Is OnMobile Global for sale?

A few weeks back, there was a rumour in the market that TCS was looking at the possibility of buying OnMobile Global. That remained a rumour and did not become news. Those who may have bought the stock on the basis of the rumour may be waiting for an opportunity to sell.

That opportunity may not be far away. As per a recent article in Business India magazine, OnMobile Global is on the block and the latest suitor is Idea Cellular (of the Aditya Birla group). Apparently, Idea is ready to buy a 60% stake in the company at a price of Rs 100 – which is 33% higher than today’s closing price of Rs 74.40.

If this rumour turns out to be true, then investors may be able to pocket a neat gain if they enter at the current market price. Acquisition of a 60% stake – or even a lower stake - will trigger an open offer to existing shareholders.

In a post on the telecom sector a couple of months back, it was observed that the OnMobile stock was trying to form a bottom by consolidating within a rectangular band between 54 and 73. It was suggested that the stock could be a contrarian bet, but with a strict stop-loss at 52.

In Jan ‘12, the stock crossed above the rectangular consolidation zone, rose to an intra-day top of 84 on Feb 15 ‘12 and briefly breached its falling 200 day EMA. It has now pulled back to the top of the rectangular band. An upward bounce can be used to add/enter.

What if the rumour about Idea‘s stake buy remains a rumour – like it happened in the case of TCS? The company is fundamentally strong, and its overseas businesses, which contribute nearly half of its total revenues, are supposedly doing well. Domestic business is under pressure. Q3 results showed 12% top line growth but a 11% dip in the bottom line.

With smart phones becoming cheaper by the day and 3G service roll-outs in progress, OnMobile’s expertise in value-added software services should see growing demand. Even if the stake sale doesn’t go through, it may be worth holding on to the stock. A buy-back by the management, with a ceiling at Rs 85, is currently in progress.

10 Questions about Supreme Court's cancellation of 122 2G telecom licences

In a historic judgement today, the Supreme Court has cancelled 122 2G telecom licences issued irregularly during the tenure of the former Telecom minister, A Raja (currently cooling his heels in a government hospitality center). The judgement was hailed by all concerned. After an initial dip, even the stock market celebrated by closing higher.

The judgement raises several questions. Here are 10 of them. Knowledgeable or enlightened readers are welcome to provide some answers.

1. By cancelling the licences, is the Supreme Court pointing the finger of blame towards the UPA government?

2. Isn't the business community equally to blame for trying to get something for nothing (well, not exactly nothing)? What happens to the not-exactly-nothing passed on to the badminton-playing government guest at Tihar jail?

3. Many of the 2G licences were acquired with no intention of providing any services, but merely to sell them off to others at huge profits - defrauding the government exchequer. Who will recover the immoral profits, and how?

4. A new licencing process will be formulated over the next 4 months and the licences will be reissued. Who will ensure that the new process will not turn out to be 'A Raja - Part 2'?

5. What happens to the licence fees already paid by the cancelled licence holders? Will those fees be forfeited?

6. What if some of the cancelled licence holders do not bid in the new process? Will the existing licence holders (whose licences have not been cancelled) be allocated extra spectrum?

7. Most of the licence holders borrowed money from the banks to launch their services. Will those loans become NPAs? Is that the reason why the Bank Nifty took a dive?

8. The Supreme Court judgement must have sent shivers through the spines of foreign investors in the telecom sector. Will FDI flows into India - badly needed to get our economic engine revving again - get affected by this judgement?

9. The charges against P Chidambaram brought by Subramaniam Swamy will be judged by a lower court later this week. If the judgement is adverse, can it bring down the UPA government? If yes, will the stock market crash?

10. Will the Supreme Court judgement open up a proverbial Pandora's box? Will all scams - whether in mining, CWG, Adarsh Housing, fodder - come under the Court's scanner? Will that be good or bad for the country?

Some of these questions may get answered over the next few days, as the government assesses the detailed judgement and formulates its plan of action. Till then, it will be good to hear what readers think.