Contrary to popular belief, mobile operators are not the initial beneficiaries due to 3G rollout. Like DTH, 3G needs huge investments in the initial days along with auction fee from the mobile operators.
Which companies will benefit more from third generation network?
Companies that provide high end value added services are the real beneficiaries. They can now provide rich VAS (they now depend on ringtones and SMS) in gaming, data and video segments. Currently low margin SMS is occupying 44% share of VAS in India. 3G services will change the scenario towards high margin banking, video and gaming segments. In future, one will see more innovations from VAS players in movie and cricket fields.
Significant statistics on Mobile VAS: This segment is growing on steroids for the last 3 years but operators are sharing lesser amount to the VAS providers.
Indian mobile VAS turnover in 2004: Rs 558 crore (700 crore in FY05)
Value Added Services turnover in 2008: Rs 4,500 crore
Estimated Indian VAS turnover in FY 2012: Rs 12,000 crore
1. Tanla Solutions: This zero debt company announced good results in the June quarter. This is a must buy stock for any long term investors. "Openbit" (mobile payment company) is a good strategic move.
CMP: 216.
2. OnMobile Global: Due to Telesma (European speech Recognition Company) acquisition, margins were affected in the June quarter results.
CMP: 518.5
3. Geodesic Information Systems: Company is a strong player in both internet and mobile space. Company's "Mundu" IM application is popular chatting software. Company announced 103% growth in the net profit in June quarter.
CMP: 182.6
Note: I have holdings in Tanla Solutions and Geodesic Information systems.
Why I am bullish on mobile VAS?
1. Operators will try to control their falling ARPU by concentrating on value added services.
2. Due to competition, operators will share more revenues with VAS providers.
3. 3G will attract high end users to use more VAS.
4. We will see more VAS in data, banking, TV and gaming segments which improve margins over current SMS VAS.
5. New age customers will use more value added services in the coming years.
6. All listed companies are growing both organically and inorganically (global acquisitions).
7. Mobile VAS industry is expected to post CAGR of more than 40% in the next 5 years. How many sectors can post such growth rates?
8. VAS players will get more revenues from mobile advertising which is set to grow exponentially.
9. There will be huge demand for good VAS content providers from mobile operators.
10. New subscriber addition will continue to grow at healthy rate.
Verdict: This sector is strictly for long term investors who want safe and good returns for the next 5 years. From 2009 onwards, we will see huge spike in revenues for these VAS players. Don't hesitate to accumulate more on further fall of these stocks. CRAMS and Mobile VAS are the safest stocks for investment for long term investors. Consistent growth coupled with good growth opportunities make Mobile VAS sector as an attractive investment opportunity.
CMP: 182.6
Note: I have holdings in Tanla Solutions and Geodesic Information systems.
Why I am bullish on mobile VAS?
1. Operators will try to control their falling ARPU by concentrating on value added services.
2. Due to competition, operators will share more revenues with VAS providers.
3. 3G will attract high end users to use more VAS.
4. We will see more VAS in data, banking, TV and gaming segments which improve margins over current SMS VAS.
5. New age customers will use more value added services in the coming years.
6. All listed companies are growing both organically and inorganically (global acquisitions).
7. Mobile VAS industry is expected to post CAGR of more than 40% in the next 5 years. How many sectors can post such growth rates?
8. VAS players will get more revenues from mobile advertising which is set to grow exponentially.
9. There will be huge demand for good VAS content providers from mobile operators.
10. New subscriber addition will continue to grow at healthy rate.
Verdict: This sector is strictly for long term investors who want safe and good returns for the next 5 years. From 2009 onwards, we will see huge spike in revenues for these VAS players. Don't hesitate to accumulate more on further fall of these stocks. CRAMS and Mobile VAS are the safest stocks for investment for long term investors. Consistent growth coupled with good growth opportunities make Mobile VAS sector as an attractive investment opportunity.
Credit & Source: Dr. Krishna (Stock Market Guide)
