Route Mobile IPO Details – Should You Subscribe to Route Mobile IPO?

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BASIC DETAILS ABOUT IPO (9-11 September)

Price Band

345-350

Bid Lot

40

Particulars

In Cr

Fresh Issue (Amount)

240

Fresh Issue (Shares)- AT Upper Band

0.68

OFS (Amount)- AT Upper Band

360

OFS (Shares)- cr

1.028

Total issue amount- AT Upper Band

600

Post issue Implied Market Cap-cr

1990

Post issue (Shares)

5.685

Book running lead managers:`ICICI securities,

Axis Capital, Edelweiss & IDBI capital

 

BASIC FINANCIALS (P&L)

(Amount in cr)

FY20

FY19

FY18

Revenue from Operation

956.3

844.7

505.0

Growth

13.2%

67.3%

EBITDA

99.8

92.3

75.6

Margin

10.4%

10.9%

15%

PAT (Inc- Other Income)

69.1

54.5

46.7

PAT (Ex- Other Income)

59.4

48.0

43.0

Growth

23.6%

11.8%

PAT Margin(Ex- Other Income)

6.2%

5.7%

8.5%

Purchase of Messaging Services

as % of Revenue

79.9

79.0

67.5

Employee cost % of Revenue

6.1

6.6

10.0

Other expenses % of Revenue

3.6

3.6

7.6

       

 

Revenue Bifurcation

(in cr)- Revenue from

FY20

FY19

FY18

Messaging Services

927.5

822.3

489.6

% of Total Revenue

97

97.3

97

Call centre Services

28.8

22.4

15.3

% of Total Revenue

3

2.7

3

Revenue Generated in Domestic and International

currencies

Export

772.7

700.8

404.4

% of Total Revenue

81

83

80.1

Domestic

183.5

143.9

100.6

% of Total Revenue

19

17

19.9

 

BASIC FINANCIALS (Balance sheet & Cash Flows)

(Amount in cr)

FY20

FY19

FY18

Goodwill

85.5

83.1

84.1

% of Total Assets

13.7%

16.4%

18.8%

Right of use+ Other Intangible

68.8

79.7

96.4

% of Total Assets

11%

15.8%

21.6%

Trade receivables

203.7

144.7

97.3

% of Total Assets

32.5%

28.6%

21.8%

Cash+Bank

102.6

95.7

102.6

% of Total Assets

16.4%

18.9%

23%

Borrowings+ Lease Liability

52.6

94.3

103.4

Growth%

-44.2

-8.8%

FCF

86.2

17.9

26.2

Growth%

Up 3.8x

-32%

—————————————–

PEER COMPARISION

There are no listed entities in India whose business portfolio is comparable with that of the company business as per company RHP. However, Tanla solution is also in the Cloud communication business.

 

PE-TTM

PB

PAT margin

(Ex-Other Income)

Q1FY21

Revenue growth

2018 to 2020

Market Cap ( cr)

ROUTE MOBILE

22*

5.9**

8%

1.89x

1990

TANLA SOLUTION

Negative EPS

4.9

13.4%

2.53x

3248

*FY20 EPS= 13.83, For 9 months=10.37 + 3 month Q1FY21 = 5.42, So EPS TTM as on 30 June 2020= 15.79

** Book value as on 30 June 2020 is taken.

NOTE:

Profit attributable to owners for Q1FY21= 26.6cr Annualized Profit = 106.4 cr

o/s Shares = 5.68cr EPS annualized = 18.7

So PE comes at 18.7

MANAGEMENT/Shareholding – Post issue promoter shareholding will decline from 96% to 66.3%.

Rajdip Gupta and Sandip Gupta are promoters of the company.

Rajdip Gupta- MD and Group CEO

  • Holds a bachelor’s degree in science (physics) from the University of Mumbai and a Masters’s diploma in software engineering.
  • Also a certified HTML programmer, Perl programmer, and active server pages programmer.
  • He has more than 17 years of experience in the field of software designing and development.
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Sandip Gupta – Non-Executive Director

  • Hold’s bachelor’s degree in commerce and is CA.
  • Also an SAP-certified solution consultant.
  • Prior to these worked with PWC also.
  • Has 18 years of experience in audit and accounts & over 15-year experience in SAP configuration and software system consulting

Ramesh Helaiya – Chief technical Officer (Company is in a technology-driven market so his role also becomes key)

  • Holds a bachelor’s degree in science(IT) for the University of Mumbai and an advanced diploma in software engineering from APTECH computer.
  • Has over 12 years of overall work experience in the IT sector.
  • He is responsible for the company’s messaging platform and technology related to the platform joined the company in 2007 and appointed as CTO in February 2020.
  • It is to be noted that documents evidencing certain information relating to past experience/educational qualifications are not there hence relied on affidavits of Ramesh Helaiya. (He is aged 37 years)

BUSINESS –

Started in the year 2004, now the company is a leading Cloud communication Platform provider. Its Product Portfolio includes smart solutions in messaging, voice, E-mail and SMS filtering, Analytics, and Monetization.

Companies operations are internally aligned into 3 business verticals

Enterprise

Enterprise vertical primarily provides a 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

A2P – Application to Person, P2A- Person to Application (Like Message you get when credit card is swiped or like you get a call if your fight is delayed like these happens through their platform or OTP messages),

RCS- Rich Communication Service: Communication Protocol between telecom operators, OEMs and messaging partners for Application to person rich messaging.

