OnMobile Global Limited (ONMOBILE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the OnMobile Global Limited Q3 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagtap from E&Y. Thank you, and over to you, sir.

Thank you, Seema. Good day, and welcome to the Q3 FY '24 Earnings Call of OnMobile Global Limited. Representing the management today, we have FC, Executive Chairman; Sanjay Baweja, Managing Director and Global CEO; Radhika Venugopal, Vice President, Finance; Biswajit Nandi, Senior VP Global Sales. The call will start with a brief update about the overall performance during the quarter by Sanjay Baweja. Radhika will update you on financials, which will be then followed by FC, speaking on overall business activity and sharing his thoughts on future plans. Then we will move to the Q&A session. 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 that we see. For a list of such considerations, please refer to the earnings presentation. OnMobile Global undertakes no obligation to publicly revise any forward-looking statement to reflect future or likely events or circumstances. Having said that, I now hand over the call to Mr. Sanjay. Over to you, sir.

Thank you, Pratik. Thank you all for taking time to join us today. A very, very happy and prosperous New Year to everyone. The results and presentation -- our presentation is already posted on our website, and hopefully, all of you who had a chance to look at them. As always, I'll give you a brief update on our products and business and then Radhika will take you through all the highlights of our financial performance. Let me start by acknowledging that it was a bad quarter for us. We saw a full impact of Vi and also this quarter, we were unable to reoccur some of the one-off [indiscernible] that we were able to get in Q2 with some customers to positively impact our revenue and profitability. Having said that, we are slated for growth from now on in terms of revenue, especially for Gaming every successive quarter will be better than its preceding quarter. Let me now update you specifically on Mobile Gaming segment. During this quarter, overall Gaming saw a slight uptick in revenue. The revenue generation pace has slowed down during last quarter because of the Vi impact. We are focused on regaining our earlier growth momentum. At the end of the quarter, cumulatively, 89 customers are live as against 75 customers in Q2 FY '24, reflecting an increase of about 19%. Further, in Q3 FY '24, 12 new customers agreed to our terms for overall Gaming segment, taking our cumulative agreements to 129. Needless to say, we continue our discussion with potential customers around the globe. In terms of usage and actual consumers, the cumulative gross paying subscribers at the end of current quarter stood at 33.2 million as compared to 29.29 million at the end of September 2023, a growth of 13%. We are targeting to reach close to 38 million subscribers in Q4 FY '24. Overall, the mobile Gaming segment's net active base saw steady growth from 4.91 million in Q2 FY '24 to 5.34 million at the end of Q3 FY '24. This shows an increase of more than 400,000 in a quarter. We are targeting to reach 6.2 million subscribers at the end of Q4 '24. As highlighted in prior earnings calls, we are in the phase of investment, channeling funds into the growth by allocating a disproportionately large budget to marketing, especially in new regions for operators, which we are continually launching with. We anticipate that Mobile Gaming will produce an EBITDA exceeding 20% once it is stable. And as you are aware, that will significantly enhance our profitability in the subsequent quarters. Talking about mobile entertainment, mainly Video and Tones. Video had a decent growth of 9% year-on-year for the 9 months, despite a decline of 7.5% on a quarter-on-quarter basis. Tones on the other had a major impact due to Vi and the full impact of that is there in this quarter, leading to a decline on both quarter-on-quarter and year-on-year. We anticipated a much better H2 FY '24, but due to Vi's impact and delayed launches, we've had a sizable impact on top-line profitability in Q3, but it's our continuous endeavor to achieve better revenue with better profitability in the coming quarters. Now a word on cash. The cash balance is down from INR 87 crores to INR 58 crores as of end of December, mainly due to our investments in the R&D development in mobile gaming. Further, we had a large advanced collection from one of our customers by the end of September Q2, and therefore, balance is comparatively depleted in Q3. If we were to compare Q1 end versus Q2, we'll have a comparative figure -- versus Q3, you'll have comparatives figures. At this point, I would like to extend our gratitude to our outgoing CFO, Mr. Asheesh Chatterjee. His contributions have left an indelible mark on OnMobile Global. We wish him the very best in his future endeavors. At the same time, congratulations to Radhika on getting appointed as the new CFO Executive from 1st of April 2024. She's been associated with OnMobile for more than a decade and has been a part of the growth and transformational phases. All the very best for your journey, Radhika. With this, I would like to hand over the call to Radhika to talk more about the financial performance. Thank you.

