Route Mobile: Brokerages can#39;t get enough of this cloud communication services provider, here#39;s why


The stock has gained 38 percent on BSE in this calendar year against a 6 percent rise in the benchmark Sensex for the same period.

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As the second coronavirus wave shows signs of abating, stocks from defensive as well as economic-centric sectors are looking attractive but the so-called new economy companies also have investors interested.

One stock from the cloud communication services sector seems to have gained a lot of traction in the last few months. Route Mobile is up 38 percent on BSE in this calendar year against a 6 percent rise in the benchmark Sensex during the period.

Brokerages are upbeat on the stock. Route reported strong operating performance in the March quarter, driven by strong top-line growth and robust gross margin improvement.

“We have a positive view on the company backed by strong Q4 performance on the operational front, optimistic management commentary and more and more digital adoption by the enterprise which will help to fuel growth for the company going ahead,” said Arihant Capital Markets.

Route Mobile’s revenue from operation grew by 36 percent YoY. EBIDTA grew 98 percent YoY and 12 percent QoQ. Reported PAT grew 139 percent YoY, Arihant said.

It has a buy call on the stock with a target price of Rs 1,830, valuing the stock at a P/E multiple of 33 times to its FY23E EPS of Rs 55.5. The target price is a 21 percent upside from the current market price of the stock.

The Mumbai-headquartered Route Mobile provides cloud-communication platform as a service (CPaaS) to enterprises, over-the-top players and mobile network operators. It raised Rs 600 crore via public issue during September 9-11 and got listed on bourses on September 21.

“As the company is able to pass on DLT charges to customer,  (it) will lead to gross margin expansion. Strong recurring revenue growth with good revenue retention and company strategy to acquire more and more

clients and generating more and more free cash flow are the key positives for the company,” Arihant said.

Domestic brokerage firm Emkay Global Financial Services initiated coverage on the stock with a buy rating and a target price of Rs 1,820 at 44 times June 23E EPS.

Favourable industry tailwinds, asset-light business, strong earnings profile (nearly 34 percent CAGR over FY21-24E), return ratio (more than 25 percent RoE) and cash generation (nearly 100 percent FCF/profit) are the key positives about the stock, Emkay said.

“Route is a leading player in communications platform as a service (CPaaS) with a strong relationship with telecom operators, particularly in the Indian subcontinent, MEA and LatAm regions. Strong industry tailwinds (nearly 30 percent CAGR over 2020-25E), presence in fast-growing markets and new product expansions should drive revenue/EBIT/EPS CAGRs of 25 percent/33 percent/34 percent over FY21-24E,” said Emkay.

As per the brokerage’s estimates, Route’s EBITM is expected to expand nearly 210bps over FY21-24E on the back of operating leverage with growing scale and increasing revenue share from new more profitable

engagement channels and products.

“Global scale, direct reach with over 265 MNOs and access to over 800 mobile networks enable Route to offer the flexibility of multiple routes, swift delivery and lower cost of delivery per message, driving strong value proposition to clients and better mining,” said Emkay.

Another brokerage firm JM Financial Institutional Securities, too, has a buy call on the stock with a target price of Rs 1,610.

“We raise our PAT estimates for FY22/23 by 1-5 percent to factor in the strong results and management optimism. Our EPS estimates, however, are seeing a negative impact due to the dilution assumed from the expanded ESOP program that includes key hires made by the company in the recent past,” said JM Financial.

Given the strong up move in the past three months, the stock may see some near-term consolidation but Route remains a key beneficiary of the continuing tailwinds and consolidation of the fringe competition in the highly competitive CPaaS industry, the brokerage said.

But there are some worries too. As highlighted by Emkay Global, client concentration, failure to adapt to the changing technological requirements and foreign exchange are the key risks.

Having said so, brokerages say the stock looks positive and can be added to the portfolio if there is a dip in price.

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