Buy Route Mobile ltd For Target Rs.900 By Emkay Global Financial Services Ltd
Route Mobile posted a mixed operating performance in Q4. Revenue was up 2.2% QoQ to Rs11.3bn, above our estimate, driven by domestic market traction and rupee depreciation. EBITDAM declined by 120bps QoQ to 12.0%, on the back of contraction in gross margin, trade receivables written off (-40bps), and salary hikes. The management indicated that ILD decline has largely bottomed out, with no further erosion expected. It presented its growth playbook which focuses on i) scaling omnichannel (RCS, WhatsApp, OCEAN) and AI-powered customer interactions across chat, voice, and messaging channels; ii) position as Proximus Global’s innovation hub piloting for global rollout across AIpowered operations, automation, and GenAI CPaaS; iii) wallet-share expansion across the client base; iv) focus on geographies such as Mexico, Philippines, the US, and Europe, leveraging Proximus’s network; and v) AI-led, capability-driven bolt-on acquisitions. For FY27, the company guides for revenue growth of midto-high single digits, with adj EBITDAM of ~12% and increase in dividend payout to Rs16.5/share. We keep our FY27/FY28 estimates largely unchanged, considering the Q4 performance and the strategic roadmap laid out by the management. Valuation (cash at ~40% of market cap) is not demanding, but consistency in operating performance is key for a sustainable rerating, in our view. We retain BUY and TP of Rs900, at 14x Mar-28E EPS
Results summary
Revenue was up 2.2% QoQ but down 3.8% YoY, to Rs11.3bn, above our expectation, sustained by domestic-market focus. New-gen product revenue declined 5% QoQ due to normalization of excess volume received during the festive season. Billable transactions were flat QoQ/up 15% YoY to 45.1bn. Average realization was up 2% QoQ/16% YoY to Rs0.25 in Q4. Gross margin contracted by 120bps QoQ to 23.3%, with Q3 benefiting from festive season volumes. EBITDAM fell by 120bps QoQ to 12.0%. Route posted net profit of Rs1.1bn, above our expectation of Rs932mn, on the back of higher other income and lower ETR. It has declared a final dividend of Rs2/share. What we liked: Revenue beat and healthy cash conversion (OCF/EBITDA of ~110% in FY26). What we did not like: Margin miss, softness in new product revenue
Headwinds that bottlenecked the growth
The management has highlighted five specific headwinds over the past 18–24M: i) ILD A2P SMS in structural decline as enterprises migrated to OTT; ii) AIT-driven industry-wide cleanup of A2P SMS volumes; iii) enterprise CPaaS budget cuts amid macro tightening; iv) limited success in scaling up of new products (~8% of revenue), largely companyspecific; and v) post-acquisition integration challenges with Proximus.
M&A hunt remains priority
The management is targeting small-to-mid-sized, capability-led acquisitions (particularly in conversational AI and CPaaS-adjacent areas) to shorten a 2–3Y organic build cycle to 12–18M. Key criteria for M&A include AI-native capabilities, a complementary customer base, and a path to accretion within ~2Y.
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