Buy Route Mobile Ltd for the Target Rs 775 by Emkay Global Financial Services Ltd
Route Mobile posted a mixed operating performance in 1Q. Revenue was up 1.8% qoq to Rs11.5bn, above our estimate. EBITDAM declined 280bps qoq to 9.2%, below our expectation of 12%, on the back of 250bps GM contraction and higher other expenses. New gen product revenue (RCS, WhatsApp, and other IP-based messaging) grew faster than the company average and remains the engine of the intended business-mix shift, while the ILD business remains a near-term overhang, though sustaining rather than degrowing. The management retained its FY27 guidance of mid-to-high single-digit revenue growth and adj EBITDAM of ~12%. We cut FY27E EPS by ~14% and FY28/29E by ~1.5%, factoring in the 1Q performance and lower margin assumptions. While valuation remains undemanding (cash at ~36% of market cap), consistent performance will be the key anchor to a sustainable rerating after an over 35% rebound in the stock price in FYTD27, in our view. We retain BUY and TP of Rs775, at 12x Jun-28E EPS.
Results summary
Revenue was up 1.8% qoq/9.6% yoy to Rs11.5bn, above our expectation of Rs11.3bn. New-gen product revenue grew 10.5% qoq and comprised ~8% of revenue in 1Q. Billable transactions rose 1.6% qoq/16.5% yoy to 45.8bn. Avg realization rose 0.3% qoq but fell 6% yoy to 25.1 paise. Gross margin contracted 250bps qoq to 20.9%, driven by clientspecific issues, including a temporary traffic reduction at a large account pending new solution deployment (recovery expected in 2Q) and a security incident at the Masivian subsidiary. EBITDAM fell 280bps qoq to 9.2%, reflecting lower GM, salary increments, and one-off items, including write-offs of capital advances and Masivian security-incident remediation costs. It has declared an interim dividend of Rs4/share. What we liked: steady revenue; What we did not like: margin miss, weakness in top 5 accounts.
Acquires AI-led omnichannel platform Heltar for Rs337mn
Route has signed a business transfer agreement to acquire Heltar Technologies, an AIdriven omnichannel customer engagement platform provider, on a slump-sale basis for cash consideration of up to ~Rs337mn. Heltar is an AI-driven, no-code, prompt-based omnichannel engagement platform across WhatsApp, RCS, and voice. The transaction is expected to close in the coming weeks. Route plans to leverage Heltar to expand into LatAm, Europe, and the US, targeting higher-margin enterprise opportunities in less competitive markets. The ramp-up is likely to be gradual, with better visibility by 4QFY27.
Earnings call key takeaways
1) Volume growth is expected at 10-15% over the next couple of quarters as the festive season sets in.
2) ILD growth recovery hinges on telecom operators rationalizing their pricing strategy; Route continues to pursue ILD opportunities given large ticket sizes and good ROI despite lower margins.
3) Net cash stood at ~Rs13.5bn, earmarked for capability- or scale-led M&A, organic initiatives, and the existing dividend.
4) 1Q cash conversion was weak, driven by delayed collections from large India and UAE customers; however, the company expects FY27 conversion to revert to ~75%.
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