Route Mobile Ltd IPO Review By TradeAdda
Incorporated in 2004, Route Mobile Limited is among the leading Communications Platform as a Service (CPaaS) provider and a tier-one application-to-peer (A2P) service provider. Its enterprise communication services include new age solutions in Messaging, Voice, Email, and SMS Filtering, Analytics & Monetization.
The company operates in 3 business verticals:
1. Enterprise: 51% of Revenue.
2. Mobile Operator: 27% of Revenue.
3. Business Process Outsourcing (BPO): 22% of Revenue.
Objects of the Issue:
The company proposes to utilize the Net Proceeds towards funding the following objects:
1. Repayment or pre-payment, in full or part, of certain borrowings of our Company;
2. Acquisitions and other strategic initiatives;
3. Purchase of office premises in Mumbai;
4. General corporate purposes.
Positives
1) Strong Revenue and PAT Growth – Their Profit / Revenue for the year Fiscal 2018, 2019 and 2020 and the three months ended June 30, 2020 were :-
Rs.466.77 million / Rs. 5,049.48 million
Rs.545.32 million / Rs. 8,446.68 million
Rs.691.02 million / Rs. 9,562.52 million
Rs.269.34 million / Rs. 3,096.14 million
Hence Good Growth on Both Counts Over Last Three Years.
2) Covid Impact – Route Mobile seems to have benefited from increased digitalization and use of communication devices following the COVID19 pandemic.
3) Employees Satisfaction - Quick search on Glassdoor Shows Glowing reviews about the work culture and working of the company from Employees past and present.
4) Business Outlook - Robust business model and consistent financial track record. Route Mobile has a scalable business and could continue to grow at a decent rate.
5) Valuations - On the Post issue equity, P/E works out to be ~ 26 based on Fy19-20 results and is even better if we consider Q1FY21 results. The demanded P/E valuation looks attractive for a company engaged in mobile communication services and has a first mover advantage.
6) Anchor Placement – Route Mobile has raised around Rs 180 crores from 15 anchor investors.
Negatives
1) Regulatory - The company operates in a highly evolving market and any inability to respond to such changing conditions couldadversely affect our business and results of operations.
2) Legal- Company and Subsidiaries are involved in certain legal and other proceedings. Any adverse outcome in any of these proceedings may adversely affect the financial condition and results of operations. Also Risk from potential claims resulting from client’s misuse of our platform to send unauthorized text messages in violation of TRAI regulations.
3) Foreign Currency- Foreign exchange risks with over 80% of Revenue Generated Abroad.
4) Customer Concentration – Top 10 clients account for about 64 per cent of the company's revenues, with the top client contributing 15.45 per cent to FY20 revenues.
Summary
In Light of the Above I intend to apply in Route Mobile IPO. Also chances of allotment are somewhat better than Happiest Minds IPO due to relatively moderate issue size and better retail reservation of 35%, though heavy demand for Happiest Minds IPO indicate that many new investors have joined in.
The Grey Market Premium price is Rs 180-200, indicating a listing gain 50-60% on issue Price of 350.