Thank you, Sanjay. A warm welcome, and thank you everyone for joining this call. Wish you a very happy and prosperous New Year. I will now share the key highlights of our financial performance for the third quarter and 9 months ended 31st December 2023. Regarding 9 months FY '24 performance, we reported a revenue of INR 398 crores, a decline of 4% on a Y-o-Y basis, while our Gaming revenues, which contributes to 15% of our revenues, have grown by 38.8%. Gross profit margin also improved by 89 basis points to 53.2% on a Y-o-Y basis. Manpower costs reduced by 19.9%, as we continue to drive efficiency and productivity across our business lines. Marketing costs on the other hand grew by 20.1% on a Y-o-Y basis, mainly due to increased spending on gaming products. Our cost optimization measures have resulted in improved EBITDA this year till date, where our EBITDA stood at INR 24.8 crores, which is more than 2x on a Y-o-Y basis. EBITDA margin for 9 months stood at 6.4% as compared to 2.7% last year. Our YTD PAT increased by 80.7% on a Y-o-Y basis to INR 16 crores with a margin of 4.1%, and our EPS is higher at INR 1.5 versus INR 0.8 as compared to last year. Now coming to the quarterly performance, we reported a revenue of INR 122 crores, which is down 10.3% on a quarter-on-quarter basis. This is because in quarter 2, we had certain one-offs and reconciliation adjustments with customers, which we recognized in the last quarter, which is absent in the current quarter. Now international revenues constitutes 92% of our total revenues. Gross margin declined by 443 basis points to 49.4% on a Y-o-Y basis, mainly due to the change in revenue mix. On the cost front, manpower cost as well as OpEx reduced by 19.2% and 23.7% on Y-o-Y respectively. EBITDA for the quarter -- for this quarter 3 stood at INR 0.1 crores, which is significantly down on sequential as well as Y-o-Y basis. This is mainly due to the impact of Voda-Idea. We are hopeful of recovering from this impact in the coming quarters and getting back to our growth momentum. We reported a net loss of INR 2.4 crores of PAT as compared to a PAT of INR 4.1 crores in the previous year same quarter. Overall, our DSO remains around 100 days in Q3. In terms of geography, LATAM leads the highest revenue growth. LATAM leads in revenue growth, which is the highest amongst all other geographies. And during the quarter, we also incurred R&D cost amounting to INR 15 crores as we continued our foray into the gaming space. With this, I will now hand over to FC.

Thank you, Radhika. Thank you all for joining the call. Let me just start by congratulating Radhika for becoming our new CFO. For all of you on the call, as you know Radhika joined us right after the IPO a couple of months after in 2008. She knows the organization inside out, and I'm proud to say that's really internal growth program that we have somebody that's really grown within OnMobile to become a key executive of the company. So congrats Radhika, and I'm sure you'll do a fantastic job. So thank you. Now the results. I'll be very honest with everybody. I do not accept these results. I find this unacceptable. They don't represent at all our plan and the potential of the plan and what the team can do. So that gives you my state of mind right now. As we mentioned before and as all of you know, we're crossing over 100 operators that we're putting into operation now. Crossing over operators, you don't operate 100 operators the same way we would operate with like last year, 20 operators. The priority of the team is really to put in place all the tools necessary so that we have optimal operation within each geographies and each operator so that we maximize the impact of marketing and that we get optimal revenue generation for each deployment. So as we grow and we continue to add operators, it's very key that we do get optimal operation for each of them also. So I'm going to stop here, you -- I think it's pretty clear to me that these results do not reflect what we can do. And to this, I'm going to open up to the floor for questions.

[Operator Instructions] We take the first question from the line of [ Darshil Jhaveri ] from Crown Capital.

Yes. Sir, just, first, wanted to just -- or maybe to understand a bit better what was the one-offs and what was the reconsiderations that impacted us? I think you mentioned it was around -- impacted us around INR 20 crores, I think, in the press release. So then could you just clarify what happened? And also just wanted to get a brief feeling that how -- what do we see going forward because we were expecting a very better H2. So now how are we recalibrating and what is -- what is in our sight for FY '25, something on those lines for the outlook?

