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Edited Transcript of ONMOBILE.NSE earnings conference call or presentation 31-Oct-19 10:30am GMT

Q2 2020 Onmobile Global Ltd Earnings Call

Bangalore Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Onmobile Global Ltd earnings conference call or presentation Thursday, October 31, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* François-Charles Sirois

OnMobile Global Limited - Executive Chairman & CEO

* Ganesh Murthy

OnMobile Global Limited - CFO

* Sanjay Bhambri

OnMobile Global Limited - President & COO

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Conference Call Participants

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* Chinmaya Garg;Dron Capital;Analyst

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen. I'm Avinash, the moderator of this call. Thank you for standing by, and welcome to the OnMobile Q2 FY 2020 Investors Conference Call. (Operator Instructions)

Joining us today on the call are Mr. FC, Chairman and CEO; Mr. Sanjay Bhambri; Mr. Ignacio Martin Velasco; and Mr. Ganesh Murthy from the Management Team.

Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation. OnMobile Global undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. Please be advised, today's conference is being recorded.

I would like to now hand over the call to Mr. FC. Thank you, and over to you, sir.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [2]

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Thank you, moderator. Thank you, everyone, for joining this call.

This quarter has been a good quarter for us with substantial growth across the board in our revenues and profits. First one I want to highlight is that it's a broad revenue growth. 7 of our top 10 customers have been growing this quarter. Also, I want to point out that on the Tones side, we had a growth of 4.6%, which is the first growth in many quarters of degrowth on the Tones. So I'm happy we stabilized that Tones part.

Third point is the optimization initiatives that are starting to yield results showing in the EBITDA. As you know, we've done a lot of optimization on cost and HR manpower and you can see this. The team has done a good job on this one. The product side, we had a win on the ONMO Kids service in Italy with a big operator. We'll be launching in Q3 on this part. We've signed many games club also, about 4, 5 of them to be launched in the coming quarter. And we also signed many handset manufacturers to be able to deploy contests and did a -- we actually did a test run with contests, where we had up to 200,000 in active users on this front.

So many things happening in this quarter. I'm happy that the revenue growth is there, EBITDA's there, optimization is there. So to this, I'm going to leave it to Ganesh to go in a deep dive of the finance.

Thank you, Ganesh.

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Ganesh Murthy, OnMobile Global Limited - CFO [3]

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Thank you, FC.

Deep diving into the financials in the current quarter, our gross revenue grew by 6.4% quarter-on-quarter to INR 148 crores as against INR 139 crores in the last quarter. As FC mentioned, all our major product lines witnessed growth. It was a broad-based growth quarter-on-quarter, with Tones growing by 4.6%; video growing by 13.1%; and games up by 1.2%.

You will recollect that early this year, we renewed our contract with Telefónica for the next 5 years. And as part of the renewal, we incurred some contract acquisition expenses. With the introduction of the accounting standard, Ind AS 115, we are required to amortize these contract acquisition expenses over the life of the contract and reduce this amortization from our revenue. So if you remove this reduction in our revenue due to the application of the accounting standard, our gross profit grew by INR 5 crores this quarter from INR 74 crores to INR 79 crores.

Coming to the expenses side, our headcount rationalization in internal (sic) [international] geographies where it's shifting the work to low-cost -- our lower-cost countries have resulted in a manpower cost reduction of 3.2% (sic) [3.1%] in the current quarter versus the last quarter. Our headcount at the end of quarter 2 was 734 people as against 758 people in the previous quarter.

Our focus on cost optimization and closure of loss-making entities and branches continues, and this has resulted in a 15% reduction in the OpEx on a quarter-on-quarter basis.

Excluding the Ind AS 115 adjustment in our accounting standard adjustment that I mentioned previously, our EBITDA margin is at 10.3% and has more than doubled in the current quarter versus the last quarter.

Profit before tax is INR 7.1 crores, and this has grown by 131% quarter-on-quarter despite ForEx losses. Profit after tax is lower in the current quarter as compared to the previous quarter because of a higher tax outflow. And this was higher due to the reversal in deferred tax assets because we adopted a lower tax rate in India, and we had to reverse some of the -- revalue some of the deferred tax assets that we carry in our balance sheet.

Now with this, we would like to open the floor for questions from the participants. Over to you, Avinash.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question. Please go ahead.

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Unidentified Analyst, [2]

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My first question is regarding the games division. Post the Appland acquisition, can you tell us, have we started to see the benefits in terms of synergies within our own business and the cross-selling to our customers? And because I think the games division has hardly shown any growth since we have acquired that company. So please, can you throw some light on that part?

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Ganesh Murthy, OnMobile Global Limited - CFO [3]

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Sure. On Appland, we have started leveraging the Appland platform. See, before the Appland acquisition, last year, we did not have a platform to -- for our games product. We have now got a very robust best-in-class platform. And we have started going to our customers. We are already -- we have already launched ONMO games with 3 customers, 1 of them in India and 2 of them in Africa, Middle East. This quarter, in quarter 2, we have kickstarted with operators, 4 new operators, in Greece, Qatar, Sudan and Brazil. So we expect to see -- we have done a fair bit of cross leveraging. There are multiple opportunities in the pipeline where we'll continue to push the games product to our Tones customers.

Apart from that, Appland is also growing their revenue by selling to various -- to their existing customers and also trying to make new customers apart from OnMobile. So that is also in process.

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Unidentified Analyst, [4]

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Okay. But if you look at the numbers, materially, not much changed. Last 3 quarters, we have been doing around INR 17 crores to INR 18 crores. So do you think that it is -- it will take much longer for the benefits to accrue? That's what you believe? In terms of numbers?

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Ganesh Murthy, OnMobile Global Limited - CFO [5]

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Yes, it did. And it has taken a long time for us. Our experience shows that to develop a significant mass of subscribers, it takes at least 6 months for us to reach a critical mass. And during that period, we have to engage and spend a substantial amount of money on customer acquisition costs to acquire these customers. And then once we hit the critical mass, then the revenue starts building up. So all this -- we acquired Appland only 1 year ago. And over the last few months, we have already got about 8 customers outside of Appland. But it will take some time for us to grow revenue with these customers.

