ROUTE MOBILE IPO NOTE (Apply)

Review By Rudra Shares & Stock Brokers Ltd on Sep 9, 2020

VALUATION

The diversified business offerings  and a leadership position in Cloud communication service  makes it attractive. With growing internet penetration, business models are evolving and cloud communication services are being used by enterprises for streamlining back-end operations as well as for engaging with customers and employees.  Company has already evolved itself  with number of acquisitions, management believes it would  further continue to evaluate inorganic growth opportunities to diversify service offerings and geographic presence.  As per RHP,  it does not have any listed peers.  However, Tanla solutions & Tata communications could be close peers amongst listed entities.  

Given the company's diversified clients scalable business model, strategic acquisitions (to deepen relationship with MNOs and broaden  product and service portfolio) and rising investments in digital business & work from home is now in culture , we expect in the challenging environment company's business would not be impacted. In addition to this, there is not much of the listed peers. Company commands impressive RONW at 25.58% and has a positive operating cash flow over FY18-20.

On an upper price band of Rs 350, with EPS at Rs 13.83 for FY 20, the stock is available at a P/E ratio of 25.3x which makes the IPO valuation fairly attractive.  we recommend to subscribe the IPO for listing gains.

 

THE OFFER

       Issue Open : 09 September 2020 to 11 September 2020

  »»  Issue Type:  Book Built Issue IPO

    »»  Total Issue Size:  Rs 600 cr

   Ü Fresh issue:   Equity Shares @ 10 aggregating up to Rs 240 cr 

       Ü  Offer for Sale:  Equity Shares @ 10 aggregating up to Rs 360  cr 

       »»  Face Value:  Rs 10Per Equity Share 

  »»  Issue Price:  Rs 345  - Rs 350 Per Equity Share 

  »»  Market Lot:  40 Shares 

  »»  Minimum Order Quantity:  40 Shares 

  »»  Listing At:   NSE & BSE

 

CAPITAL STRUCTURE

The  share capital of Company, is set forth below:-

                                                                                                                   (Amount in Rs except share data)

Authorized Share Capital :-

   100,000,000 Equity Shares @10 Aggregate value Rs 1000,000,000

Issued, subscribed and paid up capital before the Offer :-

   50,000,000 Equity Shares @10 Aggregate value Rs 500,000,000

Fresh issue: Equity Shares @ 10 aggregating up to Rs 240 cr

Offer for sale: Equity Shares @10 aggregating up to Rs 360 cr

 

OBJECT OF THE OFFER

The objects of the Offer are:

ØRepayment or pre-payment, in full or part, of certain borrowings of Company (Rs 36.5cr)

ØAcquisitions and other strategic initiatives (Rs 83.00cr)

ØPurchase of office premises in Mumbai (Rs 65.00cr)

ØGeneral corporate purposes.

 

COMPANY OVERVIEW

Incorporated in 2004, Route mobile provides cloud-communication platform as a service ("CPaaS") to enterprises, over-the-top ("OTT") players and mobile network operators ("MNOs"). As of June 30, 2020, have serviced over 30,150 clients, cumulatively since inception, across sectors including social media, banking and financial services, aviation, retail, internet/ e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom.

Its global operations included 9 direct and 12 step-down subsidiaries serving clients through 18 locations across Africa, Asia Pacific, Europe, Middle East and North America.

Acquired 365 squared Limited  to pursue inorganic growth to deepen relationship with MNOs and broaden  product and service portfolio. In addition,  also acquired Call2Connect.

The solution comprises two primary components - the front-end that provides an interface for enterprises to integrate with, and a back-end which is directly integrated with over 240 MNOs, and provides access to over 800 MNOs across the globe, as of June 30, 2020, enabling to leverage their SMS and voice channels for digital communication ("Super Network"). It expects the number of subscribers and the volume of messages to continue to grow further.

 Further, the backend is also integrated with OTT business messaging solution providers, and is capable of supporting Rich Communication Services ("RCS") business messaging, offering multiple channels of communication to enterprises.

 Its range of enterprise communication services include application-to-peer ("A2P") / peer-to-application ("P2A") /2Way Messaging, RCS, OTT business messaging, voice, email, and omni-channel communication.

Moreover, offers SMS analytics, firewall, filtering and monetization, SMS hubbing and Instant Virtual Number ("IVN") solutions to MNOs across the globe. The  clients include some of the world's largest and well-known organisations, including a number of Fortune Global 500 companies.  

