CM RATING

48/100

Route Mobile (RML), promoted by RajdipKumar Gupta & SandipKumar Gupta, is a cloud communications platform service provider (CPaaS), catering to enterprises, over-the-top (OTT) players and mobile network operators (MNO). The portfolio comprises solutions I, application-to-peer (A2P), peer-to-application, 2Way messaging, rich communication services (RCS), OTT business messaging, voice, email, and omni-channel communication. Also offered are SMS analytics, firewall, filtering and monetization, SMS hubbing and instant virtual number (IVN) solutions to MNOs across the globe.

The diverse enterprise client base across a broad range of industries includes social media companies, banks and financial institutions, e-commerce entities and travel aggregators. The Mumbai-headquartered telecom solutions provider has presence in 18 locations in Asia Pacific, Middle East, Africa, Europe and North America. More than 30,150 clients had been served by end June 2020 since inception in 2004. About 2,700 clients were serviced in FY 2020. More than 240 MNOs had been provided enterprise clients with access to over 800 mobile networks.

Infobid, Sinch, and IMImobile are key competitors of the global second-ranked tier 1 A2P service provider, as per the A2P SMS Messaging Vendor Performance Report 2017 of June 2017, prepared and issued by Roaming Consulting Company. The business verticals include enterprises, mobile operator, and business process outsourcing for clients across Africa, Asia Pacific, Europe, Middle East and North America. 

The prepaid and postpaid business models have high operating margins and low-cost base.

About 80.81% of the revenues from operations came from sales outside of India in FY 2020. The share increased to 86.08% in Q1 of FY 2021. The growing presence in new markets facilitates serving clients locally as well as to meet regulatory requirements that require service providers to have a direct presence in the region. From April 2016, operations have expanded to 10 new countries. Investments continue to acquire complementary businesses, technologies, services, products and other assets that can broaden the services that it can offer to clients. 

The net proceeds will be utilized to fund repayment or pre-payment, in full or part, of certain borrowings of about Rs 36.5 crore; acquisitions and other strategic initiatives of about Rs 83.0 crore; purchase of office premises in Mumbai of about Rs 65 crore; and general corporate purposes.

Strengths

Established player in providing CPaaS to enterprises, OTT players and MNOs. New players need time, access and money to try build such a wide network and trust among the clients.

Enjoys global connectivity through established relationships with MNOs, strategically located infrastructure and clients. Direct relationships were with 161 MNOs in Europe, Middle East and Africa (EMEA); 32 MNOs in the Asia-Pacific (APAC) region; 48 MNOs in North America and South America; six MNOs in India; and one MNO in Australia end June 2020. Enterprise clients have been provided access to over 800 mobile networks. There are six strategically located data centres. Global presence enables flexibility of multiple routes, better speed of delivery and an ability to optimize cost of delivery per message. There is good presence in high potential markets (EMEA, India, APAC, North & Latin America), where A2P industry is expected to record 5.8% CAGR as against 4.4% globally between CY 2017 and CY 2022.

Higher value clients with more than Rs 50 million revenue increased from 24 in FY 2018 to 33 numbers in FY 2020. Moreover, clients with revenues of more than Rs 250 million increased from two in FY 2018 to seven in FY 2020.

The scalable delivery platform is supported by robust infrastructure. The indigenously developed CPaaS platform is scalable with limited capital expenditure requirements. The present throughput capacity is 10,000 messages per second. More than 30.31 billion billable transactions were processed in FY 2020 and more than 6.95 billion billable transactions in the quarter ended June 2020.

Weaknesses

The market for enterprise cloud communication services and solutions is not as mature as the market for legacy communication solutions. As such, these services may not achieve or sustain high levels of demand and market acceptance. Moreover, evolving technological advancements, client preference shifts, internet security risks, government regulations, system infrastructure inadequacy need to be tracked on a continuous basis.

Most of the agreements with enterprise clients generally do not provide for fixed or minimum recurring payments or traffic volumes. Revenues are generated based on each transaction or communication processed through the cloud communication platform services, with the client paying for services and solution on a per A2P message and on a per voice pulse basis.

