Geodesic Ltd, Prepare for the next revolution!

Introduction

It is very difficult to analyze a highly innovative company which operates in a highly competitive, fast changing and highly unpredictable business environment. The risk and reward are very high in such a scenario. You could argue that we should be avoiding such companies. However even that could be difficult when the company in question is making all the right moves and has a very innovative, progressive, efficient and shareholder friendly leadership.

The company in question here is Geodesic Ltd a Mumbai based software product and Solutions Company focused on the convergence of media, mobile, and entertainment. The reason why it is difficult to predict what will happen in this field is because of the rapid change in technology and business priorities of the future. The convergence that I mentioned above will be effectively used mostly by new age companies and business whose revenue models are changing very fast.

But what makes the company promising is the fact that so far the company has done very well in managing this innovation led growth and also seems to have the right kind of products which could catapult it to the next level. In all these years the company has done huge investments in making not the right kind of products but to make the right kind of technology stacks using which it could make the right products / offerings which is relevant to the current and future business environments with very little effort.

Business Model

Very important to understand the business model that Geodesic is betting on.
It is basically a bet on the convergence of internet, media, mobile and entertainment and the resulting opportunities that emerges from that structural shift.

Confused? Let me make it simple for you. In any market at some point of time a structural shift will happen and this will bring a set of new players which will grow in size than the existing players.

Let us take an example of the entertainment sector in India. In early 80’s the radio was a very powerful and popular medium of entertainment in India and “All India Radio” was the undisputed leader in it. Then came a fundamental shift in the entertainment pattern and “Doordarshan” with its regional and national channels completely overshadowed the Radio.

Everything was going well for Doordarshan and then came again a fundamental shift in the viewership pattern of people of India. Indian viewers got attracted to emotional flicks, soap and films. And more importantly Indian market saw the emergence of niche audience looking for specialized content. Doordarshan virtually saw the emergence of a huge mountain in front of it created by a host of private players catering to niche audience. Even though AIR and then Doordarshan had the first mover advantage and had a significant market share at some point of time they were not able to respond to the structural shift in the landscape which paved way for an entire set of new players. It is difficult for an existing player to come down from where they are and climb the new mountain to adapt themselves to the changing scenario due to a variety of reasons. The first reason is that their belief in their business model is so strong that they will not believe the new shift which is happening in front of their eyes and the second reason is even if they want to change it is not possible because of their huge size at that point of time.

Now what you think the face of entertainment will change again? Sure they will at some point of time and new players with new content delivery model will garner the market share. You will see traces of that in YouTube model as an example.

Now why am I telling this entire story to you? Geodesic story is that of one such fundamental shift. The shift that is sure to take place which will decide how two people will communicate with each other. The natural progression from wired communication to wireless communication has already happened. Next possibly could be using Voice over IP (or VoIP) over mobile phone.

Now this does not mean that every VoIP company is going to benefit from this structural shift. You need lot of innovation to see the future and a technology which makes the communication easier, cheaper and effective. Now this is exactly what I meant when I mentioned about the convergence of internet, media, mobile and entertainment.

Now before going in to the specifics of this convergence it is important to understand the short, medium and long term revenue models of Geodesic. This is very important as the company may have a long term strategy and business model but without the short term and medium term revenue model this is not going to work.

Short, Medium and Long term revenue models

Refer the figure given below. This will give a fair idea of what can happen over a period of time. Remember this is purely from my perspective as no one can accurately predict what will happen in a rapidly changing scenario.

The First Phase (Short Term)

The first phase is the base setting phase where the company has developed its core Mundu stack and the products using this which are mostly sold to OEM’s. These are Mundu Messenger, Mundu SMS and Mundu Radio. The company has been able to successfully generate lot of interest in all of these products. This also showcases the engineering capability of the company to develop world class products and services.

During this phase the company acquired many similar high technology companies and was able to successfully integrate their capabilities with the Mundu stack to create innovative offerings which can create value for their customers. Engage Solutions (Hong Kong) a company providing
CRM solutions, EDot providing strategic consulting for eBuisnesses, Piopeta Simputers and the legendary children’s comic book Chandamama are all part of this strategy.

