Indian Stocks Research

Geodesic Information: Emerging oppertunity in communication and mobile entertainment

Pre-Analysis

Usually I start a report with a “key investment highlights” section which tells the reader how undervalued at that time the company is. But I decided not to use that style in this report due to some reasons.
The main reason is that it does not make much sense to play around with past revenues of a core technology startup like Geodesic which make cutting edge products/technology for corporates and end users. The revenue and profits cannot be projected by any one in this stage as it can easily register astonishing swings in this stage. For example in first Qtr the Net profit of the company was 14Cr and in second Qtr the NP was 23Cr. Which is a 50% QoQ growth. Since some of its products had just released the profits going forward can swing considerably.

So it really makes no sense to calculate the PE , Market Cap/Sales and trying to come up with a valuation model for this. All I can say is at a market cap of 1000 odd cr the company looks promising. Also it makes more sense to value the company with respect to market cap which you will see in this discussion.



Why I like this company

When it comes to products company (whether it is a software company or a manufacturing company) there is a small thump rule you can apply to find out will the company will do well in the future.

“If a company is able to make a product which is 7 times good as an existing one and in 1/7th cost, there are very less chance that you will loose your money invested in the company”

And I think Geodesic is one such company


About Geodesic

The company was started in 1999 by a group of technocrats. The company is widely recognized for its universal instant messaging system (www.mundu.com). The Mundu products successfully combine AIM, Google Talk, ICQ, MSN, Mundu and Yahoo with deep content collaboration across the Internet, wireless devices and platforms.

NB: Not many people know that Mundu is the third largest used instant messaging software in India. Indiatimes messaging services which is used by millions of Indians across the world is powered by Mundu. Totally there are 6million people using Mundu messaging systems every day either directly or through partner sites. And another heartening factor is that this figure is rising every day. (Most of the times people don’t know that they are using Mundu)

The following are the company's products

•Mundu web content aggregator
•Mundu universal Instant Messenger for the desktop
•Mundu universal Instant Messenger for Palm devices
•ADePT - self service Ad Management System
•Mundu universal Instant Messenger for Symbian Pocket PC, Blackberry and Linux
•Mundu Internet Radio for the Palm
•Mundu Speak - VoIP on Windows Mobile, Palm and Symbian across GPRS and Wi-Fi (a world first)
•Mundu IM referral (word-of-mouth marketing)


Recently the company was awarded the Inaugural Red Herring Small Cap 100 award.

In the following discussion we will briefly touch upon most of the company's products (some of them very recently launched) so that you will get an idea of how the company will do in future.


A small note on the management

This is one big strong points in Geodesic (May be this team of strong management is one reason that foreign investors got so much attracted to this stock from very early stages)

Apart from eminent technocrats like Kiran Kulkarni and Pankaj Kumar other notable figures in the management are high profile Mahesh Murthy (Director) who is the man behind many successful startups in US. He now owns a venture capital fund called passion fund and is one of the early stage investors in Geodesic. (He is also the one behind the search marketing firm Pinstorm). Another notable figure as an independent director is Vinod Sethi, an expert investment banking expert who was behind the success of Morgan Stanly Growth fund in India.


The presence of such people in management is a comfortable factor for an investor especially when he is investing in a startup technology company where the rate of risk and returns are quite high.

Mundu Radio – A hundred thousand radio stations on your mobile

This is one of the most exiting applications which targets Entertainment – on the – Move space. The space is worth several billion dollars worth worldwide and there are lot of players which targets this segment with lot of products.
Some of them are your IPods, FM Radio’s, Internet radio’s like world space etc. But in most of the cases you need to carry extra equipment and have to pay a subscription fees for some other. How often you wondered why is it not possible to listen the radio station you liked on your mobile phone. (Some mobile phones come with inbuilt FM radio, but it will only play stations in your locality).

That’s the space Mundu radio is trying to address when it announced the beta version of the product this September. It allows you to access close to one lack (yes 1, 00,000) radio stations having both international and local content from any part of the world in to their mobile phones.

Mundu Radio supports streaming at 24 Kbps and 32 Kbps which is superior in sound quality experience than the currently offered Mp3 streaming on mobile phones. It is compatible with popular handsets based on Symbian, Windows Mobile and Palm OS platforms.

Moreover the users can personalize their play list and manage their profiles using easy to use interface provided as part of the software. In a mature market like US, internet radio is the primary mode of entertainment. People listen to radio while they travel and usually one fifth of the total population listen to internet radio for 5-8 hours a day.

