Launch of 3G services should boost fortunes of companies in the mobile value-added services market
The launch of 3G and broadband wireless services in the current financial year could see value-added services take off. On the back of applications such as mobile TV, video, music downloads, as well as ringtones, the mobile value-added services (MVAS) market is expected to grow by about 17 per cent annually from 2009-10 through to 2015-16, believes Frost & Sullivan.
This translates to a growth of over two-and-a-half times, to Rs 12,900 crore, over this period. While there are a host of companies in the sector, among the listed ones who stand to benefit from the MVAS growth story are Dish TV, OnMobile Global, Tanla Solutions and Saregama, as well as UTV Software, which derives about a fifth of its revenues from games content. Notably, the individual companies should be able to grow ahead of the industry. Says Santosh Sinha, industry analyst, ICT Practice, Frost & Sullivan, “Expect a 17 per cent CAGR over the next five years, with the revenue of content providers experiencing faster increase, due to improving revenue share.”
Advantage VAS
The MVAS providers can be broadly split into two—content providers (music, gaming, videos) and technology enablers. The telecom operator that offers the services gets to keep about 60-70 per cent of the revenues generated, while the rest is split among the enablers and content developers. Within the VAS segments, SMS services account for about 25 per cent of the market, while music-based content such as ring tones tend to be the most popular, accounting for about half of the market. Games, music downloads and videos together account for only about a quarter, due to the lack of high speed networks.
The 3G launch is likely to change that. The potential can be gauged by the fact that China Mobile’s mobile internet traffic on its network tripled after it launched 3G services last year. In India, post the launch of 3G, analysts expect the share of the mobile VAS market as a percentage of overall revenues to move from just under 6 per cent now to about 10 per cent by 2015. Even in the interim, the improving outlook is good news for most companies, given that a lot them had gone through a tough 2009-10.
Beneficiaries
Dish TV is India’s largest DTH player with a 33 per cent market share. The company had entered into a tie-up with Indiatimes last year to offer interactive services which would allow users to preview and download content (ring tones, wallpapers, text alerts and contests) on to their mobile handsets. With digitisation of cable services expect this segment to improve sharply going ahead. The company’s stock is trading at 5.3 times its 2012-13 EV/Ebidta and should post handsome returns over a two year period.
OnMobile Global: The company is a leading application service provider, with a market share of around 35 per cent. After a flattish performance over the first half of 2009-10 in the domestic market due to regulatory issues, OnMobile Global registered a six per cent sequential growth in the March quarter. Operating margins fell 220 basis points due to higher content costs. Given the pressure on the India business due to rate pressure concerns, growth could depend on how its international operations (25 per cent of revenues), especially its deals with Telefonica and Vodafone, pan out. The stock is trading at 22 times its 2010-11 earnings and could be considered at dips.
Tanla Solutions: This telecom infrastructure solutions company operates in the products, network aggregation (SMS, MMS), infrastructure management and mobile payment segments. While its March quarter results are encouraging, with revenues growing about seven per cent sequentially and margins improving on account of lower sales cost, the near-term outlook depends on the growth prospects of its key market of the UK. Post its five-year deal with Nokia, it is focusing on mobile payment solutions. The company has also tied up with Indian telecom operators and broadcasters to offer programmes on the handset. While its valuations are not demanding (six times 2010-11 earnings), concern over growth prospects in its core UK operations may cap any upsides.
Saregama: Music downloads and ringtones are among the fastest growing segments of Saregama’s businesses. The company is launching new formats to leverage the strength of its vast music catalogue. As most of the growth in mobile VAS is music-based, expect Saregama to be a major gainer.
Other companies that, analysts say, could also come into play are Balaji Tele, broadcasters like TV Today, Sun Networks and Zee News.