 

Business verticals:

Enterprise: provides cloud based communication platform to enterprises to enable digital communication through multiple channels including RCS, A2P / P2A messaging, 2Way Messaging, OTT business messaging, enterprise email and URL shortening; and Mail2SMS

Mobile Operator:  include SMS analytics, firewall, filtering, monetization and CPaaS and hubbing solutions.

Business Process Outsourcing (BPO):  provide a range of BPO services including client support, technical support, booking and collection services. Strategic objective is to integrate BPO capabilities with  enterprise voice platform and deliver end-to-end offerings to enterprise customers

 

Acquisitions

]The acquisition of Cellent Technologies and Start Corp enabled  to strengthen presence primarily in the Middle East;

] The acquisition of Call2Connect has enabled to add a new service offering, viz. voice, non-voice and consulting BPO services; and

] 365squared Acquisition has enabled to add a new product line, viz. SMS filtering, analytics and monetization.

 

FINANCIAL HIGHLIGHTS

The company generated Revenue at Rs 956.25cr in FY2020 and Rs 309.6 cr as on June,20. The growth in revenues was largely driven by strategic acquisitions in the recent past. In addition, Route Mobile is also expanding  international operations, have recently established operations in 10 new countries since April 1, 2016.

Profit for the year has increased to Rs 69.10 cr in FY 20 and  Rs 26.93cr in the three months ended June 30, 2020.

Total expenses during in the same period amounted to Rs  883.92cr and Rs 279.01cr, respectively.

EBITDA stood at Rs 111.67 cr and Rs 40.30 cr.  While the EBITDA margins are also stable at 11.53% and 12.90%, respectively.

Having sound fundamentals, It has significantly performed well. In terms of the CAGR rate, Revenue from operations increased at a CAGR of 37.61%. Company has an RONW at 25.58% on March2020 & 9.12% for 3months ended June2020. Its Net asset value per equity share as on March2020 is also sound at Rs 54.07 and Rs 59.40 as on June 2020.

 

HIGHLIGHTS

Ø Has Average debtor cycle at 66 and 57 days during FY20 and in the three months ended June 30, 2020, respectively.

 Ø In the cloud communication platform have a total transaction processing capacity of up to four billion transactions per month. In the three months ended June 30, 2020, processed over 6.95 billion billable transactions.

Ø Revenue from exports stood at 80.81% and 86.08% during FY2020 and in the three months ended June 30, 2020.

Ø Earned revenue from two major customers who individually contributed more than 10% of revenue in FY2020, while it was one customer in FY 19.

Ø Largest client accounted for 14.58% and 15.45% (decreased from the previous year) of revenue from operations in FY 20, and in the three months ended June 30, 2020, respectively.

Ø 10 largest clients accounted for approximately 52.50% and 63.65% of  revenue from operations in FY20 and in the three months ended June 30, 2020, respectively

 

STRATEGIES AHEAD

?Continue to develop omni-channel digital communication offerings and innovative solutions

?Continue to focus on developer community program

?Enhance service offerings through inorganic opportunities

?Grow presence in additional markets to serve clients locally

?Leverage CPaaS platform and BPO expertise to deliver virtual contact centre solutions

 

STRENGTHS

?Omni-channel cloud communication platform service provider with diversified service offerings for enterprises

?MNO focused suite of products

?Global connectivity through established relationships with MNOs

? Diversified and global client base across industries serviced locally

? Scalable delivery platform supported by robust infrastructure

?Robust business model and consistent financial track record; and

?Experienced Promoters and senior management team

 

RISK FACTORS

ØThe outbreak of Coronavirus, could have a potential impact on the  business

Ø Consolidation in the telecommunication industry may adversely impact the number of direct or other relationships with MNOs.

Ø Failures, defects, delays and other problems involving the technology systems and infrastructure

Ø Fluctuations in foreign currency exchange rates.

Ø Contingent liabilities amounting to Rs 59.38cr

Ø Inability to comply with laws and regulations.

Ø Competition in the market for cloud communication platform services could affect pricing

 

 


Conclusion / Investment Strategy

Given the company's diversified clients scalable business model, strategic acquisitions (to deepen relationship with MNOs and broaden product and service portfolio) and rising investments in digital business & work from home is now in culture , we expect in the challenging environment company's business would not be impacted. In addition to this, there is not much of the listed peers. Company commands impressive RONW at 25.58% and has a positive operating cash flow over FY18-20. On an upper price band of Rs 350, with EPS at Rs 13.83 for FY 20, the stock is available at a P/E ratio of 25.3x which makes the IPO valuation fairly attractive. we recommend to subscribe the IPO for listing gains.

Reviewer recommends Subscribing to the issue.

Review By Rudra Shares & Stock Brokers Ltd on Sep 9, 2020

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

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