Infosys created OnMobile faces tough test of character

A probe into suspected misappropriation of funds is underway at OnMobile, a pioneer in mobile value-added services that was incubated by Infosys, three people familiar with the matter said. 

The board of the Bangalore-based company has entrusted audit firm KPMG with the responsibility to find out if money was siphoned out of the company, the sources said. OnMobilesaid in response to queries from ET NOW, this paper's business news channel, that it has appointed an "independent agency to review the internal control mechanisms as a part of an ongoing exercise to strengthen and improve corporate governance processes". 

The company's shares plunged 17% on Thursday to Rs 33.25 on the Bombay Stock Exchange, the lowest ever. In the past year, the company's market value has declined by more than two thirds to Rs 392 crore. On June 1, the company told stock exchanges that Chief Executive Arvind Rao would focus on 'international growth' while the affairs of the company would be managed by two members of the board. 

The special sweep by KPMG began in December 2011. In the same month, Rao stepped aside as chairman and was replaced by HH Haight, an investor who is one of the two people now tasked with running the company. 
The other is Naresh Malhotra, an entrepreneur who was a founding partner at KPMG in India as well as a former chief executive of Cafe Coffee Day. OnMobile, which counts almost all of India's major telecom companies as its customers and derives nearly half its revenues from overseas, denied that Rao, who is a co-founder, was being investigated for misappropriation of funds. 

With sales of nearly Rs 500 crore last year, OnMobile's pedigree, its acquisitive nature and swift growth inspired copycats specialising in mobile value-added services. Rao is an alumnus of IIT-Bombay and Mouli Raman, another co-founder, was head of the wireless internet products unit at Infosys, where OnMobile was nurtured. Both are significant shareholders in the company. 

When it listed in India in 2008, the company had a valuation of about Rs 3,000 crore, most of which has been eroded. It made four acquisitions along the way and was even planning a listing on the New York Stock Exchange, in preparation for which it engaged KPMG so that it conformed to IFRS accounting standards.