Route Mobile Ltd is coming out with an IPO with a Fresh Issue of Equity shares aggregating up to Rs 240 crore and an Offer for sale of Equity Shares aggregating up to Rs 360 crore bringing the total size to Rs 600 crore. The price band is set at Rs 345 to Rs 350 per share for a lot size of 40 shares. The issue opens on 9th September 2020 and closes on 11th September 2020.
Route Mobile Limited provides a Cloud-communication Platform as a Service to enterprises, over-the-top players and Mobile Network Operators. The business verticals of operations are Enterprise: Provides cloud-based communication platform to enterprises; Mobile Operator: offerings in this segment include SMS analytics, firewall, filtering, monetization; and Business Process Outsourcing: provides a range of BPO services.
Its range of enterprise communication services includes application-to-peer /peer-to-application/2Way Messaging, RCS, OTT business messaging, voice, email, and omni-channel communication. Further, it also offers SMS analytics, firewall, filtering, and monetization.
The Revenue from Operations 2018, 2019, and 2020 were Rs 504.95 crore, Rs 844.67 crore, and Rs 956.25 crore. The EBITDA was Rs 80.14 crore, Rs 99.96 crore, and Rs 111.67 crore and EBITDA margins for the same periods were 15.73%, 11.73%, and 11.53%, respectively. The Profit was Rs 46.68 crore, Rs 54.53 crore and Rs 69.10 crore, respectively.
Reasons to avoid IPO
The company’s core activity is SMS and cloud-based communications services for clients which allows them to interact with stakeholders. The service suite offered by the company does not provide the company a competitive advantage against peers who offer communications services along with a wide range of other IT services. Thereby the company has strong competition from established competitors and a weak moat against competitors.
The listing valuation of the company stands at a PE ratio of 25.3x (as per FY20 EPS) which is a higher end of IT industry average, thereby valuing the company at a premium.
The company has a significant amount of current liabilities at Rs 346.28 crore contributing to 55.3% of the balance sheet and a low current ratio of 1.17. (IT companies usually have a current ratio over 2) which indicates the company has larger working capital requirements vs peers
While the company reported as much as 2,787 clients as of FY20, the top 20 clients provided for 65.5% of revenues for the company, indicating that the company has a lot of small-ticket revenue sources and has a high concentration risk from clients, thereby increasing the risk from such concentration. (The revenue share of top 20 clients went up to 76% in Q1FY21).
The company has seen a significant rise in the trade receivables in FY20, which currently stands at Rs 203.7 crore as of FY20. This figure has grown at CAGR 45%, which is faster than the revenue growth rate. This indicates that the company has undertaken aggressive revenue booking methods and could result in a working capital stress if it continues in the future.
Given the weak competitive moat against peers, high current liabilities, high client concentration risk and a low current ratio. We recommend long term investors to avoid subscribing to the IPO.
You can also checkout an exclusive analysis by our research analyst Mr. Anuragh Lodha in which he has shared some interesting business insights and his opinion about this issue. Click here to watch now.
Source: NSE Filings
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