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As communication channels of enterprises evolve from disparate A2P-based messaging system to CPaaS-based communication (TAM to grow ~30% in medium term), we believe Route Mobile (‘RML’) is favourably placed to benefit from industry tailwinds.

Key strengths of RML include: 1) Network pipe developed with MNOs (240 direct relationships), 2) firewall-based offering (aids in strengthening MNOs-based relationship), 3) robust client economics with companies such as Facebook and Google providing strong client referenceability, and 4) leadership positioning in regions where Route operates. We believe growth in revenue should manifest into operating leverage as GM/EBITDA improves and we estimate revenue, EBITDA and EPS to grow at FY21-F23E CAGR of 22.1%, 26.2% and 27.9%, respectively. Key risk include stagnation in top-5 client spend and failure to augment non-SMS business. We initiate coverage on the stock with an ADD rating and a target price of Rs1,710.

* Network pipe developed with MNOs, a key strength. The company offers a wide variety of solutions based on its broad portfolio of APIs. Route Mobile has also strongly developed the underlying SMS/voice network that allows it to provide unique capabilities in service delivery and has been instrumental in establishing the company as a strategic partner to its customers. To support these high-volume use-cases, it has spent more than a decade expanding and improving its MNO network and has direct tie-up/partnered with 240/800 MNOs. Further, to strengthen these relationships, the company provides MNO-based firewall solution which aids in better rates and payment terms for the company.

* Route participates in fast and growing markets. Route Mobile is a A2P/CPaaS based company with a TAM of ~US$7bn, in 2020 which is expected to grow at ~30% till 2025 (Source: Juniper). Further, we believe, the addressable market is much larger as vendors and customers continuously innovate with technology, creating new usecases and applications that become new markets in themselves (For e.g. CCaaS and UCaaS have a TAM of ~US$50bn).

* Strong client referenceability and robust client addition: Route Mobile client list includes technology giants (Google, Facebook & Samsung) and leading Indian banks. This provides strong client referenceability and aids in top-tier client addition in our view. Client addition/mining has been healthy with customers providing US$1m/US$5mn increasing from 11/0 in FY18 to 30/11 in FY21E.

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