So thank you for the question, [ Darshil ]. Clearly, first half -- first of all, the INR 20 crores is the one-off -- is not a one-off, INR 20 crores is the impact -- INR 18 crores to INR 20 crores is the impact of Vi on a quarterly basis that is there, that's what we declared in the last quarter itself and also, which has impacted completely this quarter. What we managed to do was -- there is some revenue opportunities that keep coming, when you start an operation in a particular geography or we get some one-off possibilities to happen. There are reconciliations where data sometimes from the operators comes late. So those were the ones, which we did recognize because last time was the first time that we got the impact of Vi, so in our clamour for making sure that we do our best, we were able to get those data sheets from the customers, and we were able to reconcile with them and we've got the credits as we went along. So that impact is about INR 3 crores in 1 case and another INR 3 crores. So that's not a INR 20 crore impact. And therefore, we went down. If you notice, in video and tones, et cetera, we've gone down, but not necessarily in the gaming. So in the gaming business, we've been stable. We did not grow. And that, therefore, we were not able to cover up the deficit that we got from Vi and also some part and tones because if you see, while the INR 18 crores impact should have been there last quarter itself in Q2, our Q2 revenue was not down by INR 18 crores. Our Q2 revenue was just about at the same level as Q1, maybe about INR 1 or INR 2 crores less. But this quarter saw the full impact of Vi going down because also part of the quarter, Vi was there in Q2. So that's where this is now has the full impact of Vi and now on that, therefore, becomes the base, and we will continue to grow, as I said, and also Radhika mentioned, this is clearly -- from here on, we will continue our growth, specifically in our gaming products. We've done 38% year-on-year, we believe we will show you good growth as we go along.

Okay. So just maybe if I can understand maybe, gaming currently maybe is around 15% of our revenue as the -- because of Vi around -- we lost around 15% of our terms, which is maybe not coming back right now. So even if gaming is going to grow by 38%, it's going to take time to cover it up. So what kind of future do we foresee right now, currently like say around INR 110 crores, INR 120 crores or could we just quantify maybe what FY '25 revenues and margins could look like?

So the Vi impact was on all the fronts. So Vi impact was there on gaming, both our products and on Tones. So Vi had an impact across the board because Vi was a major customer. Like you said, rightly, it was about close to 15% of our overall revenue. Having said that, now, we will very clearly recover the entire Vi impact on the gaming very, very quickly within this quarter or 2, but the other Tones business, we have to recover from elsewhere, and that's what our aim is. We were -- and we told you earlier, we are looking at launches in LATAM, which is taking some time. But hopefully, sometime in the next quarter, you'll see that launch happening and revenue will start coming in into Tones business also. So we see opportunity of growth coming in from LATAM as a geography, and there are many countries there, 11 or 12 countries where we have contracted already. We see that happening for all our products, whether it's Tones, whether it's both the gaming products also. So I mean, I can't put a number to the scale at which we'll grow. But definitely, the thought is and the target is to grow quarter-after-quarter, every quarter from here on.

So you would be maybe seeing that this is the bottomed -- we've bottomed out in this quarter. So just like, if I wanted to know -- if I wanted to maybe put it in a different way, maybe another quarter or 2, we will get back to what we were and then start our growth journey again. So with the gaming 25% EBITDA, that would stabilize when? Would that happen in FY '25? Will we see that or it might take more time? This were 2 things I would want to clarify.

Yes. So actually, gaming has 2 products, as you all are aware, one is CA, which we launched more than a couple of years ago, and one is on ONMO, which is launched in one year. So we will be stabilizing CA much earlier, like it is a lead of here at least on ONMO. So we will get to stabilization for CA within this year in terms of the profitability, and it will continue to grow. I think ONMO will take slightly more time, maybe 3 quarters or 4 quarters extra after CA stabilizes. The real stabilization of both the products, we should look at the next financial year following the '23 -- '24-'25.

Okay, okay. That helps me a lot. So just -- like just wanted to summarize everything, maybe we've bottomed out right now and might take a 1, 2 quarters to stabilize and then we'll be back on track, is that a fair way to look at it?

Yes, that's a fair assessment, yes.

The next question is from the line of Nishid Shah from Ambika Fincap Consultants.

This is Dhruv Shah, here. Sir, my first question is on your cash balance. Two quarters back, you said that we have bottomed out as far as the cash balance is concerned. And again, this quarter, you guys have used up INR 15 crores. Can you just say when our cash position is going to bottom out and when can we see cash generation?

So cash generation 2 quarters ago, we were in Q1. And at that time, we were doing really well. And then we had the episode from Vi, which really has impacted us across the line, whether it's profitability, whether it's revenue. So clearly, the moment profitability suffered, the cash suffered. But having said that, we believe that over the next 2 quarters is the stabilizing period like as we just mentioned. And post that, we should see growth happening. We are trying to make sure that we generate cash. But as of now, you're right, we are using cash, I think, for the next 2 quarters is when we will use some amount of cash. We will be close to not using a lot of cash, but yes, we will be using some amount of cash.

Okay. Sanjay, if I recollect when I was -- even there was a conversation with Asheesh, LATAM deal was supposed to start in Q2 start. This has been delayed to this quarter, and now you are saying it has been delayed to another quarter, why there's been so much delay in the LATAM deal?

