After the announcement that OnMobile Global’s promoter and managing director, Arvind Rao, had resigned, analysts are questioning the silence of the board of directors and the management on what had gone wrong.
Several analysts that Business Standard spoke to were surprised at the lack of communication, saying the investor relations team had made no attempt to reach out to them to explain the reported weakness in internal processes.
“We have been trying to get in touch with the CFO (chief financial officer) for the past two weeks, since reports came out on the misappropriation of funds. We did kind of anticipate that Rao would step down but the management needs to come clear on what happened and the future course,” said a senior analyst from a leading brokerage house of a large Indian private sector bank.
The Bangalore-based company’s official statement yesterday had said a review identified some weaknesses, but strong alternate controls ensured no losses. Recognising that these weaknesses took place during his tenure, Rao has given his resignation as MD and chief executive officer with immediate effect, and the board had accepted this, it had said.
In response to this newspaper’s query on the weaknesses, the company said: “As part of its ongoing efforts to strengthen the corporate governance mechanism, the company initiates special reviews of various transactions. On the basis of these reviews, the board recommends appropriate corrective actions.”
Others had been predicting trouble for some time. “We had anticipated that something was wrong with the company almost six to eight months before. A couple of things that raised our suspicion included the unwillingness within the management to meet analysts. The company did not appear investor-friendly at all. It took us almost a year to get the CFO to meet with us.
Second, when we did meet the CFO, Rajesh Moorty, and asked the reason behind his continuous sale of shares on his personal account, we did not receive a convincing answer.
That raised our antennae. It was difficult to get basic questions answered. OnMobile is a classic case of ‘good business and bad management’. We are in a wait and watch mode and are hoping the management provides some clarity,” said Vinayak Kanvinde, portfolio manager, Right Horizons Financial Services.
However, the company’s shares closed nearly nine per cent higher on Tuesday, on its statement that it hadn’t suffered any losses on account of the ‘weakness’ in its processes. The stock closed at Rs 36.6, up Rs 3 or 8.9 per cent on the Bombay Stock Exchange. On opening, it had dropped eight per cent, but recouped, on heavy buying. Market players said investors scrambled to buy the stock, available 60 per cent cheaper compared to this year’s high of Rs 83, touched on February 15.
“The stock had fallen sharply in the past six months, after a lot of investors exited the company following reports of financial irregularities. A lot of adversity had got priced in the stock,” said Ambareesh Baliga, chief operating officer, Way2Wealth. “There isn’t much concern with the company’s business model, which continues to remain robust. OnMobile continues to benefit due to healthy growth in the value-added services space.”
What has also bothered the analyst community is the fact that the company had earlier denied any wrongdoing. “What remains to be seen is if the situation is like Satyam, where the revenues were (falsely) inflated. If the finances are sacrosanct and the fundamentals are strong, then it’s a corporate governance issue, which still can be tackled,” said another analyst of a leading foreign banking brokerage house.
Many analysts are still waiting for some communication from the company to take a call on the stock. Meanwhile, ICICI Securities has put the stock under review, with an exit option. Analysts also fear for the future business. “Rao was, frankly, the person driving the business. He was responsible for getting large deals and also the person who drove the inorganic growth. While his role in this (affair) is yet to be clarified, we feel that business will suffer. Having said that, the fact is for the company it was its international business that was growing the fastest,” said an analyst, on condition of anonymity.
In 2011-12, international revenues grew 94 per cent (helped by a low base) and made up 45 per cent of total revenues. “Telefonica deployment is now complete, with launches in 12/12 markets, covering 99 per cent of the addressable market and now accounting for 15 per cent of the top line. The company also has forays in other EM and DM (North America and Europe) and continues to grow, both by geographic and product/service expansion,” said a Citigroup Global Markets report after the company’s fourth quarter results.
Meanwhile, its domestic business revenue has been declining, two per cent sequentially and seven per cent year-on-year. OnMobile closed FY12 with revenue of Rs 638 crore, and net profit of Rs 83 crore. The company has said that, so far, the business has not been impacted.