Before Whatsapp became the most popular way to communicate, SMS was the primary mode to send a text message. Now, we open our messaging apps mostly to check one time passwords (OTPs) or credit or debit messages from banks or other financial institutions.
This is the change that has given wings to companies that enable such messages, making lives easier for many of the digitally-savvy Indians. One such company, Route Mobile, has drawn a lot of investor interest in the last year.
In about nine months since its listing last year, shares of this company have jumped nearly three times. Analysts believe the stock may take a breather now, but the company remains a long-term play.
“Given the strong bounce seen in the past three months, the stock may see some near-term consolidation, but Route Mobile remains a key beneficiary of the continuing industry tailwinds and the ongoing consolidation of the fringe competition in the highly competitive CPaaS industry,” said Manik Taneja of
.
Route Mobile is a leading player in Communications Platform as a Service (CPaaS) with strong relationships with telecom operators, particularly in the Indian subcontinent, West Asia and Latin American regions.
Analysts tracking the company say global scale, direct reach with over 265 mobile network operators and access to over 800 mobile networks enable it to offer flexibility of multiple routes, swift delivery and lower cost of delivery per message, driving strong value proposition to clients and for better mining.
The fourth quarter numbers were a mixed bag for the company. Revenue missed estimates. This was due to lower billing days, low margin business rationalisation and certain Latin American and African geographies getting impacted by the pandemic. However, gross margin at 22 per cent impressed analysts.
With the objective of pivoting towards higher-end offerings and profitability, Route Mobile has indicated several measures such as pruning of low margin accounts, gradual shift towards OTT/RCS based communication and cross-selling more experience-based offerings to its end clients.
OTT refers to instant message service provided by the likes of Whatsapp, while RCS means Rich Communication Services, an emerging concept that enables SMS to incorporate features like high quality pictures, gifs and videos.
Thus, the future growth is expected to be healthy for Route Mobile.
estimates it to deliver healthy growth of 25 per cent in FY22 versus the guidance of 20 per cent. This should be driven by healthy net-revenue retention and geographic expansion into the US and Europe.
In order to expand in the US and Europe with a platform and solution focus (rather than purely SMS-based A2P i.e., app to person), Route Mobile has appointed John Owen, who was previously at Mastek, as CEO of Europe and Americas.
“We believe these measures are necessary to achieve revenue longevity as A2P SMS business will likely face pressure in the medium to long term,” said Hardik Sangani of ICICI Securities.
Analysts at
said all these steps should drive revenue, Ebit and EPS CAGRs of 25 per cent, 33 per cent and 34 per cent, respectively, over FY21-24.
“Route Mobile’s Ebit is expected to expand 210bps over FY21-24 on the back of operating leverage with growing scale and increasing revenue share from new more profitable engagement channels and products,” said Dipesh Mehta of Emkay.
He initiated coverage on the stock with a ‘buy’ rating and a price target of Rs 1,820. JM Financial has a 12-month target of Rs 1,610, which the stock has already achieved. ICICI Securities’ target price at Rs 1,775 is also just a stone’s throw away for the stock.
