Mobile mania will drive growth

Geodesic Ltd, formerly Geodesic Information Systems Ltd, has been an innovator in software products focused on information, communication, and entertainment for mobile phones and desktop computers.

It offers applications under the brand name ‘Mundu’ for retail segment and is also the owner of Chandamama, the library of 15,000 exclusive stories. The company has offices in Mumbai and Bangalore in India, Silicon Valley in the US, Sweden, Germany and UK in Europe besides Hong Kong. It also has presence in South American and African markets through new acquisitions.

Business: Geodesic offers communication and collaboration solutions. It provides innovative front-end applications, the Mundu suites of products. Mundu instant messaging (IM), (voice-over-internet protocol) Mundu speak, Mundu Radio, Montage, etc. Mundu Radio technology is used by Idea Cellular’s ‘Idea Radio’ and Geodesic also has technology allowing live TV on mobile handsets.

Mundu IM has been recognised as one of top 10 applications of 2007-08 and is used by more than 7% of iPhone users. Mundu suite of products helps reduce 60-65% of communication costs.

In 2005, Geodesic acquired three companies including Bangalore based Picopeta Simputers and Hong Kong based Engage solutions and took a stake in Swedish Clangula IT. In 2007, it acquired web development company E Dot solutions and children’s magazine Chandamama. Its latest acquisition was South American Interactive Networks (INT), which has given Geodesic access to secure private IM solutions for enterprises, private label IM solutions for internet services and IM solutions for mobile operators.

Investment rationale: Geodesic provides communication and information platform for retail and enterprise segment. The hardware platform gained by the takeover of Picopeta has been used to develop a product called Geo Amida, which is being marketed to government and private sectors and revenues from the hardware platform will start accruing this year.

Geodesic successfully launched the world’s first interoperable IM application on the Android mobile platform as a personal IM tool. This allows people not available on Yahoo, MSN, Google, etc, to send SMS through Mundu IM at 15 paisa per message.

After gaining access to the Latin American market through an acquisition, the company is eyeing Czechoslovakia and other such markets. In Slovakia, it has signed a deal to launch Mundu web, mobile and desktop IM. It also signed a deal with Sweden Ghana Medical Centre for the development of solutions for hospital management.

In the March quarter, the company finalised a deal with Bright Star Corporation, Miami, to launch Mundu IM on mobile phones and also got orders from Atom Technologies, Mumbai, Venture Infotech and Fullerton India Credits Ltd for implementing a biometric enabled mobile terminal. It inked deals with Business India and Ahli United bank BSC, Bahrain, as also with some leading stock broking firms in India and Mirae Asset Global Investment Hong Kong.

 Besides, Toonz has recently tied up with the company for using Chandamama stories for full-length animated films.

Concerns: The retail subscription revenues depend on mobile phone internet access and data plan subscriptions and also the ability of Geodesic to reach users. Any inability to do so can impact revenues.
Valuations: Geodesic reported a consolidated topline of Rs 642.94 crore in FY09, a whopping 103.18% jump over Rs 316.44 crore in FY08. Net profit at Rs 282.84 crore grew a handsome 90% from Rs 148.63 crore last year.

However, growing marketing costs (315%) and other expenditures (195%) dented operating margins by 681 bps and profit margins too suffered 298 bps. The company should be able to sustain growth of 35-40%. Geodesic has a strong balance sheet with Rs 380 crore of cash, part of which was used to buy back $8.5 million outstanding FCCBs.

Recently the promoters also announced buyback of up to 25% of equity at a maximum price of Rs 75. The stock is trading 3.64 times its FY09 earnings and P/BV of 2.34 makes it extremely cheap for a products company with strong Ebidta margins. The stock offers good long-term investment opportunities for investors.