Small Midcap Mantra | This cloud communication platform provider zooms almost 500% in past year, can touch Rs 2,500 in 6 months


The stock has benefitted from digitalisation during the pandemic and has scope to advance further as the company expands globally.

Sunil Shankar Matkar

October 05, 2021 / 11:00 AM IST

Representative image

Representative image

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Route Mobile, a cloud-communication platform as a service (CPaaS) provider, has turned out to be a great wealth creator for investors who bought the company’s shares in the initial public offering and on listing day a little over a year ago as digitalisation played a bigger role during the Covid-19 pandemic.

The stock closed at Rs 2,051.40 on the BSE on October 4, an almost six-fold increase from its issue price of Rs 350 and more than triple the listing day’s close of Rs 651 on September 21, 2020.

Route Mobile shares have advanced 87 percent so far in this calendar year, outperforming the BSE Sensex, which gained 24 percent. At the current price, Route Mobile has a market capitalisation of Rs 11,878 crore and is available at a trailing 12-month price-to-earnings of 677 and earnings per share of Rs 3.03.

Rally drivers

Technology companies including Route Mobile have benefitted from digitalisation, which gained popularity in communications after the pandemic disrupted normal life and corporate activities. The gains are reflected in the company’s financials, while its acquisitions and expansion have also boosted investor confidence.

Established in 2004, Mumbai-based Route Mobile is a cloud communications platform service provider catering to enterprises, streaming service companies and mobile network operators. Its portfolio includes solutions in messaging, voice, email, SMS filtering, analytics and monetisation. It’s presence extends globally to Asia Pacific, the Middle East, Africa, Europe and North America.

“Unlike many industries that were severely impacted by the epidemic, a few firms such as Route Mobile benefited. The Covid-induced acceleration in digitalisation trends was a significant structural positive for the firm and it has done well to capitalise and grow on it,” said Gaurav Garg, head of research at CapitalVia Global Research.

Route Mobile’s profit increased to Rs 34.3 crore in the quarter ended June from Rs 26.9 crore a year earlier. Revenue climbed to Rs 377.5 crore from Rs 309.6 crore and earnings before interest, tax, depreciation and amortisation rose to Rs 49.1 crore from Rs 39.8 crore.

Garg said the recent crackdown in China would be an added advantage to companies like Route Mobile.

“The company is aggressively going with the global expansion as well as the acquisition of other firms. One such acquisition was Sarv, which provides an artificial intelligence-driven email communication platform,” he said.

“The company had entered a partnership with Dubai’s DU, which is one of the largest telecom operators in the United Arab Emirates. The company is planning to expand globally,” Garg said.

Route Mobile completed the acquisition of Jaipur-based Sarv Webs in July. In August, it signed a long-term partnership with Comviva Technologies to provide advanced blockchain solutions to help telecom companies mitigate unsolicited commercial communications, enable compliance with and adherence to regulations, ensure better governance and create avenues for monetisation.

Atish Matlawala, a senior analyst at SSJ Finance & Securities, said the cloud communication platform as a service segment is expected to grow 35-40 percent and Route Mobile has the capability to develop the products and processes to tap this opportunity.

“The company has a scalable delivery platform supported by robust infrastructure in order to grow at a rapid pace,” he said.

Is it overvalued?

Although some experts said the stock is overvalued, given its gains so far, improving economic conditions and the spread of digitalisation can help it cross Rs 2,500 in six months.

“Given the company’s huge increase in recent months, the stock may face some short-term correction, but Route is a key beneficiary of the sector’s ongoing tailwinds and the progressive consolidation of the sector’s peripheral rivals in the highly competitive CPaaS market,” said Garg.

The stock price may cross Rs 2,500 in the next six months, but it may take 3-5 years to double, he said.

Matlawala also said the stock is overvalued at the current price.

What’s the strategy?

Investors who bought the shares during the IPO can book 50 percent and hold the rest for long-term growth, Garg advised.

Matlawala doesn’t recommend selling and suggests that investors who missed the rally can buy the stock on declines.

“As we said, the stock is overvalued, we don’t expect the stock to double in the next two years, but we certainly believe it will create wealth for an investor who has patience to hold the stock for at least next 5-6 years,” he said.

Technical take

Route Mobile touched a 52-week high of Rs 2,307 on the NSE on July 5 this year.

“The price has moved in a higher-top and higher-bottom pattern and volumes have also risen over the period. From a high of Rs 2,307, we have seen the price retrace almost 24 percent to make a low of about Rs 1,675,” said Viral Chheda, an analyst at SSJ Finance & Securities.

He said the stock is currently moving in a range and forming a flag pattern.

“Once it breaches the pattern on the higher side at Rs 2,095, we can see a further upside rally to Rs 2,350 to Rs 2,550 in the short term,” he said.

The stock has support at Rs 1,750-1,630, said Chheda, adding that in the short to medium term, one can buy partly at current levels and above Rs 2,095 for a target of Rs 2,350-2,550-2,800 with stop-loss of about Rs 1,750.

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