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TOP 10 Negatives & Positives of Route Mobile IPO


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Old 09-09-2020, 07:39 AM
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Default TOP 10 Negatives & Positives of Route Mobile IPO

Route Mobile IPO will include a public issue of 1.71 crore equity shares of Face value Rs 10 each, comprising a fresh issue of 68.57 lakh equity shares. Offer for Sale will be for 1.03 crore equity shares.


Shares are being offered in a lot of 40 equity shares and multiples thereof and the price band has been fixed at Rs 345-250 per share.

Route Mobile Ltd IPO opens today for subscription, with the company looking to repeat the success of Happiest Minds public issue, which opened earlier this week. The Rs 600-crore issue includes a fresh issue of Rs 240 crore and an Offer For Sale (OFS) of up to Rs 360 crore. Route Mobile, which provides cloud-communication platforms to Over-The-Top (OTT) players and mobile network operators, will become the first in this space to list on stock exchanges. The company has garnered strong response from investors so far, raising Rs 180 crore from 15 anchor investors.

Issue details
The issue opens today and closes on Friday. Shares are being offered in a lot of 40 equity shares and multiples thereof and the price band has been fixed at Rs 345-250 per share. The offer will include a public issue of 1.71 crore equity shares of Face value Rs 10 each, comprising a fresh issue of 68.57 lakh equity shares. Offer for Sale will be for 1.03 crore equity shares. The composition of the public issue will see Qualified Institutional Buyers (QIB) get 20% of the shares on offer, Anchor investors get 30%, HNIs get 15% and retail investors get 35%. The company seeks to use the collections from the offer for the repayment or prepayment, in full or part, of certain borrowings of the company, to make strategic acquisitions and for the purchase of office premises in Mumbai.

Business offerings
The company is among the leading CPaaS providers to enterprises, OTT players and MNOs,” noted Kotak Securities in a recent note. Along with this, Route Mobile’s strengths include MNO focused suite of products which the company could with its acquisition of 365squared to include SMS analytics, firewall, filtering and monetization solutions. “Route Mobile has a diverse enterprise client base across a broad range of industries including social media companies, banks, financial institutions, e-commerce entities, travel aggregators and other client facing companies,” Kotak Securities added. The brokerage firm has not rated the IPO.

Route Mobile has been ranked as a tier 1 application-to-peer (A2P) service provider internationally and ranked second globally as a tier 1 A2P service provider. The client list includes some of the world’s largest and well-known organisations, including a number of Fortune Global 500 companies. “Being in the category of services known as software as a service (SaaS), is a win-win combination both for companies like Route Mobile as well it’s clients since they don’t have to invest in maintenance of servers and connections apart from uploading different kinds of content,” said Ashika Institutional Equities in a note. Although the company faces stiff competition from international players, it has managed to sustain so far. 80% of the revenue of Route Mobile comes from international clients.

Attractive valuation: Should you subscribe?
Route Mobile’s revenue has grown from Rs 504 crore in financial year 2018 to Rs 956 crore in the last fiscal year. EBITDA margins have remained consistent since the last three years and they have been 10.4% in FY20 and 12.1% in Q1FY21 respectively. “In terms of the valuations, on the higher price band, if we annualize Q1FY21 EPS and attribute it to fully diluted equity post IPO, then asking price is at a P/E of around 18.5x,” the note added. Ashika Institutional Equities have a ‘Subscribe’ call on the IPO.

Route mobile is also a play on the digital push that many have predicted will only bolster from here on. “At the upper end of the price band, Company demands PE multiple of 25.3x on F.Y.20 EPS, which we believe is quite reasonable considering the future prospects of the Company,” said Keshav Lahoti – Associate Equity Analyst, Angel Broking. Keshav Lahoti recommends subscribing to the issue for not just listing gains but for long-term gains as well.

Long-term risk?
On the other hand, Nirali Shah, Senior Research Analyst, Samco Securities is advising long-term investors to stay away from Route Mobile’s IPO. Nirali Shah said that Route Mobile has reported high current liabilities on its books comprising around 55% of its balance sheet. “This along with a low current ratio of 1.17 compared to the peer average of around 2 puts it in a weak spot. Additionally, Route Mobile has witnessed sharp growth in trade receivables which is growing faster than the revenues of the company,” she added.

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Old 09-09-2020, 07:48 AM
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The Rs 600 crore initial public offer (IPO) by Route Mobile kicked off on Wednesday. The price band for the issue has been fixed at Rs 345-350 per share. At the higher end of the price band, the company is seeking 29 times PE on FY20 basis. Analysts said the company has no listed peers. The proxy peers, which have a small presence in services offered by Route Mobile, are Tanla Solutions and Tata Communications. Analysts are positive on the issue and believe the IPO can offer listing pop as well as long-term gains.

The cloud communications service provider on Tuesday said it has garnered Rs 180 crore from 15 anchor investors including Goldman Sachs, Franklin Templeton Mutual Fund and SBI Life Insurance NSE -1.90 % ahead of its initial share-sale offer that opens for public subscription on Wednesday.

The issue would comprise of a fresh issue of up to Rs 240 crore. In addition, existing promoters would offer shares aggregating up to Rs 360 crore in an offer for sale (OFS). This would include shares of up to Rs 180 crore by Sandipkumar Gupta and up to Rs 180 crore by Rajdipkumar Gupta. Investors could bid for a minimum bid lot of 40 shares and in multiples of 40 shares, thereafter. The issue will close on September 11, Friday.

Here's what brokerages said on the issue:

Motilal Oswal Securities: Subscribe
The brokerage said the issue is valued at 29 times FY20 P/E (fully diluted), which is comparable to mid-sized IT firms. It has recommended 'Subscribe' to the IPO given the company's strong presence in niche CPaaS market with high entry barrier and healthy financials. "Given the small offer size and presence in niche IT space, one may get listing gains too," it said.
The brokerage said Route Mobile's balance sheet is lean with negligible debt and healthy return ratios. Its working capital is also negligible as it has a large pre-paid client base that pays upfront, Motilal noted.

