Route Mobile - Internet, Mobile & Telecom

Stock Opportunities Untested - but worth a good look
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Company did a recent IPO for Rs609crs

  • Primary Issue: Rs244crs
  • OFS : Rs365crs

Pre IPO Shareholding
Promoters: 96%
Friends: 4%

Post IPO promoters holding 66%

Proceeds of issue ~ 240crs will be used for

  • Debt Repayment Rs40crs
  • Acquisition Rs83crs
  • New Office Premises in Mumbai Rs65crs
  • Other Rs52crs

ABOUT THE COMPANY

*** Leading cloud-communication platform as a service (CPaaS) company.**:

  • RM ranked second globally as a tier-1 application-to-peer (A2P) service provider globally in 2017 (Source: ROCCO Report 2017).

  • Developed a single unified API (omni-channel platform) which incorporates communication modes such as A2P, P2A, 2Way messaging, email, rich communication services (RCS) messaging, voice and OTT business messaging, allowing enterprises to reach customers on both traditional and leading OTT platforms.|

  • Acquired 365squared in 2017, which operates in SMS analytics, firewall, filtering and monetization. Globally, telecom companies lost > $11 bn in revenues in 2018 due to delivery of messages through grey routes. With the use of RM’s analytics based SMS firewall, telecom companies can identify & plug such leakages.

  • SMS firewall contracts are sticky in nature with tenure of 1 - 3 yrs on an average. Acquired SMSC, MMSC and firewall technology assets from TeleDNA, to augment the telecom suite.

  • Established relationships with telecom operators: RM had direct relationships with over 240 telecom operators and can access > 800 networks globally.

  • Client base spans diversified industries including social media companies, e-commerce entities, banks, financial institutions and travel aggregators. Its telecom clients include over 25 operators spread across 4 continents

Key Risks:

  1. Client concentration - Top-5 and top-10 clients constituted 44%, 54% of revenues respectively in FY20.
  2. High attrition - The attrition rate of employees for FY17, FY18 and FY19 was 21.57%, 24.82% and 40.32% respectively, however in FY20 it came down to 18.8%
  3. High competition.

India competitors revenues

  • Gupshup Rs519crs
  • Valuefirst Rs470crs
  • Route Mobile Rs956crs
  • Karix (A division of Tanla Solutions)

Global Comparable Twilio US$1.4bn with market cap of US$35.2bn making EBITDA and PAT losses.

Red Herring Prospectus of the IPO
Route_mobile.pdf (6.1 MB)

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Extrapolating 1Q results full year PAT should be Rs110-120crs At the time of IPO company market cap was Rs2000crs. Current market cap post listing 4440. So Stock trading at 37-40x P/E on FY21E. Indiamart is at 66x and Affle at 86x for FY21E P/E

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Facebook and Google contributed Rs180crs and Rs112crs of revenues in FY20.

Interviews

Disclosure: Invested post IPO listing

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Hi
Nice informative blog .
Any details on list of top clients ?

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Hi Venkatesh,
Thanks for starting the thread.
It would be great if you could throw some light on the international listed players and how RM compares( business wise, valuation wise etc)

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I put in my write up global comparable is Twilio US$1.4bn revenues with market cap of US$35.2bn making EBITDA and PAT losses. Actually Twilio is also a client for RM. RM also competes with other global A2P communication service providers including Syniverse and Mblox in the United States, SAP Mobile in Germany and CLX in Sweden.

I

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2 of the FAANG stocks are their top 2 clients

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a good video for RM investors

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Route Mobile has surged 33.9% in four trading days from its previous closing low of Rs 651.10 on 21 September 2020.

Goldman Sachs India Fund, Goldman Sachs Trust Emerging Markets Equity Fund and GS FDS Sicav GS Global Emg Mkts EQ Portfolio bought a combined 24.09 lakh equity shares worth Rs 170 crore at Rs 705.95 per share on 21 September via bulk deal on the NSE.

Meanwhile, Kuwait Investment Authority A/C Kuwait Investment Auth FD 225 bought 5,78,504 shares of Route Mobile at Rs 697.25 per share on 21 September 2020 through bulk deal on the NSE.

Shares of Route Mobile were listed on 21 September 2020. The stock was listed at Rs 708, a premium of 102.29% to the initial public offer (IPO) price of Rs 350 a share. On that day, the stock closed at Rs 651.10 on BSE, a premium of 86.03% over the IPO price.

The Route Mobile IPO was open for bidding between 9th and 11th September 2020. The price band was set at Rs 345-350 per share. The IPO was subscribed 73.30 times. It received bids for 89.23 crore shares as against 1.21 crore shares on offer.

