Value In Service - One97 Communications
12/6/2010 2:51 PM Monday
With the broader market coming off 7 per cent of its Diwali peak and the volatility making life further difficult, it’s not only the secondary market but also the primary market that is feeling the shivers. A prime example of the same is the IPO of One97 Communications, a telecom value added services provider. The company’s issue was slated to open on December 1, 2010 but it has now been postponed by 12 days and will now open on December 13 and close on December 16, 2010. The firm, that expects to garner around Rs 120 crore from the market, was yet to finalise on the price band at the time of going to press. Out of the Rs 120 crore, Rs 83.49 crore would be towards procuring telecom equipments and software while Rs 10.54 crore would be towards procuring fixed assets. The balance funds would be towards general corporate purposes.
One97 Communications (One97) is a provider of value added services (VAS) in the telecom space to telecom service providers, mobile users and enterprises. As regards telecom service providers, One97 aims at increasing their average revenue per user by enhancing subscriber experiences by delivering services such as toll free infolines, missed call back services, obtaining information such as sports, results, stock quotes, prepaid balance inquiry and call management systems, etc. For mobile phone users, One97’s services include a range of mobile content, applications and commerce services that include music browsing, ring tone downloads, caller ring back tone downloads, content alerts, contests, chat, messaging applications, etc. It uses the telecom network as media and assists enterprises for customer communication, enterprise messaging, brand communication and advertising.
All these applications and services can be deployed on any telecom network and accessed from most mobile handsets using services such as SMS, WAP, etc. Though this would be the second such business to be listed on the bourses, one should know that VAS is a very fragmented space with the presence of many small, unorganised players trying to grab a share of the market pie. Thus with the presence of unorganised players, pricing of the content will always be an issue. Since telecom companies have no exclusive contracts with VAS players, price wars are imminent. Secondly, we also believe that entry barriers in this business are very low as the technology and the business models are easily replicable or can be acquired with ease. That apart, handset makers such as Apple and Nokia are already providing various applications through their stores while others such as Samsung, LG and Sony Ericsson intend to commence such offerings soon. Even enterprises can launch their own messaging and application solutions. This puts companies such as One97 at disadvantage.
On the valuation front, considering the similar but bigger peer On Mobile Global’s valuations (market cap of Rs 1655 crore and FY10 sales of Rs 454 crore), One97 (FY10 sales at Rs 119 crore) should command a market capitalisation of at least Rs 435-450 crore. At these estimates, One97 could end up issuing approximately 98 lakh shares while the price band could be around Rs 110-122 at which the scrip is available at PE of 24-27x. The company is yet to come out with the price band and hence we would be revisiting our analysis, give our take on the valuations and update the same on our website at www.dsij.in.
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