Reblog: Route Mobile IPO Review

• RML is engaged in cloud communication platform providing services.
• Over the years, it has gained global acceptance for its niche play.
• The company has shown growing financial performances.
• Issue is priced reasonably around 19 P/E
• RML is set to generate fancy post listing being the first mover.

ABOUT COMPANY:
Route Mobile Ltd. (RML) is providing a cloud-communication platform as a service (“CPaaS”) to enterprises, over-the-top (“OTT”) players and mobile network operators (“MNOs”). According to the ROCCO Report 2020, it ranked as a tier one application-to-peer (“A2P”) service provider internationally. Further, it ranked second globally as a tier-one A2P service provider in 2017. (Source: ROCCO Report 2017). RML also ranked first for ‘value-added services’ provided, its ‘implementation process’ and ‘uptime performance’ among tier-one vendors. (Source: ROCCO Report 2017).

Company’s enterprise solution comprises two primary components – the front-end that provides an interface for enterprises to integrate with, and a back-end which is directly integrated with over 240 MNOs, and provides access to over 800 MNOs across the globe, as of June 30, 2020, enabling it to leverage their SMS and voice channels for digital communication (“Super Network”). Further, the backend is also integrated with OTT-business messaging solution providers and is capable of supporting Rich Communication Services (“RCS”) business messaging, offering multiple channels of communication to enterprises. RML’s Omni-channel platform enables enterprises to leverage various modes of digital communication to engage with their stakeholders – including customers, employees and vendors.

Company’s range of enterprise communication services includes application-to-peer (“A2P”) / peer-to-application (“P2A”) / 2Way Messaging, RCS, OTT business messaging, voice, email, and Omni-channel communication. Further, it also offers SMS analytics, firewall, filtering and monetization, SMS hubbing and Instant Virtual Number (“IVN”) solutions to MNOs across the globe. Its clients include some of the world’s largest and well-known organizations, including a number of Fortune Global 500 companies.

As of June 30, 2020, the company has serviced over 30,150 clients, cumulatively since inception, across sectors including social media, banking and financial services, aviation, retail, internet/ e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom. As on the date of this Red Herring Prospectus, its global operations included nine direct and 12 step-down subsidiaries serving its clients through 18 locations across Africa, Asia Pacific, Europe, Middle East and North America. Consistent with the strategy of pursuing inorganic growth to deepen a relationship with MNOs and broaden product and service portfolio, RML acquired 365squared Limited with effect from October 1, 2017, which operates in SMS analytics, firewall, filtering and monetization. Further, it also acquired Call2Connect, effective April 1, 2017, a company which offers voice, non-voice and consulting BPO services to some of the largest enterprises in India.

RML is an associate member of the GSMA and an accredited open hub connectivity solution provider with internally developed cloud communications platform allowing it to handle both A2P and peer-to-peer (“P2P”) traffic for enterprises, OTT players and MNOs. In addition, Route Mobile (UK) Limited is also an associate member of GSMA. In the three months ended June 30, 2020, through its cloud communications platform, it processed more than 6.95 billion billable transactions. In Fiscal 2020, its platform managed more than 30.31 billion billable transactions from clients and was used by more than 2,700 clients while it managed more than 24.74 billion billable transactions in Fiscal 2019. RML has established direct relationships with MNOs that provide clients with global connectivity. As of June 30, 2020, it had direct relationships with over 240 MNOs and four short messaging service centres hosted in various geographies across the globe. RML is able to access more than 800 networks across the world, with a headcount of 318 as of June 30, 2020.

ISSUE DETAILS / CAPITAL HISTORY:
To part finance its plans of repayment/prepayment of certain borrowings (Rs. 36.5 cr.), acquisition and other strategic initiatives (Rs. 83 cr.),  purchase of office premises in Mumbai (Rs. 65 cr.) and general corpus funds, RML is coming out with a maiden IPO with a combo offer of fresh equity issue (Rs. 240 cr.) and offer for sale (Rs. 360 cr.). It consists fresh equity issue of approx 6857142 shares of Rs. 10 each and offer for sale of approx 10285714 shares. The issue opens for subscription on September 09, 2020, and will close on September 11, 2020. The company has fixed the price band of Rs. 345 – Rs. 350 per share. Minimum application is to be made for 40 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. RML mulls mobilizing around Rs. 600 cr. (based on upper price band) through this IPO. Issue constitutes 30.15% of the post issue paid-up capital of the company.

Having issued entire equity at par, the company also issued bonus shares in the ratio of 39 for 1 (January 2011), 9 for 1 (December 2015) and 3 for 2 (September 2016). Thus entire current paid up equity is issued at par coupled with bonus shares. The average cost of acquisition of shares by the promoters is Rs. 0.01 per share. Post issue, RML’s current paid-up equity capital of Rs. 50.00 cr. will stand enhanced to Rs. 56.86 cr. With this issue, the company is looking for a market cap of Rs. 1990 cr.

The issue is jointly lead managed by ICICI Securities Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd. and IDBI Capital Markets & Securities Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, RML has posted revenue/net profits of Rs. 509.49 cr. / Rs. 46.68 cr. (FY18), Rs. 852.38 cr. / Rs. 54.53 cr. (FY19) and Rs. 968.10 cr. / Rs. 69.10 cr. (FY20). For the Q1 of FY21, it has earned a net profit of Rs. 26.93 cr. on revenue of Rs. 312.30 cr. Management is confident of sustaining its growth story considering the relationship with its long term marquee global clients. It has marked CAGR of 38% in revenue and total billable transactions for the past three fiscals.

For the last three fiscals, on a consolidated basis, RML has posted an EPS of Rs. 12.24 and RoNW of 26.55%. The issue is priced at a P/BV of 5.89 based on its NAV of Rs. 59.40 as on June 30, 2020.

If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 18.47. Since this company will be the first mover in the segment, there is no average industry P/E is available.

BRLM’s TRACK RECORD:
The four Book Running Lead Manager’s (BRLM’s) associated with this offer have handled 22 public issues in the past three years, out of which 9 issues closed below the issue price on listing date.

COMPARISION WITH LISTED PEERS:
As per offer documents, RML has no listed peers to compare with.

CONCLUSION / INVESTMENT STRATEGY:
At sub 19 P/E issue appears reasonably priced. being the First Mover Company, it will generate investors’ fancy post listing. This segment has entry barriers and this company is enjoying its leadership with niche place among its clients. Investors may consider investment for short to long term.