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Unidentified Analyst, [6]

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And within -- when you say ONMO Games, this is again a B2B2C product right, sort of B2C product, correct?

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Ganesh Murthy, OnMobile Global Limited - CFO [7]

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So B2B2C, yes, you're right.

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Unidentified Analyst, [8]

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Okay. So we are basically again selling to the -- or to the operator, sort of, that product?

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Ganesh Murthy, OnMobile Global Limited - CFO [9]

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That is correct, yes. We are providing a full-fledged solution to the operator for them to -- it will be branded in the -- sort of white labeled.

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Unidentified Analyst, [10]

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But do you think there will be material impact in the numbers because of this? Or do you think that there will be only incremental changes within the context of the size of our business? So will games be a -- will we see any sort of significant shift in the [indiscernible] of the games as a part of overall business. Today, it is I think hardly 10%, 11%, not even that, actually, yes. So any comments on that?

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Ganesh Murthy, OnMobile Global Limited - CFO [11]

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The idea is just -- not to just grow the current games portfolio. It is also to enhance against -- spend more money on R&D, develop the games portfolio, get into social gaming, get into HTML5 games and expand the portfolio. So that is where the growth will lie.

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Unidentified Analyst, [12]

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But I think what I understand is that you basically advocate games, you don't spend on developing games, right?

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Ganesh Murthy, OnMobile Global Limited - CFO [13]

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Well, no. When I said developing games, I meant developing the platform through -- the games itself will remain the same. I mean the games are procured from the various game studios around the world. But it is also -- it's development of platforms so that, like we have social gaming, gaming for gratification, so I can play a game against you, and we can win money and things like that. [indiscernible]. Yes, go ahead, FC.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [14]

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Yes, as we discussed in last quarter, we had a big growth last quarter on the games subscriptions, we announced by 40%. Now this quarter is stable. We've done a lot of deployment on the Appland side, and we're pushing a lot of new deployment on the OnMobile side. Now of course, as Ganesh said, it takes about 6 to 9 months to get to a good start. And to get to maturity, you can expect about a year before we really see material revenues. So we really see that the next quarter is coming along and on to 2020 we should see an impact of games revenue.

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Unidentified Analyst, [15]

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Got it. Secondly, on the contest side, we have done a lot of changes. We have digitized the product. We have -- we have increased the reach of the product from India to Middle East. But again, the same question, the revenues have actually gone down. If we look at, say, 4, 5 quarters back, we are doing -- if you look at fourth quarter FY '18, we're doing INR 10 crores, INR 9.8 crores. [indiscernible] INR 5 crores, it's 50% down. So can you just explain exactly what -- how do we live with this information?

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Sanjay Bhambri, OnMobile Global Limited - President & COO [16]

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This is Sanjay. So fundamentally, you will see a little bit of seasonality in the contests. Fundamentally, to just give an idea, when the cricket season happens, the contests goes up. For example, now if we look at Diwali, most of the markets, the contests goes up. Otherwise, contests goes [down] to a gamification platform where it is used for enhancing [that experience.] So if we look at most of the product in that contest is one which has a lot of [swings] based on the events which happen. So if we look at last quarter, there were not much on the cricket side. But if we look at now, this quarter, we already have Diwali for example, in India, lots of parts of Middle East and Africa. And if we look at we just announced that we are doing the gamification/contest for Airtel. For Diwali more service happened. So basically, I think it's more to do with a little bit of seasonality during the last quarter and this.

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Unidentified Analyst, [17]

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Yes, I agree on that point. But if I just take a trend, you will sequentially quarter-on-quarter for the last -- since you've given the numbers, you gave the percentages, right? So if I just calculate the number in terms of absolute INR crores, it is from INR 9.8 crores, INR 7.8 crores, INR 6.5 crores, INR 6.57 crores and then INR 6 crores now INR 5 crores. So there is a material degrowth which we are seeing. So I'm sure seasonality has been taken care of because Diwali will happen in any one of the quarters every year, if not the same quarter. But I mean, are these numbers not reflecting the reality. So do you want to say that in reality we are growing in games? Or reality it's going down, if your subscriber base is going up, can you just explain that? Because at least numbers are not depicting that this is for last 6, 7 quarters we are -- the trend is downwards. So maybe there's something beyond the numbers which we don't know.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [18]

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I think your question is valid based on the data you're looking at. I think there are 2 layers to it which we need to connect. Fundamentally, if we're looking at last 7, 8 quarters, fundamentally, we were only doing contest in India. It was completely dependent on the operators. And with the Jio coming in and bundling services, obviously the revenues were going down from the operator [overhead] standpoint which is what you are referring to.

That is when we moved our strategy of taking -- we did 2 things, which has been all in the public domain. One is to take contest outside India; and second is to digitize it and get it into different platforms from an engagement standpoint. So if we look at that, the earlier trend what we're looking at is [finally] coming because the -- there's been dependent on 1 country and on operator. That trend, obviously, that trend continues. But if we see the stability of the revenues coming in for the last 2 quarters, the seasonality coming in timely, all the new things which are kicking in internationally is making it stable and gradually grow. So basically, we need to connect both of them and you'll be able to put the numbers in the right perspective.

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Unidentified Analyst, [19]

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Okay. And within videos, we showed a very good growth this quarter. And can you elaborate on what other things which you are doing and how can we see this particular product going forward? How can this look like in the future?

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Sanjay Bhambri, OnMobile Global Limited - President & COO [20]

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So fundamentally, FC in the start had talked about it. We have launched a new service called kids which relies a lot on the video, for example. And there is a further a new traction which is coming on the kids services, which over the next quarter and -- 1.5 quarter, we will be coming out and announcing as to what new acquisitions we are doing. All that is adding to the growth of the video. So video is a vertical with a lot of things -- subverticals which play a lot of traction. And at the moment, like we are focused on kids. We are focused on women and segments like that, so segments which are growing and that is helping us to grow in the video.

