IGI Logo

Our Take:

Route Mobile is largest CPaaS (Communications platform as a service) based out of India and is the largest in Asia, Africa, and the Middle East in terms of connectivity and in terms of customers. It has direct relationships with over ~250 MNOs (Mobile Network Operators) with access to over 800 mobile networks. This helps it to deliver services to global clients across multiple geographies. Company has a wide range of enterprise communication services including A2P/P2A/2Way Messaging, OTT business messaging, Rich Communication Services (RCS), voice, email, and omni-channel communication. Apart from this, Covid-19 has accelerated digital investments by brands and enterprises, leading to higher growth expectations for providers like Route Mobile of such services including SPaaS (Space-as-a-service).

Route Mobile’s product offerings are finding traction with customers, reflected in the robust growth in the company’s top-15 enterprise customers. Importantly, the company counts tech giants like Google and Facebook as its clients, which signify the company’s global reach, high quality offerings and robust value proposition. Route also counts large Indian enterprises such as SBI, ICICI Bank and Bank of Baroda as its clients.

The company has an asset light business model, operating through its cloud-based platform which entails very low capital requirement, resulting in high return ratios and strong cash flow generation. The company recorded its best nine months, ended on 31st Dec 2020. Its revenue grew by 51.2% to Rs 1,043.7cr in 9MFY21 vs. Rs 690.5cr in 9MFY20. Company reported a net profit of Rs 21.8cr in 9MFY21 vs. Rs 8.5cr in 9MFY20. EBITDA Margin ramped up to 11.9% in 9MFY21 vs. 8.7% in 9MFY20. Company remains strong and expects to provide double-digit growth going forward. We expectstrong revenue growth momentum to sustain with 21.4% and 17.1% revenue growth in FY22E and FY23E respectively and expect the company to witness improving margins (340 bps over FY20 to 12.3% in FY23E) driven by levers like cost optimization and other operational efficiencies. Consequently, we expect earnings to grow at CAGR 37% over FY20-23E to Rs. 182Cr.

View & Recommendation :

Since its inception, Route Mobile has been enhancing mobile communications through technology upgrades and product innovations; meeting the needs of a diverse clientele across geographies. Digital transformation and automation, consumer’s smartphone adoption and emergence of API (Application Programming Interface)-based digital communication architecture could bring more opportunity for Route Mobile going forward.

Route Mobile’s experienced promoters and management team, long track record of operation, established market position in Application to Person (A2P) messaging segment and tie up with telecom players operating in India provides strong earning visibility going forward. Company’s strong capital structure with robust debt coverage indicators and strong liquidity position brings positive view on the stock. Route Mobile is enjoying expensive valuations due to its strong moat of having a first mover advantage resulting in solid market positioning in an increasing market size. We believe the base case fair value of the stock is Rs 1417 (45.0x FY23E EPS) and the bull case fair value of the stock is Rs 1558 (49.5x FY23E EPS) over the next two quarters. Investors can buy the stock on dips to Rs 1273-1277 band (40.5x FY23E EPS) and add more on dips to Rs. 1100-1102 band (35.0x FY23E EPS). At the LTP of Rs 1451, the stock trades at 46.1x FY23E EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.hdfcsec.com/article/disclaimer-1795

SEBI Registration number is INZ000171337

Above views are of the author and not of the website kindly read disclaimer