The facility of hearing internet radio on mobile phones eliminate the need to carry additional devices and a superior sound quality makes it one of the most exiting applications ever made for mobile phones.

Now how big is this market? IDC forecasts that US wireless services will have over 50million users and will generate more than a couple of billion dollars in revenue by 2010. And the interesting part is that this segment appeared only in late 2005 and Mundu Radio is one of the promising applications that target this segment.

Mundu Messenger – Real time collaboration between trusted parties.

Understanding the business model of various IM businesses can be a difficult task but most interesting fact is that most of the top IM providers which target the mass market do not generate enough revenues. This is because the people are reluctant to pay for these IM services that they use. (Just imagine how many people will use yahoo or msn if they start charging for that :-) ).

But Mundu IM messenger is profitable and has a very sound business model which revolves around real time collaboration between trusted parties. Which most of the major IM players target the C2C (consumer to consumer) market, Mundu IM targets the B2C (Business to Consumer) or C2C (in a business platform). So in this model the provider of IM services has to pay for using the Mundu IM and there are some compelling reasons why they go for it.

Now let us see what forces the business to use a costly Mundu service when there are free alternative.

The one thing that holds back IM from being adopted as a standard is the lack of interoperability between different instant messenger software products. It is exactly this vacuum that Geodesic hopes to fill in with its product. Currently, Mundu has a unique advantage over other competing brands as it is a messenger that is compatible with all the industry leaders like AOL, MSN, ICQ and Yahoo. With the core technology in place, Geodesic hopes to provide in Mundu a kind of brand that would fit the needs of businesses of all sizes.
When I say interoperability it is very simple, using the Mundu platform you can collaborate with any one using any of the messengers be it Yahoo, MSN or google.

The potential target segments that Geodesic is looking at include call centers, finance and IT organizations, providing an instant messaging network for business-to-employee and business-to-customer. With its ability to manage communications over multiple channels, i.e. web text chat, integration with messaging networks and wireless devices such as PDAs and mobile phones, Geodesic could very well turn this product into a goldmine.

Now this feature of Mundu to interoperate with other messengers using web text chat is a very useful feature for portal owners. They can retain their visitors for more time with out allowing them to leave their portal for communication. Now this can lead to more communication to the prospective customer and more client conversion.

Another segment which Mundu IM creates is Instant E commerce.
The biggest block for ecommerce in India and across the world today is the lack of personalization that the users demand. This is one space which IM can address. If you go to a site and like a product, you would obviously want to know more about it. And what better way to explain to a customer his queries than an instant messenger. And more over if you can do that without leaving the site that leads to better conversion rates.

The product would be a great hit when deployed in banking applications. A bank could have an instant messenger operational and have queries answered instantly, cutting down on the time spent by customers over phone calls and at the bank itself. For banks and financial institutions worried about security issues, the Mundu IM offers SSL-based 128-bit encryption for authentication and messaging.

Now I mentioned here about security when using IM. Most of the organizations will not allow the use of popular IM in its own network. This is because the IM’s would open a security threat and is a gateway to most of the viruses and worms to get in to the network.
And most importantly you cannot restrict the users who try to contact to the employees if you use general instant messaging software like Yahoo or MSN. But Mundu helps the organization by allowing the organization employees to interact with only their customers in a secured way (usually from their own website were the customer had logged in)

What more?

Well there are lot of other interesting and cutting edge software that this company recently introduced. One is Mundu Talk which allows mobile users to make unlimited VoIP calls to any other mobile phone which has Mundu platform.
And there is another new produce called Engage spider which they launched recently which is a relationship management software. (This is mainly used in financial institutions).

But I think I had talked a lot about this company and will post more later. It is enough for now :-).

Valuation

As I mentioned earlier it really does not make any sense to assume the valuation of this stock based on historical PE and is not easy to calculate the future earnings. One simple estimate I can say is that if the product is able to capture at least 15-20% of market share in its respective fields, We are talking about billions of dollars in revenues. Right now it I just a 200m company in valuation. To me there is an opportunity here as I do see lot of value in lot of its products.

Thus far, the only missing link in the strategy of Geodesic has been on the branding front. The technology is great and there is no doubt that the company has with it a killer app yet there are not too many who know that Geodesic is the “brain” behind the Indiatimes instant messaging success. The company has now realised this and plans to get more aggressive on the brand-building front. Also there are lots of key appointments last Qtr for marketing its products.

Disclaimer

Author is a software technical consultant based out of Hyderabad. At the time of writing this article he and his family members do have investments in the stock mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation.

posted by Sajith @ 9:07 PM