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Unidentified Analyst, [21]

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Okay. So we are open to doing inorganic stuff within videos, that's what you're saying? Inorganic?

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Ganesh Murthy, OnMobile Global Limited - CFO [22]

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No, no. It's not inorganic. It's organic growth. It's a direct offering.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [23]

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Vertical, it's a different vertical.

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Ganesh Murthy, OnMobile Global Limited - CFO [24]

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It's a different subvertical, I would say, under the video vertical, this is a subvertical where we are offering specific content tailor-made for kids.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [25]

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So curated for kids consumption which are typically it's a new vertical where it could -- having a decent traction, where all the videos are revolving around age group and parents basically subscribe it and the kids consume it. So that's the vertical. It is completely organic.

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Unidentified Analyst, [26]

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Okay. Any development on the Bangladesh side where you had the partnership with bKash because you don't speak about that in the IPs since then.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [27]

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Yes. So since it's the first deployment with a payment wallet and a mobile financial services. Also, it is the first -- but bKash itself, we have been going through integration and some of the key elements, features required from a financial wallet which has to be in the realm of the local laws -- financial laws, not the telecom laws, financial laws of the country. We've been doing that and working with bKash in Bangladesh to do that. More or less, we have come to a point where we have been able to mitigate all the, if I can say, conditions which are required to use the wallet in Bangladesh. I think over the next 30 to 45 days, we should be in a position to go live. And once we do that, obviously, we'll come back to all you guys and announce that we are going live. And then over a period -- after that, over a period of quarter or so, we should be able to give you some KPIs on that.

So as much as you are trying to get information on it, I think we also are quite anxious to have it rolling out and start learning and doing some good work there.

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Unidentified Analyst, [28]

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Okay. Okay. And in the recent quarter, we had this announcement of stake sale (inaudible) promoter to an entity called Jump Networks. You have not mentioned anything about that in the IP nor in any commentary. So can you please comment here about that, what exactly is the...

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [29]

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Go ahead, Sanjay.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [30]

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Sir, actually I was saying that, that is more to do with the promoter which is FC's [indiscernible] OnMobile. So I will have FC answer that. That's basically what I was saying. So please go ahead.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [31]

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No. We announced Jump is looking to buy 18%. The deal, we still have a good month to complete the transaction. So we're looking forward to complete that transaction by the end of November. And right now, we're analyzing with the team, the synergy potential of their product line to be distributed across OnMobile and on the product development side, with our mobile expertise, how we can really help them on their product side. So that's what we're doing right now. So you should see some news in the coming month on this.

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Unidentified Analyst, [32]

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Okay. And what was their -- Is it more of a financial investment or it's a strategic investment? Can you just elaborate on that? That will be very helpful for us.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [33]

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No. It's actually a very good news. Jump Network looked at OnMobile, looked at the distribution and the capability to develop mobile products, and they came up with their interest in purchasing 18% of OnMobile at a onetime revenue multiple, which is in the range of INR 75.5 to INR 78 per share. So that's the agreement we have. And I think that's very good news is that, I've been saying to everybody that, for me, the pricing we have today is really undervalued compared to our competitors, compared to the (inaudible) and compared to the (inaudible) of the business and considering the cash position that we have. So I was happy that we have somebody from outside that looks at our company and the potential of the company and is willing to put a decent valuation on the company, so...

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Unidentified Analyst, [34]

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Yes, I agreed on that. But it seems that the market is not pretty convinced because the stock price hardly moved after that news. So maybe there's some skepticism around the deal. I mean I don't know what is the deal. But because the company Jump Networks

(technical difficulty)

[it was their] business. This is in India. So we don't see any relevant business which looks, say, complementary to our line of business. So I thought it was a pure financial investment. But you say that it's not financial, it's strategic. So -- but if you say that...

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [35]

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No, continue, please.

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Unidentified Analyst, [36]

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What I'm saying is, sorry, when you look at the company, [what is] the company's annual report and read about the business, it doesn't look like it is anywhere close to the kind of business which we are in. So it looks a really different business.

So I was just wondering, I was wondering was it -- is this is an investment which is pure financial in nature. That was what I was thinking, but you say that it's actually more strategic. But I could not understand the complementariness of the business of Jump Networks.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [37]

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It's purely an investment -- yes. Yes, go ahead, Sanjay.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [38]

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I think I can help you out (inaudible). Fundamentally, one [indiscernible] element we are proud of ourselves is that we understand the [moblification] of businesses. So I think the key lens you might be missing is that we can take -- sorry, basically, we are good at creating services on mobile platform. And since any organization which wants to get into a mobile platform would need a skillset and reach and OnMobile could provide that, right. I don't know the reason, but I'm just putting one lens here which may be the lens people might be looking at. Back to you, FC.

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Unidentified Analyst, [39]

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So your point is that the -- sorry?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [40]

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Go ahead again, sorry.

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Unidentified Analyst, [41]

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Yes, yes. So you mean to say that the acquirer wants to sort of -- [indiscernible] within mobile space and OnMobile is a good vehicle to do that. And therefore, it's willing to pay right? That's what you mean to say?

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Sanjay Bhambri, OnMobile Global Limited - President & COO [42]

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I'm not saying -- I think that could be one lens, because I'm not the people who are buying it, but I'm saying that, that could be one lens because if you look at it, how many organizations are there today in the market who have the credentials of running mobile services and have a reach of 1.8 billion handsets in the world and have all the continents covered with operators, et cetera, et cetera.

So there is the credentials of that. I think that could be a lens. I can't confirm it. But I'm saying that's the lens you may want to look at it. And then you will see the whole thing in a different color.

