Route Mobile IPO Financial Analysis (Subscribe)

Strengths

Financial track record with strong operating and net margins.
Global client base across industries.
Diversified offerings through key business verticals.

Challenges

Need of continuous enhancements of services and introduction of new services that achieve market acceptance.

IPO Size

Route Mobile is launching an IPO of around Rs 600 crore (1,71,42,856 equity shares of Rs10 each). IPO comprises of:

Fresh Issue: Fresh Issue of 68,57,142 equity shares worth Rs 240 crore.
Offer for sale: Offer for sale of1,02,85,714 equity shares amounting to Rs 360 crore.
Route Mobile IPO Price band: Rs 345-Rs 350 per share
Date of Issue: Issue will open on 9^th Sept and close on 11^th Sept 2020

About the company

Incorporated in the year 2004, Route Mobiles provide cloud communication platform over the top players and mobile network operators (MON). It has presence in Africa, Asia Pacific, Europe, Middle East and North America.Route Mobile has made inorganic growth by acquiring:

365 Squared Limited (Malta; SMS filtering, analytics, and monetization services)
Call2Connect (BPO business segment)
Cellent Technologies (A2P business messaging; Middle East and Africa)
Start Corp (A2P)

The clients are world’s largest and well-known organisations, including a number of Fortune Global 500 companies. As of June 30 2020, RM had 30150 clients, across sectors including social media, banking and financial services, aviation, retail, internet/ e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom.

Route Mobile Business Verticals:

Enterprise and OTT: This vertical offers cloud-communication services i.e. A2P messaging, 2Way messaging, voice application services, Click2Call, outbound dialer, and others to enterprises.
Mobile Operator: Under this segment, Route Mobile offers software and service solutions i.e. SMS filtering, analytics, and monetization, etc.to various mobile operators all around the world.
Business Process Outsourcing: Under the BPO vertical, it provides voice, non-voice, and consulting services.

Financial Review/Financial Performance

Total revenue from operations for FY20 has increased by 13.6% to Rs 968.1 crore (Rs 852.38 crore in FY19). 80% of the revenues come from foreign billings. EBITDA margins have remained consistent since the last three years and they have been 11.53% in FY20 and 12.58% in Q1FY21 respectively. PAT has shown an increase of 19% for FY20 and has increased to Rs26.5 crore. Route Mobiles posted PAT of Rs 26.50 crore for Q1FY21. Net Profit margin is strong at 7.73% in FY20 and 8.49% for Q1FY21.

Route mobile has healthy cash generated from operating activities of Rs 93.44 crore and Rs 28.46 crore in FY20 and FY19 respectively. RoNW is 8.92% in Q1FY21 and 27.68% in FY20.

Purchase of messaging services is the largest expense; as a percentage of total revenue, expenses relating to purchases of messaging services were 66.88%, 78.25%, 78.93% and 79.87% in FY2018, 2019 and 2020 and in the three months ended June 30, 2020, respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	Q1FY21	FY2020	FY2019	FY2018
Total Revenue	312.30	968.10	852.38	509.49
PAT	26.50	74.84	58.75	49.49
EBITDA	39.30	111.67	99.96	80.14
Total Accets	634.83	626.55	505.78	447.37
Cash and cash equivalents	158.69	102.64	95.65	102.59
CFO	81.13	93.44	28.46	32.18
Gross profit margin(%)	12.58	11.53	11.73	15.73
Net profit margin(%)	8.49	7.73	6.89	9.71

Conclusion

Route Mobile is the company with cloud communication offerings and has no listed peers in India. The cloud communication platform is needed in every organization to maintain its business operations. Cloud communications platforms are changing ideas about how businesses can communicate with customers, end users, and subscribers and thus has a promising future.

The issue is priced at a P/BV of 5.89 based on its NAV of Rs 59.40 as on June 30, 2020; Issue appears to be reasonably priced. Hence looking at its future business prospects and consistent financial performance, investors shall subscribe this IPO.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 5th Sep 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.