IPO Alert: Route Mobile Ltd.

IPO Alert: Route Mobile Ltd.

Last updated: 09 Sep, 2020 | 01:46 pm

IPO Alert: Route Mobile Ltd.

Route Mobile Ltd. (RML) provides a cloud-communication platform as a service (CPaaS) to enterprises, over-the-top (OTT) players and mobile network operators (MNOs). According to the ROCCO Report 2020, it ranked as a tier one application-to-peer (A2P) service provider internationally, second globally as a tier-one A2P service provider in 2017.  RML also ranked first for value-added services provided, its implementation process and uptime performance among tier-one vendors. The company's clients include some of the world's largest organizations, including several Fortune Global 500 companies.

Business Verticals 

  • Enterprise: The Company provides a cloud-communication platform as a service to enterprises, over-the-top players, and mobile network operators around the world.It estimates that it enjoys a 10% market share in the world in cloud communication platform segment.
  • Mobile Operator: Services in this segment include SMS analytics, firewall, filtering, monetization, and hubbing solutions. According to the prospectus: As of July 31, 2019, the company had direct relationships with over 240 MNOs (Multi-National Operators) and four short messaging service centres hosted in various geographies across the globe and is able to access more than 800 networks across the world.
  • Business Process Outsourcing (BPO): The Company provides a range of BPO services including client support, technical support, booking, and collection services. 

Revenue Mix 

  • Approximately 97% of revenue came from messaging services in FY20
  • Almost 80% of revenue comes from exports. 
  • Top five clients contributed 51% of the total revenue in the quarter ended June, with 15% being pre-paid.

Financial Analysis 

  • Over the past 4 years, the company has recorded an impressive topline CAGR of 28%.
  • However, the bottom line has not grown at a similar pace because of shrinking margins owing to the increasing cost of messaging services ( CAGR of 33% over FY17-20), these costs are the biggest expense of Route Mobile.
  • Return ratios of the company are impressive, for FY20 ROE was at 25.6% and ROCE at 27.5% 
  • The company is able to operate with negative working capital as standard terms of the agreements with RML’s post-paid clients require payments to be made within 30–60 days. In addition to a security deposit or a credit line paid in advance by the company, they are typically required to pay MNOs within a specified period, usually ranging between 45 and 60 days thus providing flexibility in pricing RML’s services. 

Key Risks 

  • Depends on strategic alliances with third parties like MNO’s
  • Client Concentration - Top 10 clients accounted for 63% revenue in FY20 
  • RML may, in the future, continue to make strategic acquisitions to grow its business, Acquisitions are subject to various risks, including risks relating to the integration of acquired businesses with its existing operations
  • Continuously evolving industry dynamics. 

Issue  details 

  • Issue open:  9 Sep - 11 Sep 2020 
  • Price band ₹345-₹350
  • Issue Size : 17,142,857 equity shares (Fresh issue 6,857,143 + Offer for sale of 10,218,714 equity shares)
  • Issue Size : ₹591.42-₹600 Cr.
  • Face value: ₹10
  • Book value ₹59.40  (June 30, 2020)
  • Reservation for QIB upto  50%, Non-institutional Investors at least 15%, Retail upto 5%
  • Bid Size - Multiples of 40 shares

Consensus Recommendation: Subscribe (Apply)

  • At the upper price band of ₹350, the issue is valued at FY20 PE multiple of 28.8
  • RML is net debt-free, after the issue, its debt will fall to 6 crores from 43 crores
  • The company has been announcing dividends for the past four years, its cash has spiked from ₹115 crores in FY20 to ₹171 crores in Q1FY21 and post-issue will be at ₹227 crores
  • “Strong return ratios, growth numbers and positive operating cash flows make Route Mobile IPO an attractive investment proposition”
  • Being the only listed company in the space and a niche business model it may attract investors interest.
  • As per latest reports, RML commands a grey market premium of 63%, or Rs 220 apiece, over the proposed issue price of ₹345-350 per share.