On a consolidated basis, Route Mobile recorded sales of Rs 309.61 crore and net profit of Rs 27.09 crore in the quarter ended on 30 June 2020.

Route Mobile (RML) is a cloud communications platform service provider (CPaaS), catering to enterprises, over-the-top (OTT) players and mobile network operators (MNO). It offer a range of cloud communication services to clients across diverse sectors including but not limited to banking and financial services, aviation, retail, e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom.

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I came across this old ( 2018 ) audio interview given by the CEO rajdip Gupta

https://www.roccoresearch.com/2018/01/22/the-big-interview-with-rajdip-gupta/
He elaborates

  • why they got into the A2P SMS market, why it was lucrative
  • The need for SMS firewall related analytics
  • Their thought process on why some acquisitions ( eg : 365Squared)
  • how they evolved from being a ‘SMS’ company to a more complete player

He seems to have a clear vision on roadmap and more importantly, a knack for monetizing the latest opportunities.

Discl : Invested since IPO listing, looking to add more after watching management commentary
Also eagerly watching what kind of acquisition news comes up ( as indicated by the management during IPO )

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As on expected lines,
Acquisition in the SMS firewall area for 12 crores
The goal here is to deepen the product profile.
New contracts within India and abroad will come as part of this.
IP will also get transferred as a result.
Revenue impact has not been disclosed.
Would be interesting to see how management explains it in their road map.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/109cc16a-931e-4097-9e22-9df94ed8b39e.pdf

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The company has grown multifold without raising of money prior to IPO. However, I came across few facts while reading the IPO offer document, which are difficult to ignore:

Board composition
Chairman of a company plays a pivotal role of providing overall leadership to the board, overseeing and evaluating the performance of the board including Managing Director, guiding the company on strategic matters etc. Route Mobile has given this most important role to founder’s father.
Extract from RHP
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As per Route Mobile’s RHP, its Chairman’s educational qualification is higher secondary and no prior work experience details are provided. While such roles to family members are easily digestible in traditional businesses, but in the tech industry where disruptions are happening at a fast pace, dummy leadership and poor composition of board can be disastrous.

Promoters’ ownership in other businesses
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Promoters have ownership in few loss-making companies having presence in hotel, travel and gaming industries. Isn’t it lack of focus?

Related party transactions

Extract from RHP
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Purchase of services from a promoter entity is of significant amount. It was around 16% of total purchase during FY20 and has come down to very low level (~Rs.1 cr) during Q1FY21. The management mentioned that it was done to avoid any black-listing of tele marketing license and the same has been reduced post change in regulations. Also, the company paid about Rs.2 crore per annum of travel expense to a promoter entity during FY18 to FY20.
The company had planned to come out with an IPO during 2018 also. Coincidently, related party transactions were not very till FY18. Currently, it’s difficult to judge whether things have changed temporarily or permanently.

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Very valid points. Add to that the fact that one of the directors is under IT scanner and is literally not allowed to travel (without prior permission). I am surprised at this lack of due diligence or maybe the blind eye to these points during the IPO. While the listing gains have been exemplary, the last few days seems to be another pump and dump case as well. Additionally, being a FAANG employee myself, I am still unable to understand the moat behind any of their technologies which will allow them to fend off competition especially in other regions.

Disc : Not invested, won’t invest in the near future

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I attached the red herring prospectus so that people can read the same and understand the risks.

I am still unable to understand the moat behind any of their technologies
There is no tech moat. The moat is the existing relationship with 240 telecom operators and 800 networks globally. Can someone else replicate it? Of course they can provided they put the time and effort to do the same.

Can a facebook, google, hdfc bank or hdfc life get the code written for this? Absolutely yes. But they chose not to do this so that they focus on their core business. They outsource this work to say a Route or a Gupshup or Twilio internationally because they dont have the enthusiasm to sit and haggle with multiple telecom operators globally what should be the cost that will be charged per SMS or call.

Promoters have ownership in few loss-making companies having presence in hotel, travel and gaming industries. Isn’t it lack of focus?

Yes it is lack of focus. In an ideal world you would not like such distractions. They own a hotel in Goa which is managed day to day by Accord Group. They also own stakes in a travel company and Cobx gaming. Most first generation enterpreneurs try their hand at 3 or 4 businesses. One works out which they focus on and ignore/ focus less on the remaining.

Then again is this something an investor should be worried about. Most certainly.

Purchase of services from a promoter entity is of significant amount. It was around 16% of total purchase during FY20 and has come down to very low level (~Rs.1 cr) during Q1FY21. The management mentioned that it was done to avoid any black-listing of tele marketing license and the same has been reduced post change in regulations. Also, the company paid about Rs.2 crore per annum of travel expense to a promoter entity during FY18 to FY20.

