FOCUS: MegaFon, Mail.Rus foray into e-taxi may cost up to $100 mln in 2 yrs - PRIME Business News Agency - All News Politics Economy Business Wire Financial Wire Oil Gas Chemical Industry Power Industry Metals Mining Pulp Paper Agro Commodities Transport Automobile Construction Real Estate Telecommunications Engineering Hi-Tech Consumer Goods Retail Calendar Our Features Interviews Opinions Press Releases

FOCUS: MegaFon, Mail.Rus foray into e-taxi may cost up to $100 mln in 2 yrs

  By Yekaterina Yezhova

MOSCOW, Apr 16 (PRIME) -- The intention of mobile operator MegaFon and its controlled Internet firm Mail.Ru Group to buy 57% in total in taxi aggregator Citymobil for U.S. $26 million will propel them to the lucrative Russian taxi hailing market, but may require another $6070 million of investment in 20182019, analysts say.

Russias taxi market amounts to about 800 billion rubles, the share of online services stands at 15%. Forecasts say that the market will reach 1.25 trillion rubles by 2025, and the share of online services will amount to some 85%. As Yandex.Taxi and Uber have merged, there is a small window of opportunity for a new player to enter the promising market with its product, Otkritie Broker analyst Timur Nigmatullin said in a research note.

MegaFon and Mail.Ru Group said they will take part in Citymobils $35 million investment round. MegaFon will inject $14 million to get up to 31% in the taxi aggregator, and Mail.Ru will invest up to $12 million in exchange for up to a 26% stake. Neither the mobile operator nor the Internet company will consolidate Citymobil in their financial results.

We believe that this investment is a promising opportunity both financially and strategically. The ride-hailing market is developing very rapidly, and is ripe for a new wave of disruption by fast moving players with interesting ideas in technology and marketing, MegaFon Executive Director Gevork Vermishyan said in a statement.

As a further step in the implementation of (MegaFons) digital strategy, we aim to expand the ecosystem of our digital services and products, and to create opportunities for our subscribers to explore new customer experiences.

Mail.Ru Group CEO Boris Dobrodeyev said that the company is expanding its presence in online-to-offline services and taxi will become part of our ecosystem.

The analysts shared the opinion that MegaFon and Mail.Ru Group will have to invest more into the taxi business if they want to keep it afloat and turn into a profitable business.

Georgy Vashchenko, director of operations on the Russian stock market at investment company Freedom Finance, weighed the extra contributions at $6070 million minimum in 20182019.

Sberbank CIB said it would not welcome Mail.Ru Groups significant exposure to the taxi business, which requires high investment to succeed. However, we do not know the full terms of the deal or what Mail.Ru plans to do with the business, while the maximum of $12 million it might pay is minor compared to its over $250 million in free cash flow in 2017, the investment company said in a research note.

For Citymobil, partnering with Mail.Ru should be beneficial, as it could expand the companys online reach, giving it access to users of Mail.Rus social networks. The potential synergy with MegaFon is less clear, as we do not see how the taxi service would seamlessly fit in to the companys interaction with its customers.

Citymobil works only in Moscow and St. Petersburg, and the raised money could be spent on branching out into regions. In Moscow, the market is overcrowded, and due to a soaring progress of car-sharing, growth rates of taxi business will be rather low. But in regions, the war of big operators with local players is a thing of the future, Vashchenko at Freedom Finance said.

Nigmatullin at Finam said, It seems that MegaFon and Mail.Ru Group will have to invest actively over a lengthy period of time into development of Citymobil that would theoretically undermine their free cash flow and ability (of MegaFon) to resume paying regular dividends. Otherwise, growth rates of this segment of business would fall far below the key competitors.

At the moment, taking into consideration a number of industry risks and a refusal to pay dividends, since many shareholders take dividends as guidance when deciding to buy shares, we think that MegaFons shares are moderately overestimated with a decrease potential of 14%.

MegaFons common shares have lost 13.1% in Moscow since the beginning of the year, closing at 445.80 rubles on April 12. Its global depositary receipts fell 12.4% in London to $8.10, while Mail.Ru Groups GDRs rose 8.6% to $31.18.

Despite all the drawbacks, the taxi business could become a new point of growth for the partners in the mid-term, if circumstances favor it, Nigmatullin added.

Vashchenko at Freedom Finance said that MegaFons archrival, MTS, terminated 5-month cooperation with Citymobil just a month ago. MTS did not disclose the amount of investment or the reasons behind the divorce. Most likely, the project was poorly elaborated at the first stage and no monetization was in view, the analyst said.

(61.4311 rubles U.S. $1)

End

16.04.2018 10:02
 
 
Share |
To report an error select text and press Ctrl+Enter
 
 
Central Bank Official Rate
1W 1M 1Y
USD
EUR 78.0753 +0.3224 22 sep
USD 66.2497 -0.2228 22 sep
Stock Market Indices
1D 1W 1M 1Y
MICEX
rtsi 1149.53 +0.78 18:50 21 sep
micex 2426.80 +1.08 18:50 21 sep
Stock Quotes in RUR
1D 1W 1M 1Y
GAZP
gazp 158.64 +2.78 18:49 21 sep
lkoh 4737.50 +0.78 18:49 21 sep
rosn 440.40 +0.39 18:47 21 sep
sber 193.44 +1.19 18:49 21 sep
MICEX Ruble Trading
1D 1W 1M 1Y
USDTD
EURTD 78.0275 -0.1025 14:59 21 sep
USDTD 66.5250 -0.2275 17:44 21 sep