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Unidentified Analyst, [43]

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Okay. But that [indiscernible] which come out very [changed, there is] no promoter of the company. I mean there is no promoter as such if you look at the data. There is no cash on the balance sheet. So it just -- a lot of questions are being sort of pop up right? Because how will they fund this acquisition. So that was the reason why I was asking this question. And if you look at the market's reaction, there's hardly any change in the stock price. Actually, it's down after the announcement or just went down that day. So it -- sort of what the market is saying that they're not convinced about the (inaudible). But anyway, I'll leave that to the market.

As you see the stock is still I mean at INR 33. So you're selling at INR 75. So why not buy back, right, because you have a lot of cash. What do you think about that proposition?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [44]

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It could be a second option. But I just wanted to come back on that deal. It's -- I don't know. I do a lot of deals in America and then in India. And when I announce a deal, it's a real deal. It's not a fake deal, I don't do fake deals. So I can confirm to you that they have the money. They -- you know it's a real deal. And we are looking forward to completing this transaction. And from their point of view, this investment enables them to be able to work together on the products, really helping them on their product side. And I think it's a true win-win. So we'll be able to announce in the next coming weeks the transaction and a bit more details on what we're doing with them. But either way, with this deal or not, I still think that our stock price is undervalued, and that's not even a forward-looking statement, that's just a fact. If you look at comparables to be no -- so from my point of view, that's -- yes, of course, I'd like the market to realize this, and appreciate that we're working on real deals, so...

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Unidentified Analyst, [45]

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Okay. Okay. I think in the press release you said that there's 75 days within the signing of SPA where we have to do the deal. So that's -- yes. So look forward to the announcement and more details definitely and even if -- in our interest to see the company in fair value, near fair value, if not at fair value. Finally, that -- yes. So in terms of if I take a 5-year just view on the business and the kind of changes which we are making, do you want to hazard a guess about how this company OnMobile can look like in the next 5 years, a, in terms of product mix, size, in terms of say the margins? So can they materially be different or you think that it's a 10% EBITDA margin business, and that it will remain the same? Or do you think the kind of products which we have -- we'll be launching and also the acquisitions we have done, can they have an impact in terms of how this business looks like? And just I think for a 5-year sort of a -- if you look at 5 years down the line, how our company can look like? So do you want to give some color on that, how do we look at this?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [46]

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Yes. Yes. And again, I don't want to give a forward-looking statement. But for sure, I can share my vision as I shared with you in the last quarters. The number of services that we've launched this year is -- have never been done before where we should have within the next year about 100 new services in the market. And more and more, we'll have services also that don't depend on mobile carriers that are with the OTT players that are -- with handset manufacturers directly or that are directly a consumer using -- always using mobile platforms. For sure, this will have an impact on our revenue. I mean you cannot launch that many services and not expect a positive impact on our revenue. So we're doing this because we believe we'll be able to grow revenues, and we should be able to, of course, also grow our EBITDA margin. So that's the target now.

In terms of size of the company and which segment is going to be bigger than the other one, of course, as you can see, the growth coming into games and contests and video is outpacing the Tones market that we have. So that's a bit the insight I can give you. But we're putting a lot of product -- a lot of efforts on product depth and a lot of efforts on deploying these new products across many geographies, be able to launch new services everywhere. And we're seeing traction.

So it takes time for these service to gain maturity. Some of our competitors in the gaming, it took them up to 3 years to get -- for each service a mature cruising speed. So I know we have to be a bit more patient than what was expected, but that's the direction we're going. At least, as you can see with these results, we're going in the right direction now, so...

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Unidentified Analyst, [47]

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Okay. And within all this context, do we have any plans of doing more acquisitions, maybe bolt-on acquisitions to acquire capabilities? And are we actively looking at those opportunities also?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [48]

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We looked at many acquisitions. We're not -- right now, I'm not in the -- nothing is striking to me that is worth doing right away. But as you know, when we see the right opportunity, we'll be able to move. So something can certainly pop up in the next quarters which makes sense. So we're always looking in what's happening in the market on that front.

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Unidentified Analyst, [49]

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Okay. My next question is to Mr. Ganesh Murthy. This quarter, even if you -- in just the tax rate, even if you ignored the movement in DTA, if you take current tax, still tax still comes to 50% plus, which I believe was trending down towards 30 -- at around 30%. So any color on that? And where do we see this stabilizing the effective tax rate?

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Ganesh Murthy, OnMobile Global Limited - CFO [50]

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So the effective tax rate, our aim is to come to a tax rate of about -- effective tax rate about 50%. There have been certain onetime tax hits in this quarter. We had to derecognize some of our taxes -- deferred tax assets in some geographies because we did not get into a forecast of profit situation in those geographies. So that's because of that.

And also because of the change in the tax laws. The government -- the India government reduced the tax rates. And we had to take a hit because of the -- we have to value our assets -- our tax assets with the former rate. So that's why we have this.

But I think overall, we are looking at somewhere around 50% is our objective, once these onetime tax impacts are taken out.

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Unidentified Analyst, [51]

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Did I hear 15%, 1-5, or 5-0?

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Ganesh Murthy, OnMobile Global Limited - CFO [52]

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5-0.

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Unidentified Analyst, [53]

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5-0?

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Ganesh Murthy, OnMobile Global Limited - CFO [54]

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That's right.

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Unidentified Analyst, [55]

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Okay. So we will still be on the higher side in terms of the effective tax rate compared to what is there in India...

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Ganesh Murthy, OnMobile Global Limited - CFO [56]

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Yes. That is correct. Because, the main reason for that is some of our entities are making losses, and we don't have the advantage of taking advantage of those tax losses. So if you look at it, you look at it, compute an effective tax rate, the numerator remains the same, but the denominator decreases because of the losses.

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Unidentified Analyst, [57]

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I get that. I get that. Secondly, in terms of -- for rationalization of headcount, you have done a wonderful job in terms of controlling the cost. And we have been sort of, cutting off the flab. And the question is how much scope do we have further to enhance operational efficiency?

