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.
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.
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.
“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.
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.