S Mobility's handset business bounces back; VAS margins hit
CRISIL Research has come out with its report on S Mobility. According to the research firm, to ensure better profitability, the company has scaled down its store addition plans and is targeting a net addition of ~80 stores in FY13.
November 30, 2012 / 14:57 IST
CRISIL Research has come out with its report on S Mobility. According to the research firm, to ensure better profitability, the company has scaled down its store addition plans and is targeting a net addition of ~80 stores in FY13.
S Mobility's Q1FY13 results (financial year-ending June) were broadly in line with CRISIL Research’s expectations. Revenues from handsets and mobile value-added services (VAS) were in line while the retail business’ revenues were lower than expected. Revenues grew 0.6% y-o-y (6.3% q-o-q) to Rs 5,438 mn driven by addition of new outlets in the retail business. EBITDA margin declined by 162 bps y-o-y (up 188 bps q-o-q) to 2.2%, despite strong improvement in the handset business’ EBITDA margin, due to lower margins in retail and VAS businesses. Adjusted PAT declined 38.2% y-o-y to Rs 63 mn. We are concerned about the lower profitability in the retail and VAS businesses. We maintain the fundamental grade of 2/5.Handset business: Healthy revenue growth along with better EBITDA margin
After five consecutive quarters of decline in top line, the handset business’ revenues registered a healthy 24% q-o-q growth (down 14% y-o-y) to Rs 1,965 mn. The growth was driven by 28% growth in handset volumes with a larger share of feature phone sales, which have a lower average selling price (ASP). S Mobility sold 1.5 mn handsets in this quarter compared to 1.2 mn handsets sold in the previous quarter. EBITDA margin in the handset business was 3.7% in Q1FY13 after four quarters of negative EBITDA. While gross margin declined 60 bps y-o-y to 21.3%, lower employee and branding costs led to 3.7% EBITDA margin this quarter compared to (0.8)% in the corresponding quarter previous year.Retail business: Slower-than-expected store addition
S Mobility added only two new stores in this quarter compared to our expectations of 124 in FY13. To ensure better profitability, the company has scaled down its store addition plans and is targeting a net addition of ~80 stores in FY13. EBITDA margin in retail was -1% this quarter due to pressure on gross margin and a one-time cost related to provisioning on slow moving inventory following a conservative approach.Domestic VAS business: Margin pressure
Revenues from the VAS business increased 0.5% y-o-y (4.7% q-o-q) to Rs 605 mn. Increase in content costs, lower revenue share from telecos and certain one-time costs led to a drop in EBITDA margin to 8% in Q1FY13 from 22% in the corresponding quarter previous year. The decline would have been steeper but for the increase in share of higher-margin international VAS revenues.Valuations: Current market price has strong upside
We continue to use the discounted cash flow (DCF) method to value S Mobility at Rs 50 per share. At the current market price of Rs 39, the valuation grade is 5/5.To read the full report click on the attachmentDisclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
