Route Mobile coming with an IPO to raise upto Rs 608.69 crore

Route Mobile

• Route Mobile is coming out with a 100% book building; initial public offering (IPO) of 1,73,91,303 shares of Rs 10 each in a price band Rs 345-350 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 9, 2020 and will close on September 11, 2020.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 34.50 times of its face value on the lower side and 35.00 times on the higher side.
• Book running lead manager to the issue are ICICI Securities, Axis Capital, Edelweiss Financial Services and IDBI Capital Markets and Securities.
• Compliance Officer for the issue is Rathindra Das.

Profile of the company

Route Mobile was incorporated as ‘Routesms Solutions Private Limited’, a private limited company under the Companies Act, 1956 on May 14, 2004 at Mumbai, Maharashtra. Subsequently, upon conversion to a public limited company pursuant to a special resolution of the shareholders of the company dated February 15, 2007 the name of the company was changed to ‘Routesms Solutions Limited’ and a fresh certificate of incorporation was issued by the RoC on April 17, 2007. The name of the company was subsequently changed to ‘Route Mobile Limited’ pursuant to a special resolution of the shareholders of the company dated March 8, 2016, and a fresh certificate of incorporation was issued by the RoC on March 16, 2016.

The company provides cloud-communication platform as a service (CPaaS) to enterprises, over-the-top (OTT) players and mobile network operators (MNOs). The company’s enterprise solution comprises two primary components - the front-end that provides an interface for enterprises to integrate with, and a back-end which is directly integrated with over 240 MNOs, and provides access to over 800 MNOs across the globe, as of June 30, 2020, enabling company to leverage their SMS and voice channels for digital communication (Super Network). Further, the backend is also integrated with OTT business messaging solution providers, and is capable of supporting Rich Communication Services (RCS) business messaging, offering multiple channels of communication to enterprises. The company’s omni-channel platform enables enterprises to leverage various modes of digital communication to engage with their stakeholders - including customers, employees and vendors.

The company’s range of enterprise communication services include application-to-peer (A2P) / peer-to-application (P2A) / 2Way Messaging, RCS, OTT business messaging, voice, email, and omni-channel communication. Further, it also offers SMS analytics, firewall, filtering and monetization, SMS hubbing and Instant Virtual Number (IVN) solutions to MNOs across the globe. Its clients include some of the world’s largest and well-known organizations, including a number of Fortune Global 500 companies.

Proceed is being used for:

• Repayment or pre-payment, in full or part, of certain borrowings of the company.
• Acquisitions and other strategic initiatives.
• Purchase of office premises in Mumbai.
• General corporate purposes.

Industry overview

Mobile channels are becoming increasingly important for brands and enterprises to connect with customers, with service providers emerging that look to offer a comprehensive platform that enables the management of this communication. These are CPaaS platforms. CPaaS platform is defined as a service or solution that enables brands and advertisers to communicate to clients through multiple outbound online and mobile channels via a singular centralised platform. There are a number of services that can be considered part of CPaaS platform, including messaging technologies such as SMS, Rich Communication Services (RCS) and OTT messaging applications. Also offered are push notifications, voice services and email. There are varying methods of monetisation with these services, however it is expected that the key to success for CPaaS platforms should not be measured by traffic, but by the number of communication platforms it can offer. Indeed, in the future, it is expected that the the introduction of chat bots, financial services, payment services and expansion into other sectors will be key for CPaaS providers maximising their revenue.

The term ‘mobile messaging’ encompasses the more traditional forms of messaging, such as SMS, as well as popular Over The Top (OTT) messaging services from providers such as WhatsApp and WeChat. Emerging innovative technologies such as RCS messaging and in-application AI chatbots are likely to disrupt the mobile messaging market in the near future. SMS technology appeals highly as a communication channel due to its ubiquity on smartphones. It is expected that this will be the case over the next five years; it is anticipated that 88% of A2P traffic will be attributable to SMS, falling from 98.8% in 2018. Emerging messaging technologies, such as RCS, will begin to accumulate traffic share as operator and handset support increases. However, smartphone update cycles will limit adoption of the technology, thus limiting future RCS traffic. Nevertheless, the technology’s potential cannot be understated, considering the revenue that operators can achieve through implementation of the technology compared to the minimal investment needed to support it.