Mobile Operator

Main service offerings in this segment include SMS analytics, firewall, filtering, monetization, and CPaaS, and hubbing solutions. Analytics-based SMS firewall solution helps MNO( Mobile Network Operators) identify grey route traffic terminating on their networks, block grey route traffic, identify the source of such grey route traffic, and monetize such traffic.

Grey Route SMS- Refers to SMS between two parties which is legal for one party at one end but is illegal for the other party at the other end

Business Process Outsourcing

Provides a range of BPO services including client support, technical support, booking, and collection services. Associate Member of the GSMA and an accredited open hub connectivity solution provider with our internally developed cloud communications platform allowing us to handle both A2P and peer-to-peer

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( P2P )traffic for enterprises, OTT players, and MNOs.

GSMA- GSMA represents the interests of mobile operators worldwide, uniting more than 750 operators with almost 400 companies in the broader mobile economic system whose head office in London Uk and in 2017 Sunil Bharti Mittal began his 2-year term as GSMA chair.

Open Hub Connectivity-

KEY TAKE AWAY POINTERS ABOUT BUSINESS

  • As of 30 June 2020 serviced over 30,150 clients.
  • Its global operation includes 9 direct and 12 step-down subsidiaries serving 18 locations across Africa, Asia Pacific, Europe, the Middle East and North America.
  • In FY20 company managed more than 30.31 bn billable transactions and was used by more than 2700 clients
  • In 3 months ending June 2020 company processed 6.95 bn billable transactions.
  • The company is able to access more than 800 networks across the world.
  • As of 30 June 2020 company has a direct relationship with over 240 MNO’s ( Mobile Network Operators).

Financials

  • Company in its annual report under CEO speak told “ We are targeting a revenue of 1200cr in FY21” and continued “It is not wishful thinking it is the well thought out plan”. In Q1FY21 company clocked the revenue of 312.2cr which is already 26% of companies target so 1200cr seems quite achievable.
  • Also if the 1200cr mark is achieved where Profit based on Q1FY21 margin will be around 103cr which turned out to be EPS of around 18.2 or PE currently comes to 19.2, with profit growth and revenue growth YoY for FY21 comes to 49% & 25.5% respectively which is attractive.
  • The company runs on a cost-plus mark-up model like if they sending SMS to the user they are buying from the operator and thus you see a major chunk of expense is the Purchase of messaging services(PoMS) which also gives confidence in profitability.

Particulars

Q1FY21

FY20

FY19

FY18

RFO

309.6

956.2

844.7

505.0

PoMS

249.4

764.2

667.0

340.7

PoMs as % of revenue

80.5%

80.0%

79%

67.5%

PAT Margin- ex OI

8%

6.2%

5.7%

8.5%

EC as % of revenue

4.2%

6.1%

6.6%

10%

  • For last two years, PoMs as % of Revenue has been maintained or marginally increased which indicates that new revenue is not coming at the cost of comprising the profitability, while employee cost(EC) and Finance cost reduced as % revenue thereby PAT margin seeing improvement.
  • Companies Borrowings + lease liabilities have reduced from 103cr as on 31st March 2018 to just 52.6cr as on 30 June 2020 i.e reduced to half and hence we have seen finance cost also reducing from 13.1cr for FY19 to just around annualized 4cr currently helping the company is improving its profitability which was possible due to healthy FCF company is able to generate (See table on 1st Page)
  • Receivable days, although rose from 53 days for FY19 to 66 days in FY20 but seems under control with the kind of Business the Company, operates in.
  • Goodwill on the company’s book has been and is high because the company does various acquisitions and also use of fresh issue money applications includes acquisition too.
  • Interesting is Cash/Bank balance as on 30 June 2020 in company books stood at 159cr i.e. of which freely available is 68cr i.e. around 12rs per share.
  • Other Intangible assets+ right of use of assets Net Block reduced from 96.4cr as on 31 March 2018 to 64cr as on 30 June 2020 i.e amortizing at a rate of around 14% p.a. which seems too normal based on the technology driving company is in.
  • FCF/PAT has been increasing year after year rose from 58% in FY18 to 125% in FY20.
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PRO’s

  • Company is in the business which is booming every day (Cloud communication platform providing services)
  • The company works on Cost+Mark up method which certainly helps in ensuring minimum profitability.
  • Not only revenue and pat growth company has given but also the company was able to convert the same into FCF efficiently (FCF/PAT is improving)
  • Companies management is very optimistic about its business and at the target as per management for FY21 company is trading as a decent PE of 19.2, However TTM PE is 22 with ROE for FY20 attractive at 28%.
  • Objects of the offer include use for Pre-payment or re-payment of debt (Debt has been reduced to half in just 2 years), Acquisition, Purchase of Premises & general Corporate Purpose which may unlock better margins and good growth as debt on books as just at 43cr (Company likely become debt-free) as the amount raised through a fresh issue is at 240cr.

CON’s

  • The company operates in a highly developing technological environment so any significant development can hamper the company.
  • Two of its Key personnel don’t have documents evidencing certain information in relation to past experience and/or educational qualification.
  • Revenue generated from international currencies stands at as high as 81%, hence adverse changes in currency can impact.

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Arman Nahar
C.A. who is a USA CFA L3 candidate | Cleared L1 & L2 | Doing independent equity research since 2016 | Screens stocks for investment | Makes in-depth valuation models | Crafts portfolios.
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