Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position in the mobile entertainment industry: Onmobile group, with over two decades of experience, has established itself a s reliable partner in the mobile entertainment segment for telecom operators across many geographies. The group has significant presence in the Ring Back Tone (Services) with over 63.16 million users across 36 global telecom operators. They are associated with over 100 customers across 64 countries and has over 74 million paying subscribers across platforms. The group has a diversified revenue stream with around 43%, 23% and 22% of revenue generated from Europe, India and African respectively in fiscal 2023. The established relationship with the customers in multiple regions and large end user base should support business risk profile over the medium term.

Healthy financial risk profile : The group’s capital structure has been at a healthy level due to lower reliance on external funds yielding low total outside liabilities to adjusted net worth (TOL/ANW) below 0.46 times during the last three years ended a on 31st March 2023. Low debt levels and moderate profitability has ensured debt protection metrics to remain strong. In the absence of any large debt funded capex planned over the medium term; leverage levels and debt protection metrics are expected to remain healthy over medium term.

Weaknesses:

Subdued revenue growth from the traditional RBT and video streaming segments: RBT and video streaming business contributed to around 74% of revenue in fiscal 2023 (84% in fiscal 2022) and seen gradual decline in revenue over the past few years, leading to revenue degrowth of around 3.75 CAGR over the past five years ended in fiscal 2023. However, the group, over the past few years has been investing significantly, especially in the mobile gaming segment, to diversify the revenue streams, partially mitigating the risk. Revenue contribution from segments other than the traditional (RBT and Video) segments have contributed to around 26% in fiscal 2023 (16% in FY 2022) and likely to improve its contribution to around 35-45% over the medium term. Having mentioned that, any significant decline in revenue from traditional segments coupled with delay in scale up from newly added segments may have a negative impact on the business risk profile of the group.

Inherent risk in mobile gaming business and high fixed cost base: Mobile gaming business is highly competitive with numerous players across platforms, highly technology driven, and subject to various regulations. While highly competitive nature of the industry constrain profitability and bargaining power with stake holders; the companies have to invest significantly in marketing to remain relevant and also invest to avoid technology obsolescence. Any technological disruptions; lose of major customer to competitors or adverse regulatory changes may impact the business risk profile. However ,Onmobile group’s long standing presence with the operators, recent investments made in new products and technologies and their strategy to stick to kids and family friendly games may partially mitigate these risks.

Most of the expenses are fixed in nature (employee costs, royalties and marketing expenses), this exposes the company to any economic cycles or downturn in revenue, which can have an impact on overall profitability and credit profile. However, a healthy financial risk profile and low reliance on debt is likely to cushion these impacts during cycles.