue as it is just not worth it at the offer price.