Blue Label Telecoms is looking for a "big brother" investor to inject some dollars into its Indian business, Oxigen Services India.
"We need to find a strategic partner to help grow this business. It is complex to fund a dollar-based business in rands, so we need to put that asset in that space to find a big brother in terms of a proper dollar-based investor," joint-CEO Mark Levy said at a press briefing on the group's interim results.
This after it reported that for the six months to 30 November, Blue Label's share of losses in Oxigen amounted to R120 million, compared to profit of R2.8 million at the end of November 2015. The major portion of the losses was attributed to substantial spending on the marketing of the brand and the acquisition of mobile wallets.
Through its wholly-owned subsidiary, Gold Label Investments, Blue Label holds a 58.18% interest in Oxigen Services India. The company is one of India's largest payments solutions providers and offers distribution services, banking services and consumer services like money transfers and remittances and the Oxigen mobile wallet ? which had 25.6 million wallet subscribers at the end of November.
In an interview after the results announcement, joint-CEO Brett Levy told ITWeb that Oxigen needs the big brother to be able to better compete with bigger players, especially in the mobile wallet market.
"If you are going to compete against the big players like Paytm who are investing $700 million, you can't exactly invest $5 million and expect to compete. So we need to find a dollar investor who is prepared to throw $200 million or $300 million at it," he says.
Paytm is backed by e-commerce giant Alibaba and this week announced its user base had topped 200 million wallets in India.
The prospect of an international partner is "quite exciting for us, it's not a negative thing", according to Brett Levy.
"You know if we could invest $300 million, we would. In SA, we are prepared to invest that kind of money because, for example, we know Cell C and what we can do with the investment and it's our own turf. But it would be irresponsible for us to make an investment of that size overseas. You can't be greedy; rather bring in the right partner and add the value you can and grow it from there," he adds.
Levy believes there are lots of these kind of investors around, especially for India.
"We will still have our piece of the pie, but if we bring in a big brother to throw in a few hundred million dollars then we can really compete."
New strategy
The group also announced it was changing the way it reports on the Oxigen business. The Oxigen investment has historically been accounted for as an investment in an associate but the group is changing this and with effect from the 30 November 2016, Oxigen will be viewed as a venture capital investment. This means that going forward, losses incurred by Oxigen will have no impact on group earnings "and the investment therein will be measured at fair value".
The investment in Oxigen was initially long-term in nature as it was expected to emulate the business model of the South African distribution operations.
"However, its profile has changed from that of the traditional group business model to one of generating growth in the market value of the investment with a view to unlocking the group's share thereof," the company said in its interim results announcement.
"With the advent of its change in focus to financial services through wallet subscription, it is no longer strategically aligned with the other business units of the group and is unlikely to generate profitability in the short- to medium-term."
However, Blue Label still believes the company's market value will increase as it grows its wallet subscribers ? because there is a value ascribed to each mobile wallet user. Its strategy has been to focus on the value creation of a compounding wallet subscriber base as opposed to the revenue generated by it.
"It's a wallet acquisition game where it's complete losses for the next 24 months. You are paying for the acquisition and when you are talking about hundreds of millions of people, you can imagine what that costs, but once they are all in your ecosystem, you then work out how to monetise it," Brett Levy explains.
Share