A few years back someone used their facilities and blasted a mass SMS…buy this stock, it will go up XX% kind of message. They underwent a SEBI investigation because of this. To keep company away from such potential litigation they started doing a quite a lot of work in the promoter entity whose services they have been using. They intend to reduce this to a minimum going forward.

The company had planned to come out with an IPO during 2018 also. Coincidently, related party transactions were not very till FY18. Currently, it’s difficult to judge whether things have changed temporarily or permanently.

Yes they tried to do the IPO and institutional investors were not interested in the IPO (I spoke to one of those investors). Internet, mobile etc was not interesting enough to people 2-3 years back. Post COVID most people have changed their opinion about this business. In those two years they have ramped up business from Facebook and Google which has brought more credibility to their business.

As per Route Mobile’s RHP, its Chairman’s educational qualification is higher secondary and no prior work experience details are provided. While such roles to family members are easily digestible in traditional businesses, but in the tech industry where disruptions are happening at a fast pace, dummy leadership and poor composition of board can be disastrous.

Chairman is not involved in day to day business. They is done by CEO and Chief Strategy officers. By they way its not a tech business. It hard work and grunt work business of relationships and haggling. Interestingly the growth of tech brings volumes and higher revenues to their business.

However, I came across few facts while reading the IPO offer document, which are difficult to ignore:
Please dont ignore them, please highlight them.

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Posting a link to an interview given by the MD on ET now recently.
He explains on why he thinks the current growth rate will continue, the nature of ‘moat’ etc.

Please delete this post if it violates any valuepickr guidlines.

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Interview at MEF the global mobile ecosystem with Route Mobile

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post listing interview

IPO DAY INTERVIEW

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Recently, twilio acquired segment
I found this article justifying the reasons for this acquisition.
https://rudderstack.com/blog/why-twilio-acquired-segment/

One of the reasons mentioned is the commoditization of the API based platform model ( gateway related companies
which actually ferry the data , in twilio’s case, have actually started to come up with their own APIs,thus triggering a price war ).

Twilio has been forced to move up the value chain. The same could happen to route mobile.

The learning here for me is to keep a close watch on pricing pressures,
Management commentary in upcoming quarters.

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https://www.bseindia.com/corporates/shpPublicShareholder.aspx?scripcd=543228&qtrid=107.00&QtrName=September%202020

The latest SHP showing some marquee instt investors

Mutual Funds/ 9 4799066 47,99,066 8.44 47,99,066 8.44 25,68,979 53.53 47,99,066
RELIANCE CAPITAL TRUSTEE CO LTD-A/C NIPPON INDIA FOCUSED EQUITY FUND 1 2472371 24,72,371 4.35 24,72,371 4.35 3,94,840 15.97 24,72,371
Alternate Investment Funds 8 2816692 28,16,692 4.95 28,16,692 4.95 25,74,779 91.41 28,16,692
ABAKKUS GROWTH FUND-1 1 1180000 11,80,000 2.08 11,80,000 2.08 11,80,000 100.00 11,80,000
ABAKKUS EMERGING OPPORTUNITIES FUND-1 1 800000 8,00,000 1.41 8,00,000 1.41 8,00,000 100.00 8,00,000
Foreign Portfolio Investors 27 5876781 58,76,781 10.34 58,76,781 10.34 15,84,258 26.96 58,76,781
GOLDMAN SACHS TRUST - GOLDMAN SACHS EMERGING MARKE 1 800908 8,00,908 1.41 8,00,908 1.41 0.00 8,00,908
KUWAIT INVESTMENT AUTHORITY FUND 225 1 814419 8,14,419 1.43 8,14,419 1.43 3,94,840 48.48 8,14,419
PINEBRIDGE GLOBAL FUNDS - PINEBRIDGE INDIA EQUITY 1 750465 7,50,465 1.32 7,50,465 1.32 0.00 7,50,465
GOLDMAN SACHS FUNDS - GOLDMAN SACHS EMERGING MARKE 1 1133423 11,33,423 1.99 11,33,423 1.99 0.00 11,33,423
GOLDMAN SACHS INDIA LIMITED 1 874445 8,74,445 1.54 8,74,445 1.54 3,94,840 45.15 8,74,445
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@Vivek_6954 and @vnktshb , any clues about lower filter or you think just profit booking? I started tracking and plan to add at lower levels but not on lower filters.
Tried to search some news but couldn’t find any

Thanks in advance

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I presume today being one month from date of allotment,some Anchor investors are profit booking as their holding lock in period gets over.

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anchor lockin of 1 month got over today.

plz do scuttlebutt on promoter business quality for any stock before buying. homework most necessary

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