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Ganesh Murthy, OnMobile Global Limited - CFO [58]

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I think on manpower cost, we are fairly optimized. I don't think it will be -- we will have any more -- what will happen is some of the savings that -- some of the people that we let go, the savings from that from quarter 2 will be -- full impact of that will be felt in quarter 3. So we'll continue to see a reduction in manpower cost in quarter 3. And that is because of the initiatives that we have been doing over the last 1 year. So if you recollect last year, we closed down France office. France was obviously a very high-cost location. We had to let go of people there. We reduced some headcount in India because there were certain operators, Idea and Vodafone, some have merged together, so we had a redundant headcount. We closed down our office in U.S. And did some rationalization there, rationalization in Latin America, rationalization in the U.K. in the last quarter. So all this impact -- the full impact of this will happen in quarter 3. And after that, I think it will be a sort of steady state.

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Unidentified Analyst, [59]

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Okay. Got it. And these savings, do we intend to redeploy in marketing or we [won't] retain the benefit. How do you look at that savings, per se?

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Ganesh Murthy, OnMobile Global Limited - CFO [60]

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So it is not a question of redeploying the savings into marketing. Our marketing, we -- the way we conduct marketing is we do a cost-benefit analysis for any marketing spend. So if we want to launch a campaign, say in -- let's say in Nigeria for customer acquisition, we look at what will be the spend, what will be the number of subscribers that we can acquire, what will be the revenue generated and the margins generated from these subscribers, what would be the lifetime. So basically, we compute the IRR from the marketing investment. Only if it makes sense, we go ahead and proceed with the marketing spend. So the marketing decisions are very well calibrated, very well thought out decisions. There's no point in spending $1 in marketing and getting only $0.50 of margin, okay?

So it's important for us that we make sure that our marketing spend is -- the IRR remains at a positive figure.

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Unidentified Analyst, [61]

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Yes. Yes, I appreciate the look at the IRR and not just absolute amount of marketing. So last year, in FY '19, we were -- we did around INR 34 crores of marketing expense. Now in the first half, it is around INR 15.4 crores. So it's at a similar run rate. So based on your understanding of the opportunities in different markets and the new products which we are launching, which might obviously require investments in marketing, do you see that this run rate of INR 33 crores, INR 34 crores per year is enough? Or do you see that there's hope for us to be more aggressive and putting more money -- dollars behind marketing?

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Ganesh Murthy, OnMobile Global Limited - CFO [62]

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I mean I would love to have more money on marketing. In fact, I think currently we are underutilizing our marketing budget, and that is because every initiative, we look at the IRR. And if the IRR is not below -- is not above a particular threshold, we don't go ahead. But seriously, I would love to see more marketing spend because that is the way we'll get more subscribers, we'll generate more revenue and ultimately more profit for the company.

So -- and again, the kind of businesses that we are doing, like say for instance, the launch of bKash, the launch of various games club all across the world, so these are marketing-intensive initiatives. And so frankly speaking, I would say we should be looking at higher spend in marketing than the current run rate.

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Unidentified Analyst, [63]

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Got it. Got it. And the cash flow, in the last 2 quarters, we have turned into negative cash from operations, right, if you notice, which was one of the biggest trends

(technical difficulty)

cash flows every quarter. But this has not been true for the last 2 quarters. So do you want to spend some time what is happening there? And so this quarter, example, receivables have gone up by INR 20 crores in this quarter. And

(technical difficulty)

Also, some other assets have gone up [by INR 31 crores] so almost...

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Ganesh Murthy, OnMobile Global Limited - CFO [64]

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Yes. So this quarter, actually our cash went down from INR 251 crores last quarter to INR 234 crores. The reasons have -- there are 2 major reasons. One is, as you pointed out rightly, our receivables have gone up. And the reason why receivables have gone up is 3 customers, 3 big customers of ours did not make the payment by the due date. They delayed the payment, and that had a significant impact. Just 3 customers had a significant impact on our receivables. But the good news is that we received all this amount from the customers in the first week of October. So there was a sort of overlap or delay of 1 month -- or of 1 week, sorry. And that resulted in a higher DSO and a higher -- a lower cash flow.

The second reason for the lower cash flow is in the month of -- in this quarter, in the month of July, we made a payment. These are contract acquisition charges. So we made a payment of over EUR 4 million to our customer as part of our agreement on the renewal. And that, of course, you will see that reflected in the increase in other assets because that is treated as a prepaid expense, and it is amortized over the life of the contract. But the cash actually left the company.

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Unidentified Analyst, [65]

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Okay. So you said EUR 4 million, right?

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Ganesh Murthy, OnMobile Global Limited - CFO [66]

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EUR 4.3 million actually, to be precise. So something like about INR 40 crores. So if you take -- both these things are [kind of hard] item, also we had a tax, dividend distribution tax. We declared a dividend of INR 1.50, 15% dividend that we declared in September. And we -- the dividend outflow happened in October, on 1st of October, but the dividend distribution tax of about INR 3.3 crores also happened in September. So all these reasons why the cash balance has come down. But all these things are [perfectly in sync]. And if you look at it today, our cash balance has actually gone up as compared to end of September.

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Unidentified Analyst, [67]

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Okay. Okay. And this payment which you have made to the customer, the prepaid expense for the contract renewed, what is the contract time period, 3 years or less than that?

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Ganesh Murthy, OnMobile Global Limited - CFO [68]

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5 years.

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Unidentified Analyst, [69]

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5 years. Okay. Great. So I think even in the last quarter, quarter 1 also, our cash had reduced from INR 270 crores to INR 250 crores and now to INR 230 crores. So in the previous quarter, the reason [why is] payables had -- payables decreased significantly. But it has normalized in this quarter now in terms of payables, but receivables [have bigger now and that evened it a bit]. So going forward, you see that this cash levels should increase from hereon, that's what you want to say.

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Ganesh Murthy, OnMobile Global Limited - CFO [70]

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Yes.

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Unidentified Analyst, [71]

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Okay. And again, do you have any -- do we have any internally any plans of capital allocation on this cash? Or do you want to be open about this in terms of you want to use it?