So I think a lot of it is also dependent on how the customer goes out. Because please remember, Tones' customer -- and we have a big customer who has 11 to 12 geographies there. This will be a process of migration from an existing operator to us. And all of that is taking slightly more time. In fact, they were keen to announce it, and therefore, we were -- we announced it at the time when we signed the deal. So it's a matter in progress. It has taken us more time than we expected. Clearly, our expectation was that we would launch it as quickly as we could. But yes, it's taken more time, but it's more to do with the way they are setting up themselves for the migration.

Right. And I have 2 more questions. One is on Vi. Will it be fair to understand our Vi revenues would have been around INR 80 crores with 60% to 70% kind of gross margins?

INR 80 crores, yes. Gross margin, let's not talk about, but yes, INR 80 crores is a correct number.

Because we have taken a hit on the gross margins also this quarter. So definitely, it would be better than our company margins, right now, right?

Gross margin impact is also based on the mix change which happens consequent. Consequent to the Gaming part going down back, the gross margin will get impacted because the normal business, if you recollect, we had -- we used to have a gross margin was 48%, 49%. It's because of gaming that it went up. Now, since gaming -- since the percentage is changed, so the mix changed. But this is just a very temporary thing. As the gaming continues to grow, we will see gross margin improving again. It's a mix issue, nothing more than that. And we are at 52, 53. We will see it changing again positively as we go on increasing the size of gaming in our total portfolio.

In this INR 80 crores, how much would be the gaming part, if you can just quantify that?

Just -- we'll give you a sense of how much is gaming...

Actually, this is just out of the blue question because recently, Netflix also started gaming, and they have seen very good traction in gaming. And I understand that in CA, you don't see any competition from Netflix, but definitely in ONMO because your crowd as such would be one of the same because you were looking at an ARPU, which is as much as a Netflix ARPU. So you don't see any competition coming because they are growing very fast as far as the users are concerned even before your launch technically in U.S. and Europe.

So we've not noticed any competition, and I'll let Nandi also address this part from Netflix per se.

Sorry, on your question on what percentage was gaming in Voda? It was 45%.

No, in the markets that we operate in Asia, Africa, LATAM, Middle East and Europe, we don't see competition from Netflix on gaming, primarily because we do the B2B2C model, right? Where the telco -- we partner with the telco to distribute the gaming products. So it's a very kind of a closed group to only distribute. In that group, we don't see competition from Netflix gaming per se.

But if I can just come across the geographies you said right now is for -- primarily for CA, right? As far as when you go for ONMO, it will be more developed markets, right?

No. In this markets also, there are markets, which are very developed, right? When we speak of Africa, let's say, South Africa is very developed completely covered 80% on 5G. So ONMO is pretty popular in that market or let's say, Kenya, which is also 5G market, ONMO is also pretty popular. So in this geographies also there are markets, which are pretty advanced covered with 5G., that's where we kind of position ONMO and in the rest of the markets, which are developing now, it's CA and when those market evolve to be a developed market, we go with ONMO, that has been the strategy for CA and ONMO.

Okay. So right now, we are not seeing any competition, but going forward, we'll have to see how it goes?

Yes, absolutely. We'll keep an eye on it. And since Netflix also does a lot of partnerships with the telcos, so we will also kind of get to know from the telco or telco partner as well, if we see that kind of a competition coming up.

The next question is from the line of [ Darshil Jhaveri ] from Crown Capital.

Sir, just one question I wanted to ask like right now because -- do you see any more unforeseen risks that can hamper us like just wanted to pick your brain about that?

So while -- I mean, the unforeseen -- I mean unknown unknowns are obviously we can't foresee, but otherwise generally risks -- from a competition perspective, there's not much risk that we see. I mean we -- and we usually have some currency fluctuations here or there, which is a normal quarter-on-quarter process. Other than that, there's not much overall risk or a very, very large risk that we see.

Okay. And just also wondered, sir, our LATAM partnership like because it's going to be 11 to 12 geographies, how much potential revenue we see that it could come at? And would we start -- from FY '25, can we start LATAM?

Sorry, can you just repeat the last part of your question, do we start?

No, I was just asking that LATAM, how much of it like because you're going to go in 11 to 12 geographies, so what kind of revenue potential does that hold for us? And will it start by Q1 FY '25?

So LATAM for CA has already started in a ways -- in a small way. But yes, the potential is huge for CA, ONMO and Tones. All 3 products, we will have -- we have large potential. We have many, many customers there. While we said 12 several geographies, but it would be in multiple customers that we may have in the same geography. So it's not fine for me to give specific numbers, whether it's for LATAM, but the potential is large, and we really see good potential happening in LATAM. And we will see -- quarter-after-quarter, we'll see growth happening from revenue as far as LATAM is concerned.

Yes. So full fledge operations of LATAM can come in FY '25, right? So that's because out of all the details, we think that by FY '25 optimistically, we'll be able to do it, right?