Ten largest clients accounted for approximately 63.65% in Q1 of FY 2021, 52.50% in FY20 (up from 46% in FY 2019, 36.08% in FY 2018). The top five clients accounted for 40.6% of the operational revenues in FY 2020. The largest client accounted for 14.58% in FY 2020 and 15.45% in Q1 of FY 2021.

The share of post-paid businesses is on ascent, with decline in the pre-paid business. The share of revenues from the pre-paid business stood at 41.77% in FY2018 and 24.99% in FY 2019 and declined to 17.01% in FY20 and further to 15.47% in Q1 of FY 2021. The standard terms of the agreements with its post-paid clients require payments to be made within 30-60 days. Buy the average debtor cycle was 66 days in FY 2020 and 57 days in Q1 of FY 2021.

Text messages may be subject of potential risks, including liabilities or claims relating to regulatory regime in the various geographies in which there are operations. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. Hence, there is risk from potential claims resulting from clients misuse of the platform to send unauthorized text messages in violation of local regulations such as TRAI in India.

Related-party transactions will continue. For instance, messaging services amounting to Rs 9.923 crore were purchased in FY 2018, Rs 120.780 crore in FY 2019 and Rs 116.703 crore in FY 2020 were purchased from Spectrum Technologies, a promoter group entity.

Inability to comply with laws and regulations affecting clients could adversely hit the business and results of operations. Changes in regulations affecting clients will require adjustment of systems, software or operations to continue to provide services to existing clients, to qualify for required certifications or fulfil regulatory standards, resulting in an increase in research and development costs and other costs, and may have an adverse effect on its business, financial condition and results of operations.

The extensive regulatory structure under which clients operate could constrain their flexibility to respond to market conditions, competition or change in their cost structure, and, thereby, adversely affect them and, in turn, the growth prospects.

Valuation

Consolidated revenues were up by 13% to Rs 698.21 crore in FY 2020. After fall in the OPM by 50 bps to 10.4%, operating profit growth was 8% to Rs 99.82 crore. Eventually, net profit (after minority interest) was up 24% to Rs 69.17 crore.

The consolidated EPS for FY2020 on post-issue equity of Rs 56.86 at the upper price band of Rs 350 works out to Rs 12.2 and of Rs 56.96 at the lower price band of Rs 345 works out to Rs 12.1. The asking price of Rs 345-350 discounts this EPS 28.4 to 28.8 times. Nearest comparable listed player Tanla Solution quotes at a PE of 11.7 times its annualised Q1FY21 EPS. In comparison RML is offering shares at a PE of 18.2-18.3 times its Q1FY21 annualised EPS.

 

Route Mobile: Consolidated Financials
	2006 (3)	2003 (12)	1903 (12)	1803 (12)
Sales	309.61	956.25	844.67	504.95
OPM (%)	12.1	10.4	10.9	15.0
OP	37.62	99.82	92.25	75.60
Other income	2.68	11.85	7.71	4.54
PBIDT	40.30	111.67	99.96	80.14
Interest	0.99	4.87	13.09	7.80
PBDT	39.31	106.80	86.87	72.33
Depreciation	6.02	22.68	21.87	15.84
PBT	33.29	84.12	65.00	56.49
EO Exp	0.00	0.00	0.00	0.00
PBT after EO	33.29	84.12	65.00	56.49
Tax	6.35	15.02	10.47	9.82
PAT	26.93	69.10	54.53	46.68
Minority Interest	-0.15	-0.06	-1.41	-1.17
Net profit	27.09	69.17	55.95	47.84
EPS (Rs)*	19.1	12.2	9.8	8.4
EPS (Rs)**	19.0	12.1	9.8	8.4
* on post issue equity on Upper price band of Rs 56.86 crore. Face Value: Rs 10 ** on post issue equity on Lower price band of Rs 56.96 crore. Face Value: Rs 10 EPS is calculated after excluding EO and relevant tax # EPS can not be annualised due to seasonality in operations Figures in Rs crore Source: Capitaline Corporate database

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