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Ganesh Murthy, OnMobile Global Limited - CFO [72]

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No. I think as FC mentioned, we are talking about inorganic growth. If there is the right opportunity, we are not averse to investing, if there is -- if it is sort of complementary to our business.

And also, as you know always, we have done [3] share buybacks in the past. So again, we are not averse to doing a share buyback also at some point of time if the Board feels that it is required. So that's why we keep our cash. It's -- all our cash is sort of put in -- liquidity is very important for us, so our cash is invested safely in liquid mutual funds.

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Unidentified Analyst, [73]

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And how much of this cash would be in India and versus abroad?

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Ganesh Murthy, OnMobile Global Limited - CFO [74]

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73% as on end of September.

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Unidentified Analyst, [75]

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Would be in India? Hello?

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Ganesh Murthy, OnMobile Global Limited - CFO [76]

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Yes. Yes, 73% is in India as on end of September.

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Unidentified Analyst, [77]

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And 2 years back, what would this number be in India? How much cash would have been in India? I think we have increased the cash in India over the last few years, I think.

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Ganesh Murthy, OnMobile Global Limited - CFO [78]

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Around 50% to 60% roughly, 2 years ago. So we have -- we have took a conscious decision over the last few quarters to bring more money to India and to keep it in India for 2 reasons. First of all, the returns are attractive in India. Second reason is most of -- we're an Indian company, and we have payment obligations in India. On top, our employees are in India, and we need to pay a dividend to our -- in India. So that's the reason why we keep -- we try to focus and keep a large part of our cash in India.

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Unidentified Analyst, [79]

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Okay. Got it. Got it. Just one second. If I look at the revenue by geography, we have seen that Asia has grown decently well, I mean from a very small base, excluding India obviously. So which countries are driving the growth in Asia, excluding India obviously, if you exclude India? So for example, Asia is now, how much, 6% of revenues now compared to 4%. Yes, yes, yes. So which countries are...

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Ganesh Murthy, OnMobile Global Limited - CFO [80]

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Yes. Growth has been -- it's mainly in Bangladesh. So Bangladesh, we are -- we have -- all the telecom operators in Bangladesh are our customers. It's a good market for us. We are growing there. And the -- we recently, as Sanjay mentioned, we have also tied up with payments -- the largest payment wallet provider, bKash. So we expect that we will continue to grow in Bangladesh, and we continue to expect good growth in revenues in Bangladesh.

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Unidentified Analyst, [81]

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Okay. Okay. My sense was that it's growing because of maybe in Middle East, [maybe in] Qatar and all, we are launching our games. And so that was my guess. But it's not...

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Ganesh Murthy, OnMobile Global Limited - CFO [82]

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That is Africa and Middle East.

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Unidentified Analyst, [83]

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Okay. Got it. And -- got it. Got it. Sorry. So do we believe that our growth trajectory can go to 10% plus in the near future, in 1 or 2 years or -- based on the market scenario, [indiscernible] do that growth rate considering globally, consolidation is happening in telecom, India, we have seen that happening very fiercely. So within that environment, what is your take on, one, competitive positioning, one, [old] customers? And for example, in India, is it correct that we are only catering to [-- we have Sprint] Vodafone, right, and BSNL maybe, right? Not Jio.

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Ganesh Murthy, OnMobile Global Limited - CFO [84]

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That's correct.

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Unidentified Analyst, [85]

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Okay. But in other markets, are we seeing some pressures in other countries like what [indiscernible] in India?

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Ganesh Murthy, OnMobile Global Limited - CFO [86]

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No. India has been a bit of quite a complicated picture because of the entry of Jio and because of the severe competition in the telecom sector and consolidation in the telecom sector. The other markets, we are not seeing such huge pressures.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [87]

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Maybe -- thank you for your questions. Maybe we should let anybody else since we're on the line with other people. I don't know if there's other questions in queue. Thank you very much for all your questions.

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Operator [88]

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(Operator Instructions) We will now take our next question from Chinmaya Garg from Dron Capital.

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Chinmaya Garg;Dron Capital;Analyst, [89]

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So a couple of views. So this is the first quarter after a lot of quarters that we have seen some sequential growth in our top line. Is it fair to assume that the trend of decline has reversed now?

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Ganesh Murthy, OnMobile Global Limited - CFO [90]

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Yes.

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Chinmaya Garg;Dron Capital;Analyst, [91]

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Okay, okay, okay. So we used to do, at peak, around INR 200-plus crores of turnover each quarter. In your assessment, when is that possible?

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Unidentified Company Representative, [92]

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We are working 24/7 to go there.

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Chinmaya Garg;Dron Capital;Analyst, [93]

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Just a ballpark number.

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Ganesh Murthy, OnMobile Global Limited - CFO [94]

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I don't think we can put out...

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Chinmaya Garg;Dron Capital;Analyst, [95]

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Sorry?

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Ganesh Murthy, OnMobile Global Limited - CFO [96]

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Yes. So I don't think we can put out a date. I don't think we can put a date for that. Our objective obviously is to grow our revenue, and we are making steps -- we are taking steps in that direction. But at the same time, we also need to look at our profitability. We need to protect our EBITDA. So it's a balanced approach. We are always looking at profitable growth. I mean, if required -- if we were to sacrifice profitability, we could have grown by 10% quarter-on-quarter very easily by investing in marketing spend and suppressing our EBITDA.

But that's not the objective. Our objective is to provide a profitable return to our shareholders. So we continue to be focused on both.

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Chinmaya Garg;Dron Capital;Analyst, [97]

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All right. All right. But keeping that balance that you're talking about in mind, that number is achievable, right, sometime in future, but let's say in a couple of years, but that number still looks achievable at some point of time?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [98]

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Yes.

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Chinmaya Garg;Dron Capital;Analyst, [99]

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All right. All right. And we haven't talked much about the B2C initiatives. So what is happening on that front? Or how are we progressing there?