Angel Broking: Subscribe
This brokerage noted that the company management has till now infused only Rs 6 lakh capital in the company, and it will command a market cap of Rs 1,990 crore at the higher price band.
"This shows that it is a scalable business model, which can grow without capital infusion. Unlike many other businesses, Covid-19 has led to better growth prospects for the company given increased adoption of digital technologies," the brokerage said.

The brokerage finds the valuations quite reasonable, considering the future prospects of the company. As we are positive on the future outlook for the industry as well as the company, we would recommend to “Subscribe” to the issue for long term as well as for listing gains," it said.

Choice Broking: Subscribe
This brokerage noted that the company has reported a short financial history with mixed set of performance. Over FY18-20, the company’s business has grown organically and inorganically, but profitability declined, Choice Broking said. During the period, it made a couple of acquisitions to boost its product offerings, it noted.

The company has no listed domestic peers, whose business operations are comparable to Route Mobile. "Most of its international peers are loss-making. At the higher price band, the demanded P/E valuation is 28.8 times, which we believe is attractive for a company engaged in mobile technology services. A2P messaging services are most widely used by the enterprise and post-Covid world, migration to the digital world will accelerate. Route Mobile has certain business moat-like scale, collaboration with MNOs etc., which may act as an entry barrier for a new player," Choice Broking said.

Hem Securities: Subscribe
Astha Jain of Hem Securities said the valuations for the IPO comes in at 19 times post issue on Q1FY21 EPS basis. She noted that the company has diversified service offerings for an enterprise client base across a broad range of industries including social media companies, banks, financial institutions, e-commerce entities and has strong distribution reach.

The analyst has a 'Subscribe' rating on the issue as she sees both listing and long term gains.

Dealmoney Securities: Subscribe
The brokerage said the company has diverse service offerings for the enterprise client base and has a strong distribution network. Besides, the company has established a presence in all major geographies, which provides it an opportunity to leverage the growth in the cloud communications space, it added.
"The company has been working towards expanding major mobile communication channels, including messaging, email, OTT and voice. The future prospects of the company look stronger. Hence, we give a 'Subscribe' rating to Route Mobile for the long-term horizon," it said.

Route Mobile IPO: Everything you must know before hitting 'subcribe'

IPO details
The Rs 600 crore Route Mobile initial public offer (IPO) is all set to hit the primary market on Wednesday. The omnichannel cloud communication service provider has fixed the price band for the issue at Rs 345-Rs 350 per share. At the higher end of the price band, the company is seeking 25.3 times PE on FY20 basis.
The issue would comprise of a fresh issue of up to Rs 240 crore. In addition, existing promoters would offer shares aggregating up to Rs 360 crore in an offer for sale (OFS). This would include shares of up to Rs 180 crore by Sandipkumar Gupta and up to Rs 180 crore by Rajdipkumar Gupta.
Investors could bid for a minimum bid lot of 40 shares and in multiples of 40 shares, thereafter. The issue will close on September 11, Friday.

Here is what you need to know about the issue:

Company details
Incorporated in 2004, the Mumbai-headquartered company carries on mainly three operations: Enterprise, mobile operator and business process outsourcing. The enterprise vertical primarily provides a cloud-based communication platform to enterprises. The mobile operations include services such as SMS analytics, firewall, filtering, monetisation and CPaaS (cloud-communication platform as a service) and hubbing solutions. In April 2017, the company acquired a BPO Call2Connect, through which the company integrates the BPO capabilities with its enterprise voice platform. Over 80 per cent of the revenues that the company generates is in foreign currency. According to the ROCCO Report 2020, the company was ranked as a tier I application-to-peer service provider internationally.


Customer base
As of June 30, the company had served more than 30,150 clients since its inception. The company has direct relationships with over 240 mobile network operators (MNOs). It provides its enterprise clients from Africa, Asia Pacific, Europe, the Middle East and North America access to over 800 mobile networks. Top 10 clients account for about 64 per cent of the company's revenues, with the top client contributing 15.45 per cent to FY20 revenues.

Financials
Route Mobile, which has six strategically-located data centres, said its profit stood at Rs 79.60 crore in FY20 against Rs 74.8 crore in FY19 and Rs 58.10 crore in FY18. Return on equity (RoE) stood at 30 per cent for FY20 against 36 per cent each in FY19 and FY18. In terms of PAT margins, the company reported a margin of 8 per cent in FY20, down from 9 per cent in FY19 and 11 per cent in FY18.

In FY20, the company's platform managed more than 30.31 billion billable transactions from its clients and was used by more than 2,700 clients. It managed 24.74 billion billable transactions in FY19. Total billable transactions for the company rose 38 per cent compounded annually, the company said in a presentation. The company has a total of 291 employees (including the ones in subsidiaries). Besides, it has 27 employees working outside India.

Covid-19 response
The company said it responded swiftly to coronavirus by implementing various processes to ensure its operations and services to its customers continue seamlessly. It said it has maintained a robust VPN infrastructure, which has enabled and equipped its employees to work from home to ensure no service disruptions and provide support to its customers.
"This meant that almost its entire team was able to work from home from March 23, 2020 when a national lockdown came into force in India. The company has also deployed security systems to safeguard assets and customer data as well as issued detailed work from home protocols to enable secure usage," Kotak Securities said in a note.

In the three months ended June 30, the company processed more than 6.95 billion billable transactions.
The company's servers are maintained in Tier III datacenters and all components are managed remotely by authorised personnel only and through secured connections.
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