Onmobile Global—- Seems undervalued

27 Oct

When all hell breaks lose rationality is kicked out of the game.

This happened when Onmobile Global was forced to carry out Financial Audit to investigate allegations of misappropriation of funds by Arvind Rao.. The share that was trading around a high of Rs.84 dropped to Rs.29. Market went berserk over this event. The wounds of Satyam had still not healed for many investors. Well everyone knows this part of the story, but what’s new?

Is it a bird? A plane?

No! It’s an opportunity!!!

2 months later, in August, when KPMG announced that “all is well” in the books of the company Mr. Market still did not warm up to the firm and the market gave opportunities to the interested buyers at levels of Rs.34 to Rs.42.It was around August end when I thought that this is an opportunity for investment. My logic was based on 4 key facts:

  • Result of Forensic Audit were positive
  • Debt level for the firm was really low and the company was profitable with good amount of geographic diversification in its client base
  • Argo capital, a PE fund with around 30% stake in the firm, was sticking around to pick the fruits of its capital till things got better
  • The stock was trading at Rs.35 with a book value of Rs78 and a negligible amount of debt.

I took the plunge and got a decent position.Soon after Kotak fund bought 1.1 Mln shares of the firm at Rs. 47.  Merill Lynch also announced a target price of Rs.60 for the share.

It’s not over till the fat lady sings

Buying is easy, holding is tough! Now comes the hard part when I have to keep faith in my approach. The market certainly isn’t helping. This sudden surge inNIFTY-SENSEX in the last 3-4 months is not good. The whole thing looks like a house of cards waiting for a fall. The uncertainty of future price compared with assured short term profits poses a big dilemma. But for now, I am holding on!

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