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Steady operating performance; revenue guidance conservative

Route’s top line grew 8.5% QoQ (+14% YoY), a decent recovery after 2 consecutive quarters of muted trends on the back of VI deal ramp-up and stabilisation of ILD volume decline, albeit it was a slight 1.5% miss on JMFe. EBITDA margin too improved 40bps QoQ (flattish YoY) and was ahead of JMFe by c.50bps. Hence, EBITDA was marginally better than JMFe by 2.5%. PAT (ex-exceptional), however, was down c.4% QoQ (-11% YoY), below JMFe by c.13% due to FX losses (Naira devaluation) and higher-than-expected D&A and ETR. While Route’s India messaging volumes continued to grow at a healthy rate, industry headwinds in the form of curtailed spends by OTT’s and geopolitical issues in some countries continued to weigh on growth. These headwinds along with ramp-up delays in recently announced deals/Telesign synergies led to a conservative revenue growth guidance of 18-22% YoY for FY25. Our DCF-based Sep’25 TP is revised to INR 1,880 (target FY26/27 PER of ~22x/18x).

* Operating profit beat driven by margins, exceptionals affect PAT: Route’s 1Q revenue grew 14.1% YoY (8.5% QoQ) to INR 11.03bn, slightly missing JMFe/Cons. by 1.5%/0.5%. Billable transactions grew 25.7% YoY (+9.1% QoQ) to 37.1bn, driven by NLD volumes while realisation was affected by lower ILD volumes. Gross margin (adjusted for VI deal related non-cash expenses) improved 67bps YoY (+29bps) to 22.1%, a beat on JMFe of 21.6%. EBITDA margin stood at 12.4% (flattish YoY, +40bps QoQ) and was ahead of JMFe/Cons. by c.50/10bps due to better-than-expected gross margin. Sharp sequential increase in employee costs as % of revenue due to certain one-offs was offset by a proportionate moderation in other expenses. Overall, EBITDA stood at INR 1.37bn (13.7% YoY, 12.3% QoQ) above JMFe by 2.5% (in-line Cons). Adj. PAT (ex-exceptional) declined 11.1% YoY (-3% QoQ) to INR 795mn, a miss on JMFe/Cons. by 13.1%/12.8% due to FX losses and higher-than-expected D&A and ETR.

* FY25 guidance: Route guided for 18-22% YoY revenue growth in FY25, which we believe is conservative as it has already announced several deal wins in the recent past. Some of these include the VI firewall deal (incremental revenue potential of INR 5-6bn), Amazon deal (termination services across 10 countries), the Microsoft deal with Proximus (a large, 5-year deal) and Telesign synergies. The management mentioned long lead times are affecting the ramp-up of these deals and hence its cautious approach. Apart from that, it guided for EBITDA margin (non-GAAP) of c.13%, CFO/EBITDA (normalised) between 50-75% and dividend payout of up 20% of PAT.

* Maintain ‘BUY’ with revised TP to INR 1,880: While we continue to bake-in c.19% YoY revenue growth in FY25 for Route amidst conservative guidance, FY26-27 estimates are raised by 1-2% assuming better ramp-up in new deals. Similarly, while we maintain our FY25 margin estimate, FY26-27 estimates are tweaked by 10-20bps to factor in lower margins in incremental Telesign-related revenue. Overall, our FY25 PAT estimate is down c.5% due to exceptionals, while there is c.1% change in FY26-27. We roll-forward and maintain ‘BUY’ rating with a 10-year DCF (WACC of 13% and Tg of 5%) based Sep’25 TP of INR 1,880 (INR 1,820 earlier).

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