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Ganesh Murthy, OnMobile Global Limited - CFO [100]

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FC, you're taking that?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [101]

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Yes, B2C. We've worked a lot. Right now, the strategy that I see is to work with partners, the DNA of OnMobile has always been to work with operators before going to the customers so that we share some marketing spend with operators in many markets. Now we're pushing with all these big wallet providers like bKash, we're pushing with big handset manufacturers, OTT players. Mind you, it's a partnership, B2C, not a pure direct-to-consumer for now. And it doesn't mean we won't go direct-to-consumer right away -- sorry, one day. But from my point of view, right now, we're deploying very good new platforms and new services with new kind of partners customers, let's put it this way. And we're going to start investing in marketing. We took the example of bKash. For example, as soon as we launched, obviously, there's a big marketing budget coming from bKash. We will add to that budget, and clearly B2C initiatives. So that's a bit the way we see the next year going.

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Chinmaya Garg;Dron Capital;Analyst, [102]

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Okay. Okay. And we had also mentioned earlier that we are looking for innovations in our RBT product. Any progress on that front?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [103]

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So we did a lot of innovation. Sanjay, go ahead.

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Sanjay Bhambri, OnMobile Global Limited - President & COO [104]

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Yes. So fundamentally, to start with, the whole digitization of the service has been done. Just to give you an idea, today, we have reached more than 5 million people in India, who have downloaded the app and are experienced -- digital experience on Ringback Tone, that's one element. Second element is monetizing the space, all through advertising. We have done few pilots with large marquee brands in India. And over the next quarter, we were trying to get to a product state where we can announce it to the market.

So yes, there are things which have happened. [Digital is easy,] which is already happening, you can experience yourself. On the other elements, the pilots have been done, and hopefully, we should be able to come back and announce some news for you over the next quarter.

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Operator [105]

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We'll now take our next question. (Operator Instructions)

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Unidentified Analyst, [106]

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Can you tell me what is your return on equity for the last 1 year or [3] years? So I hear a lot of stuff about your sales and blah, blah, blah, right? Can you talk about your return on equity for the last 1 year?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [107]

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Well, first of all, I mean we have a -- if you look at our dividend rate, you get a good return of -- now depending on what price you put the stock, but you get a 4 point -- a good 4% dividend for a potential growth stock. I think it's a great mix to be able to have a dividend and the potential of the company. And again...

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Unidentified Analyst, [108]

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I think, FC, that's your way of valuing the company. But I think if you can just mention the return on equity, right? Because you're not a brand, right? You're selling it to an operator, and you are just a service company which has been promoted like a product company, right? So -- [inherently,] you don't have a brand value, right? An Amazon or a Google or a BookMyShow. You don't have any brand value. That's the operator's brand value, right? So for you, the key measure is return on equity. So your return on equity is 3% to 5%. And that's the reason nobody is valuing you correctly.

So why are we positioning ourselves as a -- yes, do you have a brand? Do you have any brand value?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [109]

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On the brand value, you're right. We are [pushing the brand in the past on its own], and now we're going to be pushing the brand in the coming future with partners. But there's just more important [indiscernible]

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Unidentified Analyst, [110]

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So you are a service company. You are a service company, and I think you are positioning yourselves as [seniors,] right? You have been positioning yourselves incorrectly, right? I heard one of your senior guy talk about 24/7. There are a lot of people who work 24/7. Are their salaries in line with what the other person gets? So I think there is a kind of people -- the management in OnMobile has always been very arrogant. And they don't talk facts, right? Now in terms of content costs, right, your content cost is 40% of your [base.] So can you benchmark your content cost? So let's say tomorrow you have doubled the subscription base, right, what will your content cost be? Is it a fixed cost or variable cost? Because to me that 40%, I don't see you doing anywhere more than 10% EBITDA ever, right, and your return on equity will never be more than 10%. So what is your content cost going to be as a percentage of sales? Can you give a guidance on that?

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [111]

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If you look at it, the more distribution you get, the more revenues you get -- the content cost will decrease. And I see that we should be able to have a higher EBITDA margin than what we have today. So the profitability will increase, for sure...

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Unidentified Analyst, [112]

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So if you could benchmark your content cost as percentage of sales -- I agree. So let's say, my only worry is, FC, I don't know whether your campaigns are successful. So you need to have a benchmark against how many people your campaign should target, right? Or what is the revenue it should generate, right?

Today, somehow, everything -- see, the smart people really understand where you people are, right? 40% is content cost, then you'll never make more than 10% margins, right? Because you have a fixed cost attached to it, right? So you need to benchmark and make it more transparent, right? I think nobody knows 1 million, 5 million, 20 million, how many products are [potentially] achieved, right?

And I think this company forever has been very arrogant in terms of they create a product, they create their own benchmark, there's no transparency about the product, the revenue, right? And that's the reason nobody values you, right? Because there's no way we can actually -- you should put up a number saying my content cost will be 20%, 3% of my revenue. Spotify does it. A lot of other competitors of yours does it. You never do it. And the market really lacks trust in your management. And that has always been the case with you.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [113]

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[That change] for each product, I like [indiscernible] because the product cost -- the content cost change for each of the products. So I have a full detailed business case, that's what I should do. But then it's getting complex. As you know, if you have fixed cost also, then you have to get into cost allocation for the base. What's been challenging in the last 3 years, I'd say that, of course, we had a big revenue decline in India, and it put a lot of pressure on costs. So we put a lot of efforts on cost optimization to be able to operate the business at lower costs. But for every revenue that we add on top of it, the margin is way higher than revenue that we lose. When we lose revenue, then it becomes very tough. So to even do profitability at this stage, I'd say, you know what, the team's done a great job.

And back on the new services that we launched, there's a cost to launch new services. So when we say that we're going to be launching 100 new services in 1 year, that's a cost. There's a cost that you see in the line there. And the revenues take -- on new services, it does take 2, 3 years to really capture and mature revenues on these services. So if you do the model of -- yes, of course, out of these hundreds, a lot of them will not work, but a lot of them will outperform by far. If you look at the [curve,] for sure, the revenues will increase. For sure the cost of [fund] will decrease. Some product categories will cost more marketing. Some others will cost less. And some will be able to have very low content costs, and some others will be higher. And we'll put the marketing effort, the team's effort, around the products that we make the more money.

