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OnMobile Global – Performance disappointing

March 1, 2009

OnMobile Global reported 3Q FY09 revenues of Rs1157MM, up 19% Q/Q (due to seasonality of revenue recognition) and 44% Y/Y but 5% below our estimate. The EBIT margin of 25% jumped Q/Q but was also lower than expected – this seasonal jump is due to a large proportion of international revenues being booked in 3Q without the associated costs.

YTD (9M FY09) revenue growth was a creditable 51%; however, margins have come off sharply, leading to absolute EBITDA being flat Y/Y. Margins have fallen 1500bp Y/Y. We believe that the margin decline is due to pressure on VAS tariffs and limited success of new VAS services from OnMobile.

Furthermore, management indicated that growth could come off going forward and hence it had decided to reduce capital expenditure from 20-25% of revenues to 12-15% of revenues.

Pricing pressure on VAS due to competition, limited pickup of VAS services, and increased investments in content acquisition and product development is likely to limit any potential upside surprises in our view.

OnMobile is expected to report an EPS of Rs 14.4 for FY09 and Rs 15.75 for FY10.

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