Yes. So we are already live in a few markets, which are first gaming product, which is Challenges Arena. Now we have gone live with 1 market is ONMO, and we'll go with -- in further market with Challenges Arena in ONMO. Tones is the one which we are now in the kind of 70% done with the deployment of the project and continuos. So that will go live towards the end of Q1. Eventually, in Q2 is when the full fledged LATAM operations, multi-country, multi-customer, multi-product will be live. And that will be the kind of the full-fledged operations from Q2 onwards.

[Operator Instructions] We take the next question from the line of [ Divyang Upadhyay ], an individual investor.

Congrats, [indiscernible] and Radhikaji. So a bit of my question has already been answered, but I wanted to understand the competitive landscape and your views around how ONMO plans to play? Because a couple of calls back FC had mentioned that ONMO is kind of an [indiscernible] for games. And as the previous caller mentioned that Netflix has entered this space, plus there are players like Xbox, who can enter fairly easily. So it kind of of seems to me that every app [indiscernible] base is the same. So my question is how do you perceive these threats? And what is our user acquisition, and more importantly, what is our retention period?

So first thing first. In gaming, we're in the business of mobile gaming, right? So we don't compete with, let's say, a Xbox or GeForce Now because [Indiscernible] in gaming. That's the first thing. Second thing is, we are not direct to consumer. We are B2B2C, right? So we have a telco with whom we partner and together, we are taking these products to the consumer. So now in mobile gaming, yes, we have certain competitions coming from across the globe, like for example, in case of ONMO, we have a competition Blacknut, which is a French company. So we constantly kind of monitor what the competition is doing and build more unique propositions into our product, which will make the product very distinct and exciting for our telco partners and exciting for their users to kind of come, use, register, use subscriber it, pay for the product, right? That's the continuous process that we're following, which is working well for us, and that's why you see the number of sign-ups or the number of live customers that we are going with keeps on increasing quarter-on-quarter, and that's a continuous effort, right, of monitoring competition globally.

Okay. Got it. But sir, if -- like the channel might be different, it might be due to B2B2C, but at the end of the day it is still the consumer. And at the end of it, there is even competition there, right? I mean the channel might be different, right? Like there is still -- there are B2C products in the market which are [indiscernible]?

Absolutely at some point in time, we also need to compare ourselves with the direct-to-consumer gaming propositions that are there. And the same process applies that how do we build a more unique propositions and experiences in our product, which the user won't find in the direct-to-consumer product that they can kind of use. That -- again, that's the process that we do follow. And we're pretty kind of strong at that. And in our gaming products, we have been able to build pretty unique experiences across ONMO and Challenges Arena.

The next question is from the line of [ Alkase Jain ], an individual investor.

Yes. The things that I would like to ask you on this onetime billing, which is the revenue impact is because of Vi. It is only because of Vi or there is some other clients also, where we have done some one-time billing? And the other thing I would like to ask that since this quarter, we are hit because of the Vi revenue impact. But we are consistently for last 3, 4 quarters, we've been not growing on revenue side. What is the take of the management on that?

So I'll take the first part of the question. Vi impact and one-time billing impact both are separate. So Vi we have a full quarter impact of INR 20 crores. We have some revenues coming from Vi. The deduction in revenues because of Vi is INR 20 crores. That apart, last quarter, we had some one-offs, which is one-offs and reconciliation adjustments. So we had some data reconciliation pending with some of the telecom operators, wherein there was a difference in data between what we had and what they had. The reconciliation was completed in the last quarter and we recognized the differential revenues. So that is the extra revenues, which we got in the last quarter. But full-time impact of the -- full quarter impact of Vi '24, which is separate from this.

What was the other -- impact of the other data discrepancy...

It's not a discrepancy, it is a difference. So what happens every month is that, we reconcile the data with telecom operators, OnMobile versus telecom operators. And this reconciliation had some differences, which were pending to be adjusted and closed.

What was that amount, would you give some color on that?

Sorry?

What was that amount?

That amount was around INR 4 crores. INR 4 crores was that amount. On top of this, we also had some license and platform opportunities -- license fee and platform opportunities in Middle East and Europe, which we recognized.

So this data difference will be recurring again or it is just one time?

No, it will not be recurring again. This is a one-off instance. It may happen once in a year, but reconciliations are done quite fast within a quarter. So that did not recur again.

And the other thing, my other question was about the stagnation of the revenue for the company for the last 3, 4 quarters. Now since we have the Vi impact, so this quarter was really bad, when do you think that we can get back to the...

