Sell OnMobile Global; target Rs 26: ICICIdirect.com

ICICIdirect.com's research report on OnMobile Global

"OnMobile Global had recently acquired Livewire, which posted revenues of USD 13.3 million with an EBITDA loss of USD 3.6 million in FY12, for a consideration of USD 17.8 million. The funding was to be done with a combination of USD 5 million in equity and USD 13 million in debt. The consolidation of Livewire would stretch the margins of the company and further pressurise the return ratios, which are currently in single digits. We did mention in our Q4FY13 result update that the company has a net cash of Rs 151.8 crore (around one-third of its market cap), which suggested a strong possibility of a buyback. However, after the acquisition of Livewire, the management indicated they are currently not very keen on a buyback even though the current market cap is less than one tenth of the peak market cap and would be looking to use the cash balance for further growth potential." "With the management not very keen on using the healthy cash position for a buyback, we do not see any support to the return ratios subsequently as well. Though Livewire is expected to contribute positively to EBITDA from FY15, it would not help the return ratios of the company even in FY15. Also, we remain sceptical on further opportunities of inorganic growth, which can be EPS accretive. With fading possibilities of a buyback and dwindling return ratios, we have lowered our DCF based target price to Rs 26 and rate the stock as SELL," says ICICIdirect.com research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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