What makes Route Mobile IPO an ideal investment option during COVID

The IPO of Route Mobile witnessed a subscription of 1.76 times on Day 2 of Rs 600 crore public offering. The company is an ideal investment in these times, when telecom and IT sector are COVID-proof.

The IPO of Route Mobile witnessed a subscription of 1.76 times on Day 2 of Rs 600 crore public offering. Route Mobile is a leading Cloud Communication Platform provider, catering to enterprises, over-the-top (OTT) players and mobile network operators (MNO).

The company is an ideal investment in these times, when telecom and IT sector are COVID-proof.

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Route Mobile has broadly 3 business lines:
1) Enterprise: Within Enterprise, the company sets up various types of messaging interface for the SMEs, MNCs and other companies it caters to.

  1. P2A(Person to Application)-This means when a person sends message to an application. We do it on a day to day basis when we make a reservation for a dinner table on Zomato or Chat with the Chatbot on Uber/Swiggy etc.
  2. P2P (Person to Person)- These are the standard messages sent by one man to the another.
  3. RCS is a set of communication standard of messaging. In simple words, the basic text messages we send can be made interactive by incorporating emojis, Gifs, data sharing, video calls etc- basically making them similar to Whatsapp, FB messanger, Imessages etc.
  4. A2P messaging (application to person messaging), aka enterprise/business SMS, is a type of SMS messaging technique where a text is sent from a software application run by an enterprise to a consumer’s device. Once users will opt-in to subscribe to text message notifications, they will receive messages and not always expected to respond. Examples: marketing campaigns, promotional codes, appointment reminders, account pin codes, bank alerts and shipping notifications.

2) Telecom Operator: One of the prime examples of A2P is the scam messages we get- something which asks us our pin/cvv/bank ac details. Since these are for illegal purposes, such messages are sent through an illegal route called as Grey Route.

Importance of Grey Routes to Telecom Operators?

  • (i) Firstly, Operators only receive revenue when messages are sent using IP-based protocols and not via such illegitimate channels. So for every such message they are losing out on revenue.
  • (ii) More Importantly, These messages eventually lead in the occurance of a scam- where some customers end up sending their personal info. This bad experience an user gets is often associated with the Teleco Operator, which affects their Brand Equity.

Significance of Route Mobile in Grey Routes- It provides Firewalls SMS Analytics, Filtering to block grey route traffic, identify the source of such grey route traffic, and monetize such traffic for the Operators

3) Under Business Process Outsourcing: It provides range of BPO services including client support, technical support, booking and collection services.

Features of the company for an Ideal Investment:

  1. A lot of the clients (18/15% in FY19/20) for route mobile are pre-paid, reducing the working capital requirements for the company. While the post paid clients have an agreement to pay within 60 days.
  2. RM has the ultimate pricing power. Since the revenue of the Co. is directly linked to a transaction done by their client (MNOs,SMEs), they can Increase the prices easily. Also, if their clients increases prices for their services, RM can do the same to them.
  3. The company makes healthy operating (EBITDA) margins of ~12% which have been consistent over a long period.
  4. This is supported by a top-line growth of ~20%
  5. All this, with almost negligible debt (~0) on the Balance sheet makes Route Mobiles a promising story amidst this pandemic.

Valuation of the company
Route Mobile Ltd. makes a EBITDA Margin of 12% and EPS of Rs 13.60 In FY20. The closest competitor are Crealogix(Swiss), Sinch (SEK) & IMI Mobile(UK).  The Mumbai based company is likely to trade at 26- 27x with an EPS of Rs 17 for FY21.

 

Source: Saahil Harwani