So let me say that, while the exact numbers, we can't say, but clearly, our endeavor and what we believe will happen now onwards from quarter-after-quarter is we'll see growth. We'll see growth happening. And most of this growth will come from our gaming products. So we've seen growth in gaming. If you -- even if you look at this year, we've had about 38% growth. But we believe that growth in gaming will get us growth across the board, and we will see a total growth happening quarter-after-quarter from now onwards. That's our belief, that's our target.

And the other thing is that why is there so much of ESOP selling? That doesn't give us confidence to the customer -- to the investor in the company. That can be a personal [indiscernible] anybody, but that actually...

Yes, I mean, you're right, there has been selling. But please remember, these people have got shares, which is like 5, 7, 8 years ago, 9 years ago. And -- I mean everybody manages their cash flow in a certain manner. And they thought that when somebody needs cash, then we don't really say no to it. Because technically, we can't say no to anybody to sell. So I think it's every individual's need for cash. And it just so happened that it got -- 2, 3 people got bunched in a particular quarter. Otherwise, it's not that...

That doesn't give a good confidence among the investor, to be very frank to you.

But there are people who continue to hold. People like me, who continue to hold and given a chance, we'll hold more and more shares. So don't worry about that. We have faith, and we believe that we can take this company to a different level altogether.

And the other thing is that I've been attending the con-call for the last 3, 4 years. The thing is that we are promising a lots of things, but I don't know, somehow where are we missing that we are not able to scale up?

So yes, you're right, we were progressing well in this year, if you were to look at our Q1. And then Q2 onward, we could have really gone up in revenue. But suddenly, we had -- if you were to add to our numbers, let's say, INR 20 crores or INR 18 crores or INR 15 crores even for a quarter, you can see where we would have been, and we would have gone much ahead. But these things happen, and I'm not trying to justify it. But we believe that now we are at this level that from here on we will focus on growth and we'll -- so I don't want to therefore give -- have tall claims and say, "You know what, we'll see every quarter-after-quarter huge, huge growth," but we will see growth is what I am saying.

The next question is from the line of [ Chetan Dhruva ], an individual investor.

Sir, I had one question on gaming. Looking at the revenue split you've given on Slide 15. And so you take the percentage given for gaming, then Q3 FY '24 would come to approximately INR 18.3 crores. Q2 would be INR 17.7 crores, and Q3 FY '23 would be INR 20.5 crores. So even gaming, it doesn't seem to be growing fast in terms of revenues. Am I reading something wrong here or is there an issue at least on the gaming side in terms of revenue recognition?

So no, you're not reading anything wrong. I think you've made a correct assessment. Yes, we've had -- this quarter itself was not -- like I said from very beginning and FC also said, this has not been the greatest of quarters. We've had multiple challenges. Vi was one of them. And then we had stunted growth, if I may call it, but very, very temporary, which happened for at least 2 months out of the last quarter. We've seen it jump back in December and that trend is continuing in January and February. So yes, we had a slight challenge in October-November, which is past us. We don't see that repeating again. And we believe that going forward, you will see a different level of growth against what you've seen in Q3.

Okay. So what kind of -- I mean if I may ask, what was the kind of issue that was impacting? Was the internal one? Was it external demand side issue?

No, no, it was nothing to do with the market forces. It was more a technical issue that we had with some of the large customers that we had where changes -- that update that keep happening from a technology angle had given us some disruption. So...

So it was transitory and it's done and dusted.

Very transitory, absolutely transitory.

The next question is from the line of Mr. [ Balaji ], an individual investor.

So sir, I heard that even though Netflix is not a direct competitor, we may have a small competition based on direct -- like even though the final consumers -- like the final consumer is a user of the games, so in a small part, there will be a competitor. But I want to know, if another online streaming content platform like Amazon or Disney decides to partner with someone like you, who have some 100 telcos partnership, how will it -- is there competition against like Netflix or something? Like for them to start from scratch and to partner with you, what will be the difference in the scale?

You know what, if a partner -- an OTT player like that wants to partner with us, obviously, they have their own go-to-market strategies, but we will bring them absolute complete quick access across the globe. And I think that's the biggest difference that we'll make to that partnership. Yes, I'm sure at some point in time, we will look at that. But as of now, there is nothing that we can talk about. But yes, if an OTT player want to come and partner with us, it could be a different dimension to what we can do with the operators across the globe.

We take the next question from the line of Nishid Shah from Ambika Fincap Consultants.

I just had 1 follow-up, Sanjay. How do we see the marketing cost going ahead? Because as we scale up the gaming, you had mentioned that the marketing expenditure will also increase. So how do we see that?