The Second Phase (Medium Term)

I would say the company is currently in the initial stages of this phase, where the company is slowly modeling its revenue generation strategy. In this phase the company possibly looks to monetize the capabilities it has by cross selling products to different customers.

So a CRM customer can also be a prospective Mundu customer or a smart device customer. This cross selling is very important as this will give the company enough experience in its own products and learns the capabilities of each product.

Another factor that as investors needs to focus in this phase is the growth of three core sectors

- The growth in telecom VAS like Spokn & Mundu Messenger / Radio

This is the most important sector from a long term point of view. The growth of this segment is very key to the future growth of the company. The convergence of internet, mobile and media lies here. And this is very complex to understand. Read further on details of this convergence below and the implications that can happen.

- The growth in Smart devices

This is mostly led by Simputer and the related opportunities in the Indian e-governance market. As per management this has tremendous growth potential in the Indian market considering the fact that this is a home grown product. And more importantly as of now the competitors are way behind in terms of product excellence. But this may not hold true in the long-term as Indian e-governance market is of significant importance to many global players due to its sheer size and opportunities it may offer in long term.

- A successful content delivery strategy by internet.

Content is the king in the internet space. You can bet on the convergence of internet and mobile phone or internet and telephony in the long-term but without content this will not happen as you will be overpowered by competitors with a strong content pipeline.

The best example of this is Google’s YouTube where now it is trying to successfully integrate its internet advertisement capabilities with media capabilities to garner a larger market share. So be it Chandamama or be it the new film portals, all are part of this strategy.

The third phase (Long Term)

It is difficult to predict this phase as the market is so dynamic. But the company is probably betting on the convergence of mobile and internet along with entertainment and communication. This is more difficult that what it appears for simple reason that this is against the business interest of all telecom service providers across the world. The changing demographics of communication from its traditional way to internet mobile telephony will eventually lead to the transformation of mobile operators that you see today to simple Internet Service Providers with low operating margins. So I am not sure in what form this phase will transform. But this will be definitely interesting to see.

Another important change that Geodesic may see in this phase is the convergence of all its core verticals that you see in the diagram. Be it the Internet content delivery or the smart device or the mobile VOIP. May be by that time all these things may pave way to the device of the future that can do whatever I mentioned earlier in a cost effective way. I do not know what to call that device. That’s where the innovation plays a crucial role.

Risk vs. Reward

It is very important to understand the risks in this business. The growth for this company in the initial stages of growth is not going to be a problem as the company has many innovative revenue generating products. But it is the next level of growth that is challenging.

The biggest challenge will come from the established telecom service providers and government regulations. Not many telecom service providers will be willing to open their network in favor of mobile internet telephony. This is because if that happens it will be higher ARPU users using the cutting edge technology phones will be the first ones to switch the loyalty. This is definitely going to create a big hole in telecom service provider’s valuation. The current hindrance that a country like India faces in adopting net telephony is Government regulations and the bandwidth shortage. But with the emergence of 3G this issue is going to get resolved.

With 3G the ability to transfer data along with voice improves dramatically and this will result in clear and perfect voice over internet transfer. So that is going to a great push for internet net telephony not only because of the voice clarity but also because of the lower cost. Another factor that can result in an early adoption of mobile internet telephony is the new players that are going to enter in to the Indian market. To garner market share I do see larger chance of one of them partnering with a company like geodesic to provide cheap internet telephony over mobile. Geodesic’s Spokn Initiative I see as the first step towards this. If that happens the shift that I mentioned will be dramatic and fast. (In fact I am betting my money on this fast convergence).

However having said that the risk is also huge. If any other competitor comes with a better product and technology that can kill a smaller player like Geodesic. This chance is also very huge as this is a very lucrative area.

Conclusion

There is investment risk in this stock may be much higher than any of my other picks. But the reward if successful is also huge. So I would go for this at around the current price of 120Rs.
The minimum investment period can be anywhere between 3-5 years.I am not discussing any valuation here. Why? You guessed it right it does not make any sense!

Read about other value buys / Strategies

• Kale Consultants , On its way to become Great!!
• Sulzer India , An MNC going cheap!!
• Maximize your returns using options