VAS major OnMobile Global's largest institutional investor sells 4.8% stake

2 Jul, 2012

Bangalore-based telecom value added services (VAS) company OnMobile Global saw its scrip hit a new low on the Bombay Stock Exchange on Monday as its largest institutional investor Smallcap World Fund sold three fourth of its 6.25 per cent holding in the company in the last two trading sessions. The FII has encashed Rs 17.6 crore ($3.2 million), amidst alleged financial misappropriation charges against its promoter and CEO Arvind Rao. The share price of OnMobile hit a low of Rs 28.75 before climbing marginally to close at Rs 29.5 on BSE, down 3.44 per cent.
Smallcap sold around 4.2 per cent stake last Friday and sold more shares on Monday through open market transactions. Goldman Sachs Investments and HDFC Mutual Fund were among the buyers of the shares on Monday. OnMobile had earlier attracted VC investors like Norwest Venture Partners and Bessemer Venture Partners. Norwest Venture Partners' website does not count OnMobile as a current investment in India, which means it has already exited the firm. Bessemer Venture Partners website does not say if the VC firm remains invested in OnMobile, a company it picked for investing in 2007.

An e-mail questionnaire to OnMobile spokesperson on the latest status of these VC investors did not elicit any response at the time of filing this report.

The stake sale by Smallcap started a day after OnMobile denied rumours about the alleged fraud and speculation that its board has ordered a probe against the company CEO, Arvind Rao, for fund misappropriation and diversion to another organisation promoted by him.


"The company denies all such rumours and allegations, which are baseless and devoid of factual accuracy. Arvind Rao is not being investigated by the Board for any misappropriation of funds. Arvind, while continuing as managing director, spearheads the international business. To ensure that the rest of the business gets adequate focus, the day to day operations of the company are being overseen by a sub-committee of the Board," a company statement issued last week had said.

On Sandhya Gupta's exit, the company stated, "She resigned for purely personal reasons earlier this year. Her departure was not a result of any allegations of wrongdoing." On the appointment of external consultants, the company said, "Hiring of external consultants over the past year have been pursuant to the "OnMobile 2020" strategy. The external consultants have been engaged to review, rework and strengthen the company's corporate governance policies, including internal control mechanisms, procurement-to-payment processes, risk management framework, succession planning etc."

The company has been in news for quite some time due to management flux as well as not too bright financial performance. In May 2012, the company appointed a new CFO, Rajesh Kunnath, after two CFOs -- Rajesh Moorti and Amit Rastogi -- quit in a span of six months. This was preceded by a management change earlier when Arvind Rao stepped down as the company's chairman, but continued as the CEO and managing director.


Moreover, the company continues to face pressure on its bottomline, even though its revenue continues to show an uptrend. For the fourth quarter ended March 31, the firm saw its consolidated net profit shrink 82 per cent over the year-ago period and 73 per cent, compared to the previous quarter ended December 31, 2011, to Rs 4.8 crore. This was even as the revenues clocked double digit growth. For the year ended March 31, the firm clocked 18.6 per cent growth in consolidated revenues to Rs 638 crore even as net profit shrunk over 7 per cent to Rs 83 crore. At the current market cap of Rs 347 crore, OnMobile is trading just over 4x its FY12 net profit.

(Edited by Prem Udayabhanu)