So the way -- from a process perspective, when we initially launch in any geography, the marketing cost is higher. And then as we settle that geography, it kind of continuously come down. So on an overall basis, since this part of the business will continue to grow, you will see an overall increase in the marketing in absolute. But as a percentage of gaming, our endeavor will be that as the base continues to increase, percentage of -- the marketing cost as a percentage of revenue will continue to come down. And that's where our profitability will stabilize. And that's why we keep saying that we will go up to a level of 25%, et cetera, when we are at the mature stage. So the mature stage is when we have a large enough base, and we -- even if a few new customers joining in a particular geography, in a particular year or in a particular quarter, it would not impact my overall percentages. It may impact a little bit some basis point. But on the overall trend, we will continue to optimize this on an ongoing basis. And when we stabilize it, it will be at a much lower level, so which will lead to a high -- very high [indiscernible] because if we look at the gross margin level, the gross margin for gaming is around 90%. And even if you were to spend, let's say, 30%, 40%, 50% on marketing, we will have a huge net EBITDA at those levels.

So, if we are saying that the gaming revenues from nearshore will go up, so technically, we should see this gross margin has bottomed out and also the EBIT front?

That's correct.

Will that be a fair understanding, right, from you?

Yes, that would be the correct understanding. Yes. As the mix changes in favor of gaming, the gross margin will go -- and that's what we saw, right? Still if you were to leave out Q3 and look at till Q2, for example, you'll see our gross margin had gone to 46%, 47% level. It has gone back up to 54%, 55%, then it's come down because suddenly, we had that upheaval. But now again, it will start creeping back up as the amount of gaming products increases. So it -- so our operating leverage, like we say, is operating leverage for gaming is very, very high. And therefore, as we grow in gaming, we will see our profitability at the end growing.

[Operator Instructions] We take the next question from the line of [ Ashish Mehta ], an individual investor.

I would like to ask about mobile gaming revenue. So is it -- I mean, we were earlier targeting 30%, 40%, 50% growth on mobile gaming revenue quarter-on-quarter or maybe half yearly. Now since the last 2 quarters, since we see a pretty flattish growth, is it fair to assume that the growth levels from here on would be lower than what you were projecting earlier? That is my first question.

So if you look at the YTD growth, they're at about 38%. So this quarter, like I've said, is an aberration, but we believe that we will continue to grow. I don't want to give future numbers, but we will see definitely much better growth than what we've seen this quarter. This quarter is an aberration. It's very transitory like we said, and we expect much better growth in gaming here on back to the norm that we have or very close to that.

Is it fair to assume you will still grow by around, say, around 40% that you've grown in 9 months over FY '23 in the same fashion henceforth?

So like I said, I would not want to give numbers, but there is...

Yes, I mean, a ballpark, likewise, I mean, maybe a similar range. I mean I understand the delta you're in that, but at least not a re-revision of the growth that we're expecting, correct?

No. So clearly, this quarter -- ignore this quarter and then all others will probably be in those levels, yes.

Okay. And just 1 more question. Out of the marketing costs that we have, how much is spent towards mobile gaming revenue, if you can point that out to me?

Actually, I think about 85% is mobile gaming. So most of our focus is mobile gaming, while mobile entertainment has some amount of marketing, but much lower. So most of our spend is towards mobile gaming.

Okay. I think you're pointing out as marketing cost to be around 30%, 35% of mobile gaming revenue on a maturity level. So I would assume that mobile gaming revenue would have to grow much, much more for marketing cost to be around 30%, 35% of the mobile gaming revenue, correct?

So I think -- yes, I mean I think a little different than what we are saying. What we're saying is the percentage revenue -- of revenue that the marketing cost is continuously comes down. So while you are looking at it in absolute and saying, therefore, it has to grow much higher. You're right, it will grow higher, there's no doubt in our mind of that. But to your example, every -- for example, when we let go of -- or when Vi went away, they had reached a mature state, to be honest. And therefore, the profitability impact was what it was. But as -- and because they were our oldest customer, so while we go ahead and go customers -- because each geography, each operator is a different market altogether. And therefore, they have a life of its own in terms of the marketing -- marketing cost trend. So to make a generic, this thing will -- may not be correct, but geography by geography, we will trend downward. We start high and then we trend downwards and at the mature state, it will be between 40% and 50% is what we would say.

Okay. Got it, got it. Just one thing, if I can ask about -- someone pointed about Netflix starting gaming for B2C. Is there any chance possible that Netflix can also do B2B easily and probably be a competitor, or primarily, they would be B2C only?

So if you look at it, even on the Netflix Core OTT video platform, they have not done anything on B2B, right? They have been, I mean, pretty much B2C. So we -- I mean at that scale and what Netflix operate, we don't think even on gaming they will come on a B2B model, and we follow the current model that they have, which is purely direct-to-consumer.