Now starting to actually share all that spreadsheet with you guys, with investors, I mean, it's a lot of details, which right now, I'm trying to at least show the growth quarter-to-quarter, which is exactly what we're showing this quarter. But I'm quite -- again, I'm saying it, I'm very positive on the future of the company.

And it's business with indiscernible from operators especially in India, where now we only have 15% of our revenues in India. The business is...

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Unidentified Analyst, [114]

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Now all that, okay -- what I'm just saying is you are a service company. Please have KPIs which are service-company oriented, right? So don't have a product company, unless you don't have a brand, right, unless you're -- ONMO becomes a big brand, right? Please project yourself as a service company, right? And I don't think -- I think operators are taking you for a [ride as they love your] customer. You've been with them for so many years, right, and now they have left you, right? So you need to understand, your [indiscernible] product will get copied, right? And you're investing in products. But once you invest in products, your product gets copied, right? And you don't have a pricing power.

So this is what happened with Tones. This is what will happen with games. And you assume that nobody will come into games once you launch a successful game, right? So the whole challenge has been around the basic strategy of the company, where you invest for 3 years and the time you'll get a good revenue run rate, some competitor comes in. That is what has happened with gaming. There are other competitors from Brazil, other companies, which are doing gaming with all the companies you're talking about, right? [Airtel as a] company, a lot of other [people, other] company.

So I think you're a service company. Please have a service KPIs. And if you are not profitable, there's no need to enter into a proposition, right? It's high time that you get return on equity. Otherwise, unfortunately, I think with this kind of pipe, right, and with no brand value attached to it, I really don't see any mature investor coming into this. And Jump is a very, very strategic investment because it has given you IP, which I think, as a company, you lack.

How many patents have you filed in the last 10 years? Have you filed like 50, 100 patents? I don't even know how many patents have you filed.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [115]

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We filed a lot. Ganesh, do you have the number? I think it's over [80.]

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Ganesh Murthy, OnMobile Global Limited - CFO [116]

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I don't have the number right away. But we have [5] patents.

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Unidentified Analyst, [117]

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Yes. So that shows you the strategic [steps] of your management, right? Your management, it doesn't even understand what the world is -- where the needle is moving, right? Hearing I'm working 24/7, I work 24/8. [Out of it all,] do I get a 1 million paycheck? It doesn't get me a 1 million paycheck.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [118]

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And again [I think that basically] if you have no work, you do (inaudible) the work. So I agree with that statement. But I just want to come back on the service versus product. [As you know, being] Product, cost a lot of money in the product and a lot of money in marketing. And I'm not the type of guy who's going to think [indiscernible] million we have, some of it for marketing for launching [in United States] or Spotify, because that would not even make the needle move. All the players out there, a lot of money taking gambles. A lot -- No. [We think here] today, a lot of [tuck-ins,] even if they're worth billions of dollars, they don't make it, and it goes down. So for sure if you're investing in the -- in that kind of vision, I'm not going to go and take a gamble with OnMobile on that front.

If you look at the [track] we have to date, we have more than half of our revenues which is [planned] for the next 5 years. I mean that's -- yes, you're right, a lot of it is service to operators. Yes, but it's secured service to operators. And yes, we're getting [3%] margin. And yes, we're doing it for [prestige] and I think we're a bit short in the EBITDA margin, [on CapEx or] more. But short because we're not just a service company. We're investing a lot in products. If we would just be a service company, then [that's the irony] so it's -- and I...

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Unidentified Analyst, [119]

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I'll just request you, FC, you either be a service company or be a product company, right? Today, your KPIs are -- OnMobile as a company is very confused, right? Now if you want to go B2C, go and get an investor. You'll have enough of them, right? But today, your KPIs are very confused. Aadhaar has more than 1 billion customers, right? So are you saying that Aadhaar will be valued just because it has 1 billion customers? You don't own the platform. The customers are Vodafone, Idea, Telefónica. You don't own the customers. So trying to project that the customers belong to you is a factually incorrect statement you are providing, right? So these customers -- you are just a vendor, right, who's just managing the platform. So just trying to project it in a very wrong way, I think the marketing is totally done up. And that's the reason mature investors don't really -- no private equity, no senior -- like I think Jump Networks, the reason they are investing in you is because they see a very big strategic fit, which is in terms of IP. And I'm very surprised your management doesn't see it, right? But I feel Jump in terms of [infra,] if they can reduce the [infra] of bandwidth, right, it's a very strategic fit. So somehow, I feel your Board, your team members, all are a big joke, the kind of answers they gave, 24/7. This is like height of arrogance, right? And we have been holding this out for last 7 years, and you've given negative returns for ages, right?

So I just hope that you really take -- it's time that you really have people, have the right KPIs, right? And more of a service company KPI. TCS is doing 30%, 25% margin, right? They are giving 45% ROI -- return on equity, you are working on a 3% ROE, and then there is a lot of [justification] around why the business should be valued more. I think...

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [120]

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Yes, I agree with you.

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Operator [121]

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(Operator Instructions) It appears there are no further questions at this time, sir. I would like to turn the conference back to you for any additional closing remarks.

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François-Charles Sirois, OnMobile Global Limited - Executive Chairman & CEO [122]

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Well, thank you. Thank you to all. Thank you for taking the time for being in this call. Again, thank you for your questions also. I know they are sometimes a bit tough questions, but we're -- I just want to share with everybody that we're looking at all these points and working hard to fix that situation where it is. But I see a lot of potential, again. And as you can see in this quarter, we've been having a revenue growth in most products, and again, 7 of our top 10 customers. So the company is going in the right direction on that side, very good efficiencies, and I look forward to sharing the results of the Q3 results. So thank you very much to all and speak to you in one quarter. Thank you.

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Operator [123]

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Thank you.