Friday, August 3, 2012

OnMobile Soars as HDFC Ups Stake, Ousted MD Sells

Sanjay Uppal, President,
OnMobile Global Ltd.

By A Vidya, Staff Reporter:
Friday, 3rd August 2012, 09:42 PM IST:

OnMobile Global Ltd (BSE: 532944, NSE: ONMOBILE) shares soared by over 9% in both BSE & NSE on Friday, even as HDFC Mutual Fund disclosed during trading hours that it had recently upped it stake again.

The rise in OnMobile shares was impressive, as Friday’s rise also survived a major sell of 18 lakh shares by its recently ousted co-founder Arvind Mohan Rao.

The sell was disclosed at NSE after trading hours on Friday.

Earlier in the day, in its regulatory filings done on Bombay Stock Exchange and National Stock Exchange, HDFC MF’s latest stake has been divulged as a significant 5.43%.

StockExplain News had thrice reported on major developments including institutional buys in OnMobile Global, during the past month of July. 

The stock is now up by more than 41% since StockExplain’s first news report, exactly one month back, on identified buys by HDFC MF and Goldman Sachs.

As per today’s disclosure by HDFC MF, its latest buy, which has been an unidentified one until now, was executed on Wednesday. The leading domestic mutual fund used open-market purchases to pick up 5 lakh more shares in this mobile VAS player with global operations.

Though 5 lakh shares amount to only 0.44% of OnMobile’s equity share capital, this accumulation is nevertheless significant as, HDFC Mutual Fund has now most probably become the largest non-promoter shareholder in this technology company which has been going through a tumultuous phase due to serious mis-governance allegations against Arvind Rao, who has functioned for long as its Chairman, CEO, & MD.

As per June end, other major institutional investors in the counter were, SmallCap World Fund, ICICI Prudential Life Insurance Company, Amansa Investments, Birla Sun Life Insurance Company, Dragon Peacock Investments, Veritable LP, and Standard Chartered Bank.

Among them, SmallCap World Fund, belonging to the MF major, American Funds, has been a major seller, and has almost exited fully from OnMobile. Birla Sun Life Insurance has been a partial seller in the counter.

However, as reported by StockExplain earlier, major buyers like Barclays, HDFC MF, Goldman Sachs, & Societe Generale had picked up significant stakes through identified deals during the month of July.

On the fundamental side, OnMobile Global’s recently announced Q1 results has been a mixed bag, with consolidated sales growing by 35.77%, but consolidated net profit falling by 25.50%, both on a year-on-year basis.

However, on a sequential or quarter-on-quarter basis, this mobile services player has shown the first signs of a positive turnaround in performance. While the 98.75% sequential jump in net profit is largely due to the low base in Q4, and despite the fact that topline has expanded sequentially by only 4.31%, a modest overall turnaround can’t be denied.

Interestingly, it was during late Q4 of last fiscal, and Q1 of this year, that the company’s control was gradually taken over from Arvind Rao, by an active Board of Directors led by the present Chairman, HH Haight, who has been the CEO of Argo Global Capital, which is the largest investor and promoter group of OnMobile Global.

The final easing out of Arvind Rao from all positions in the company came after the firm unsuccessfully tried to contain the controversy within itself for many months.

Forsaking him has also been a difficult decision, as despite the fund mismanagement allegations, it is no secret that Rao has been instrumental in the momentous sales push of the company, including its global sales success, ever since its inception.

However, under his long tenure, OnMobile has also been criticised for clinging on to legacy revenue streams in the VAS business like Ring Back Tones, Mobile Alerts, Messaging Services, Campaign Management etc, instead of going along the innovation path in the mobile space, which is increasingly app-driven on newer platforms like Google’s Android & Apple’s iPhone.

The fact that the scrip soared on Friday despite Arvind Rao’s major sell, reveals that there must have been sufficient buying pressure in the counter. Though no identified institutional buyers were visible, it is highly likely that a clutch of institutional buys that were small enough to be not identified were active on Friday.

Rao’s sell of 18 lakh shares amounts to a 1.58% stake in the company. Though much of his shares were earlier lost due to financiers offloading pledged quantities, he is still expected to retain a significant minority stake in the company through his participation in a key US based holding company of OnMobile.

On Friday, OnMobile Global stock closed at Rs. 41.60 in NSE, up by 9.33% in a market whose key Nifty index was marginally down at 0.23%.

The scrip has run up too much too fast, and is likely to witness reasonable profit booking in the coming days, before trying to move up on encouragement seen from the buys of institutions like HDFC MF.