OnMobile's 3QFY10 EBITDA at Rs231m (+71% QoQ, -51% YoY) was slightly below our estimates on lackluster revenue growth in the domestic segment, even though international revenue continues to deliver (+14% QoQ). EBITDA benefited from forex gain (Rs32.6m, 3% of revenue) and continued cost rationalisation. PAT at Rs132m was impacted by the higher tax rate (26%).
3Q domestic revenue at Rs820m (+3% QoQ) continues to remain under pressure possibly due to: (i) diffusion of usage across operators, and (iii) early signs of price pressures. However, management claims that its revenue share is not at risk. Meanwhile, the revenue impact of TRAI's directive on "press * to copy" continues to reduce (7%-8% v/s 10% initial impact).
Execution on the Telefonica deal remains on track, with initial launches expected by April-10 and full rollout across the 13 cities likely to be completed by end-FY11.
Citi has set a target price of Rs370 is based on 17x Mar-11E EPS. The target multiple is in-line with the broader market (Sensex stocks).
