The initial public offering (IPO) of Route Mobile, a cloud communications service provider, opens today for public subscription. The company is proposing to raise Rs 600 million through the IPO, which comprises a new share issue of Rs 240 million and an Offer to Sell (OFS) of Rs 360 million from the promoters: AND Sandipkumar Gupta and Rajdipkumar Gupta.
A price band of Rs 345-350 each per share has been set for the IPO which will conclude on 11 September. On Tuesday, the company raised Rs 180 crore from 15 top investors including Goldman Sachs, Franklin Templeton Mutual Fund and SBI Life Insurance, among others.
The company proposes to use the net proceeds to finance the repayment or prepayment, in whole or in part, of certain company loans; acquisitions and other strategic initiatives; purchase of office space in Mumbai; and general corporate purposes.
About the company
Route Mobile is one of the leading cloud communication platform as a service (CPaaS) providers for enterprises, over-the-top players (OTT) and mobile network operators (MNO). Provides omnichannel, email and voice communications, SMS analytics, firewall, filtering and monetization, SMS hub, and instant virtual number solutions.
The company is classified as an international level one peer application service provider (A2P). Its business solution consists of two main components: the front-end that provides an interface for companies to integrate and a back-end that integrates directly with more than 240 MNOs and provides access to more than 800 MNOs around the world. His clients include some of the largest organizations in the world. It derives almost 80.1 percent of its income from exports and 19.9 percent from India.
Finance
During FY 18-20, Route Mobile’s top line grew at a CAGR 38% to Rs 956.3 crore in FY20, while After-Tax Earnings (PAT) increased at a CAGR of 22% to Rs 69.1 crore. The company’s earnings before interest, taxes, depreciation and amortization (Ebitda) increased to 15% CAGR. The average return on equity (RoE) for the period was 29% and the return on capital employed (RoCE) was 24%.
According to Motial Oswal, “RML’s working capital (WC) is negligible as it has a large prepaid customer base that pays in advance. Additionally, revenue is directly tied to usage based on each communication sent by customers and RML. it follows a flexible pricing policy based on current market rates “.
Strengths and risks
CPaaS platform providers have seen a boost in recent years as mobile channels have become increasingly important for brands and businesses to connect with customers. Analysts expect the trend to continue thanks to the growth of mobile subscribers globally and the growing preference for the digitization of businesses and communications. They expect Route Mobile to be a key beneficiary of this trend.
On the other hand, adverse currency movements (80 percent of export earnings) can affect the financial performance of the company. Furthermore, it is a rapidly evolving market and any inability to adapt to such changing conditions could adversely affect your business. And, with nearly 64% of the company’s revenue coming from the top 10 customers, any loss of a large customer can have a significant impact on the business.
Should you invest? This is what brokerages say
Religious mediation
The financial record has been encouraging for the company. Moving forward, we believe growth prospects look promising for the company led by positive industry trends coupled with the company’s continued focus on innovation, improving offerings, and expanding geographic reach. In addition, it would continue to focus on inorganic opportunities that would help drive growth and expand its service offerings. On the valuation front, the company is valued at a P / E of 18.5x (post-issuance) annualized EPS for fiscal year 21. You can invest in the company long-term.
Motilal Oswal Retail Research
At the upper end of the price band, the issue is valued at 29x FY20 P / E (fully diluted), which is comparable to mid-size IT companies. We recommend ‘Subscribe’ to the IPO given RML’s strong presence in the CPaaS niche market with high barriers to entry and healthy finances. Additionally, given the small size of the offering and presence in the niche IT space, listing profits can be made as well.
Angel Broking
Route Mobile’s management has so far infused only Rs 6 lakhs of capital into the company, and it will have a market capitalization of Rs 1,990 crore in the higher price band. This shows that it is a scalable business model, which can grow without an injection of capital. Unlike many other companies, Covid-19 has generated better growth prospects for the company thanks to increased adoption of digital technologies.
At the upper end of the price band, the company is demanding a PE multiple of 25.3x over the EPS for fiscal 2020, which we think is quite reasonable considering the future prospects of the company. As we are positive about the future prospects for the industry and the company, we recommend “Subscribing” to the long-term issue, as well as for the trading gains.
Samco Values
Route Mobile has seen plausible revenue and profit growth over the past two years. However, there are some factors that could hurt the company’s long-term growth prospects. First, as its core business is communication services, it faces stiff competition from its peers, depriving it of any significant competitive advantage or solid moat. The company also reports high current liabilities on its books that comprise about 55 percent of its balance sheet. This, coupled with a low current ratio of 1.17 compared to its peer average of around 2, puts it in a weak spot. All of these factors lead us to believe that long-term investors should avoid this IPO for now.
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