Correct. I'm just assuming maybe for an operator to go to Netflix and I mean, do a tie-up, wouldn't be that difficult, right, if they really want to?

[indiscernible] the partnerships keep on happening, right? So if you look at India, for example, and if you're on any of the network, you'll see some of the plans, they offer Netflix in your plan for free, for a period of, let's say, 3 months or 6 months, right? That's very partnership-driven. That's not an offering that a telco promotes. Whereas, when they do product through someone like OnMobile, they actually take their product at their own white label product to the consumer, right? So that's a very different go-to-market approach.

The next question is from the line of [ Anupam Jain ], an individual investor.

One question that I wanted to ask was there are 89 customers that you have onboarded live. How many have you -- in percentage terms if you can quantify, how many have you cross-selled or upselled anything apart from gaming, your ring tone, [indiscernible] infotainment, anything apart from that? That was our focus some time back.

See, on the cross-selling side, gaming like we have 2 products, right? Challenges Arena and ONMO...

No, no, not in gaming, in ring tones, in videos, in contest?

Yes. So outside gaming, we keep on exploring opportunity for cross-selling let's say video or RBT platform. And that's why we have been successful in Latin America, as an example, where we actually started off with Challenges Arena. And then the same customer base, we started discussing RBT, and we have been successful and now in a deployment stage. So that evaluation we keep on continuously doing.

And what will be that number? What will be that customer's number or percentage number, if you can give that?

Not kind of right to give the percentage that has been to cross-sell, but I'll give you an example of customer in Latin America, where we have cross-sold, let's say, RBT for 13 markets, right? That's a good example for cross-selling abilities and opportunities.

Okay. Any revenue percentage that you can quantify that would have come from this?

That I think we should be able to do post we go-live, which would be, like I said, end of -- towards the end of Q1.

Okay, okay. And secondly, are you exploring any other telco in India for gaming or any other telcos for ring tones and something like that as Vi has gone?

Yes, we are in conversation with telcos in India. Very early stage to make any comment there, but we are in conversations.

Any time line for something like that to happen to fructify that?

It's unfair for us to say anything like this because unless we sign something, we can't talk about it. And see, these talks happened across the globe and specifically in India at all times. As and when we get to coming out with it, we will let all of you know. So as of now, we can't comment on time lines and things like that. But yes, we continuously discuss tie-ups with all the operators.

Okay. And one more question that I had was, you were looking for strategic investors a year before. Is there any tangible effect, or have you dropped that like that has gone in the backsight?

So initially, that strategic investor was more from -- when we went as a product strategy for ONMO, we'd wanting to go direct-to-consumer, that has taken a back stage as of now. So direct-to-consumer, we thought we will consolidate our position in B2B2C and then at some stage, we will go for in the B2C. So as of now, that's not something that we are looking for because our product strategy itself has kind of pivoted in that sense. So we're waiting for us to consolidate our position in the B2B2C and then we will look at the B2C, and [indiscernible] strategic investor with us.

The next question is from the line of [ Chetan Dhruva ], an individual investor.

This is [ Chetan ], once again. So I had one more question on gaming, sir. This is related to the vision you had outlined around a year back or so where you had said that in, say, 3 years' time, yes, 3 to 4 years' time, you're looking at Challenges Arena and ONMO each of them getting to the size of the current business at that time, which was the traditional business you had, right? Is that still something that you're targeting from an overall growth standpoint?

So we believe there is a potential for it to grow rapidly. From a time line perspective, we won't put a finger on it. But I think that opportunity still exists. We continuously -- it's our continuous endeavor to focus and get to higher levels. Yes, we continue to target the higher numbers what we had talked about earlier. But it takes time in all these things.

Okay. I understand, understand. So in terms of growth as well, this time, I think you've grown 38% Y-o-Y, right, in gaming. And this is in spite of all the challenges that you had. You said 2 months of standard growth out of 3 and so on. So is it right -- would I be right in assessing that if not for this issue that you had, you would probably be growing at a much faster Y-o-Y growth rate?

Yes. So this 38% is for the full 9 months, but yes, we wish to grow rapidly, but I would not put number to that and I'll not say, "Oh, you know, we're going to do better," or whatever, we will grow. Our gaming business will continue to grow. And I think it's best that we wait for another couple of months before we say, "You know what, this is what we've done for this quarter," and that's what will be the reality rather than we're putting numbers here and then trying to match them with what the actuals will be like.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you all for joining this call. Happy to turn the page on this quarter, and I really look forward to next quarter call, which should be first week of February -- May. So second -- it's planned for the second week of May right now. So it's going to be mid May. So thank you all, and talk to you in mid May.

Thank you.

Thank you. On behalf of OnMobile Global Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.