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Route Mobile is a leading cloud communication platform provider, catering to enterprises, OTT players and mobile network operators or MNOs. Company offers scalable and flexible omni-channel Communication Platform as a Service to enterprises globally, as well as OTT players and MNOs.
In the last 3 fiscal years, Route Mobile managed 25 to 32 billion billable transactions, and have already done 18 billion transactions in the first half of the current fiscal year. 2000 clients have used the company’s platform, with 40% of the revenue coming from the top 5 clients in first half of fiscal year 2022. The company earns 47% of its revenue from messages terminated in India, with a further 22% share coming in from the rest of Asia.
Key competitive advantages of the Company are:
Tailwind in the industry – increased usage of SMS for OTP or any other kind of verification
Strong relationship with MNOs and diversified geographical business
Significant risk faced by the Company is owing to potential technology changes – similar to reduction of SMS usage after the arrival of WhatsApp.
Moreover, the Company is on an acquisition spree with most of the 2020 IPO proceeds being spent on acquisitions in 2021. It has raised approximately 870 crore rupees from a Qualified Institutional Placement in November 2021 for further acquisitions.
Is the company is truly a platform business?
Route Mobile generates approximately 98% of its revenue from selling messaging services and the cost associated with purchasing such messaging services is approximately 82% of the revenue. Hence, the gross margin on the messaging services' main business line is approximately 18% which has been stable in the last 3 fiscal years. Company revenue jumped about 45% in Fiscal Year 2021 in comparison to 2020 but the gross margin on the messaging services was slightly lower, which is not a sign of a platform business.
The company had negative cash flow in the first half of Fiscal Year 2022 even after EBITDA of nearly 100 crore rupees, which was driven by significant increase in trade receivables and other current assets. This is highly unusual for a company which has negative working capital and stable debtor days.
So, what is our view on company valuations?
Route Mobile currently trades at a P/E ratio of nearly 70 times. In comparison to Infosys and TCS average P/E ratio of around 16 to 20 times over last 5 years. We expect organic growth of around 15% to Infosys and TCS of 7 to 8%. Hence, Company is significantly overvalued at the current levels.
As for the risks to this analysis, there is high liquidity in the stock and the perception of it being a platform company can push the price higher in the short and medium term.
So, would you invest in Route Mobile?
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