Route Mobile shares more than double on debut: What should investors do?

Cloud communication services provider Route Mobile witnessed strong buying demand as the stock listed with much higher-than-expected premium on September 21.

The stock after opening at Rs 708 on the BSE touched an intraday high of Rs 735, rising 110 percent over the issue price of Rs 350 per share. The trading volumes on both exchanges stood at 2.81 crore equity shares at the time of witing this copy, which was much higher than its total issue size of 1.71 crore equity shares.

Given the leadership position in cloud communication service, deepened relations with mobile network operators (MNOs), broadened product and service portfolio over the years through strategic acquisitions and being the only listed peer in this space, all experts advised staying invested in the company with a long-term horizon.

"The sector is very promising. With growing technology and almost every industry becoming an IT-enabled enterprise, there is good potential for this stock as the sector has not yet saturated and is still in a growing stage. Thus a great potential for growth can be harnessed," Gaurav Garg, Head of Research at CapitalVia Global Research told Moneycontrol.

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Keshav Lahoti - Associate Equity Analyst at Angel Broking also recommended staying invested in the company for the long-term.

"We are positive on the future outlook for the industry as well as the company. Route Mobile has a robust business model and consistent financial track record. It also has a diversified and global client base across industries which provides us further comfort on its business. Unlike many other businesses, COVID-19 has led to better growth prospects for the company given increased adoption of digital technologies," he reasoned.

Incorporated in 2004, Mumbai-headquartered Route Mobile is the leading cloud–communication platform provider, catering to enterprises, over-the-top (OTT) players and mobile network operators (MNOs). Its product portfolio includes smart solutions in messaging, voice, email and SMS filtering, analytics and monetization.

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It is also one of the most prominent and largest CPaaS (cloud communication platform as a service) players in the world, especially in Asia, Africa & the Middle East. The company has served over 30,150 clients, since inception and has access to over 800 networks across the globe, over 255 direct connections to telecom operators and over 3,000 active monthly billable clients.

For FY18-20, revenue has grown at a CAGR of 38 percent thanks to its association with marquee clients.

85 percent of the revenue is generated from export markets like Africa, Europe, the Middle East and North America. The company uses a prepaid business model where the client pays upfront, which helps in reducing overall working capital cycle.

"I would suggest holding on to the stock on the listing day even after considering a healthy listing premium. Route Mobile being a market leader in cloud-communication is expected to be one of the biggest beneficiaries of the increasing digitalisation drive in India post-COVID," Prashanth Tapse, AVP Research at Mehta Equities said.

Route Mobile does not have a directly comparable listed peer in India. "The company will become the second only firm in the larger mobile communication services after Affle India which trades at PE 100x. With growing internet penetration and business models adopting a digital platform with cloud services being the need of the hour, we believe investors should tap this opportunity and hold for a multibagger story for 2-3 years," Tapse added.

Want to Buy stock on Listing Day?

If someone is interested to buy the stock on listing day itself, he/she should buy the stock only below Rs 500 levels given the expected growth in the sector and the company, experts feel.

"Adding on the listing day would be suggested only if the listing premium is below 50 percent to allotment price i.e. below Rs 500 per share," said Tapse.

Manali Bhatia, Head-Research at Rudra Shares & Stock Brokers also feels if someone wants to buy on listing day then fresh buying at the levels of Rs 450-500 is suggested for long-term.

"Buying can be done if stock is available at 40-50 percent above issue price as company's established presence in all major geographies provides it an opportunity to leverage the growth in the cloud communications space," said Astha Jain, Senior Research Analyst at Hem Securities who believes that one should hold partial quantity for the long-term and book profits partially.

Outlook on the stock and sector

"Route Mobile provides a communication channel to enable two-factor authentication. Thus, as the digital transactions would grow, the two-factor authentication would become stronger. It has marquee customers, the largest being Google and FB the second largest. Moreover, it has healthy financials, negligible debt, impressive ratios & RONW at 25.58 percent and positive operating cash flow over FY18-20. Though the valuations are decent at current levels, its presence in niche IT segment along with clients across different sectors (such as social media, banking and financial services, retail, logistics) makes investing in stock worthy for long term," Manali Bhatia said.

Astha Jain said, "With company intending to capitalise on the growth opportunity in cloud communications space and endeavour to become a one-stop communications solution provider to enterprise clients and MNOs, the future prospects of the company look strong."