Is Route Mobile Limited a Genie in the Bottle?

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The Route Mobile Limited Stock reminds me of the catchy song of Christina Aguilera, which has so meaningful and apt lyrics.

It precisely communicates what Route Mobile stock has to say to its prospective investors :

“If you wanna be with me
Baby, there’s a price to pay
I’m a genie in a bottle
You gotta rub me the right way”

I hope you get the message.

But read on to understand the fundamentals of the Route Mobile Limited stock.

Honestly, I got really bored of the glossy Red Herring Prospectus where every projection/graph was hitting the ceiling.

I thought that it would be a good idea to elaborate on the business model and segmental analysis of the company.

I have presented my findings in a wonderfully made video here which you definitely should not miss.

Watch Amitabh’s Stock Show

Introduction

As per the prospectus – “Route Mobile Limited provides a cloud-communication platform as a service (“CPaaS”) to enterprises, over-the-top (“OTT”) players, and mobile network operators (“MNOs”).”

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I bet half of you would not have understood the complete meaning of this jargonized sentence from RHP. Let me put this in a simpler way.

This company is basically acting as a one-stop communication consultant who manages various mobile-based communication channels on behalf of its client in one place

Route Mobile Limited Business Model

Elaborating further, if you are a rich man (read client/brand) owning various cars (SMS, Whatsapp, FB messenger on your handset) and wants to reach to its customer then you have to have one driver to help you choose (which car to take out today boss?).

This driver is Route Mobile Limited for you.

Just to add for Mobile network operators, a road can be the right metaphor in this context.

So like a driver, this company has low bargaining power as its clients are rich (read few are Fortune 500 companies such as Google, etc).

Since Mobile Communication is the present and future of communication, hence brands need to have reliable drivers.

So in spite of small size in comparison to its customer, the company has an advantage due to the following 4 reasons.

4 Competitive Advantages of Route Mobile Limited

  1. Track record of 15+ years in this not so old sector
  2. Reach in 120 countries which enables it to offer its clients the flexibility of multiple routes, better speed of delivery, and an ability to optimize the cost of delivery per message
  3. 6 data centers giving cutting edge speed and reliability
  4. 240 direct relationships with Mobile Network Operators (MNO): 161 in EMEA, 32 in the APAC region, 48 in North America and South America, 6 in India, and 1 in Australia. They are able to serve their clients better as a result of their direct relationship with MNOs.
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All of this helps them drive 83% of revenue from Enterprise.

Let us now talk about the remaining 17%, most of which comes from MNOs.

Have you heard of Grey route SMS? No? Let me explain.

It refers to an SMS between two parties or countries that is legal for one party at one end but is illegal for the other party at the other end.

It is basically a way of sending SMS where two operators or entities do not have a commercial relationship or agreement.

Grey traffic accounts for 1/4th of the total SMS traffic. (A lose-lose game for MNOs).

What Rout Mobile Limited provides is: Analytics based SMS firewall solution that helps Mobile Network Operators (MNO) identify grey route traffic terminating on their networks, block grey route traffic, identify the source of such grey route traffic, and monetize such traffic.

One interesting aspect of the business is its negative working capital as shown below in the form of a cash conversion cycle:

The reason for the same is: 17%  (FY20) of revenue is prepaid and the standard terms of the agreements with its postpaid clients require payments to be made within 30 – 60 days.

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Whereas typically, Required to pay MNOs within a specified period, usually ranging between 45 and 60 days.

They have not required any capital infusion in the company since Fiscal 2007.

They have been consistently profitable since the last decade.

Its sustained growth is attributable to its high operating margins and low-cost base.

Financial Analysis of Route Mobile Limited

Sales have been growing at a healthy rate of @27% for the past 5 years. However, the profit has been largely stagnant.

Leverage is under control and RoE has decreased due to stagnant PAT

Valuation of Route Mobile

Remember the song: “If you wanna be with me Baby, there’s a price to pay“?

With the current TTM PE of 92, Route Mobile stock does not offer a margin of safety.

The stock price of Route Mobile Limited reflects the optionality of the boom in profitability due to scale, market expansion, and market penetration. Indeed, the business seems to promise operating leverage and the number shall substantiate the valuation in the next 6 months.

So I am keeping it under my radar for the next 6 months as H2 is the major revenue driver from a P&L point of view.

You gotta rub me the right way”.

Read other beautiful posts written by Amitabh Vatsya here.

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Amitabh Vatsya

Amitabh Vatsya

Amitabh Vatsya is an active Investment Vlogger (http://youtube.com/c/Sadhansimplified) | Loves to share his ideas at http://wealthsutra.wordpress.com | Follow him @amitabhvatsya
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