Pros and strengths

Omni-channel cloud communication platform service provider : The company is among the leading CPaaS providers to enterprises, OTT players and MNOs. Being an associate member of the GSMA and an accredited open hub connectivity solution provider allows company to manage both A2P and P2P traffic for enterprises and MNOs. In addition, Route Mobile (UK) is also an associate member of GSMA. It assists enterprises in their digital communication strategy by enabling multiple channels of communication to deliver messages to their stakeholders - including customers, suppliers, and employees. Enterprises can choose to communicate with the end user through select channels. Additionally, the company has developed a single unified API, an ‘omni-channel platform’, which incorporates communication modes such as A2P / P2A / 2Way Messaging, email, RCS messaging, voice and OTT business messaging, allowing enterprises to reach customers on both traditional and all leading OTT platforms. Further, the company’s competitive position is enhanced by its ability to leverage its existing relationships with clients, whom the company will continue to target for increasing spend on cloud-based communications by cross-selling newer offerings, and expansion into newer sectors and geographies.

MNO focused suite of products: With the use of the company’s analytics based SMS firewall, it assists MNOs in identifying and plugging such revenue leakages due to grey routes, driving additional revenues for them, and for it. It has been able to diversify its service offerings in the mobile operator segment with its acquisition of 365squared to include SMS analytics, firewall, filtering and monetization solutions. The company proactively help MNOs identify A2P revenue leakage and monetize the same. In addition, it assists MNOs in securing their networks and improves their understanding of how A2P messages terminate on their network. On an average, its SMS firewall contracts with MNOs have a tenure of three years, with certain contracts providing for automatic renewal for further two years, which provides company with reasonable visibility and stickiness of revenue from such business. The company also offer its CPaaS to MNOs by which it help them extend A2P messaging services to enterprises and other aggregators. Further, its SMS hubbing solution allows inter-connectivity between smaller MNOs to connect to global operators, and expand their network and services to their subscribers when they roam across the globe.

Diversified and global client base across industries serviced locally: The company 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. Additionally, its MNO clients include over 25 operators across four continents, as of June 30, 2020. In addition, its client base is spread across its continents and as of June 30, 2020, it had served over 30,150 clients, cumulatively since inception. In fiscal 2018, 2019 and 2020 and in the three months ended June 30, 2020, the company’s ten largest clients accounted for 36.08%, 46.00%, 52.50% and 63.65% of its revenue from operations, respectively, while its single largest client accounted for 6.49%, 19.86%, 14.58% and 15.45% of its revenue from operations in such periods. Its diverse global client base helps it limit its dependency on a specific client, industry or geography and reduces financial risk. The company has also leveraged its diversified client base to up-sell to existing clients as and when it launch new services.

Scalable delivery platform supported by robust infrastructure: The company’s cloud-based delivery platform enables it to build and manage applications without having to create and maintain the underlying infrastructure for each client. It is therefore able to provide enterprises with solutions to operate applications without purchasing, configuring or managing the underlying hardware and software. It currently operates at a throughput capacity of over 10,000 messages per second. Its six strategically located data centres provide its operations with the resilience required to meet the requirements of clients. It has adopted secure protocols and offer 128-bit encryption to clients. Additionally, its scalable platform requires limited capital expenditure as and when it adds new clients or new services or when traffic volumes increase. Its platform allows its clients to scale elastically without having to redevelop their applications or change their communications infrastructure.

Risks and concerns

Dependent on arrangements with third parties, MNOs: The company is dependent on its arrangements with third parties and MNOs in particular for connectivity in various regions around the world to provide its services to its clients. Further, in certain regions where it is unable to provide services and solutions in a cost efficient manner and in the absence of such relationships, it relies on indirect relationships with MNOs. Its business depends on the continuity of its relationship with these MNOs. While the number of subscribers and the volume of messages have grown and continue to grow, it may not be able to maintain, identify or secure suitable relationships with MNOs. In addition, consolidation in the telecommunication industry may adversely impact the number of direct or other relationships that it is able to establish with MNOs. If the company is unable to establish or maintain direct or other relationships with MNOs on the existing terms and conditions or the current commercial arrangement, or if MNOs terminate their agreements with it, the company may be unable to attract new clients, which could have a significant impact on its reputation and profitability, and in turn, could have an adverse impact on business, financial condition and results of operations.

Revenues highly dependent on clients primarily located in Asia, Europe and Africa: The company has derived a substantial portion of its revenue from services offered to clients based in Asia, Europe and Africa. If the economic conditions in such regions becomes volatile or uncertain or the conditions in the global financial market were to deteriorate, especially in recent times due to the COVID-19 pandemic, or if there are any changes in laws applicable to its services and operations or if any restrictive conditions are imposed on it or its business, the pricing of company’s services may become less favorable for it. Further, its clients located in these geographies may reduce or postpone their technology spending significantly which would adversely affect operations and financial conditions. Any reduction in spending on cloud communication services may lower the demand for company’s services and negatively affect its revenues and profitability.

Face foreign exchange risks: Although the company’s reporting currency is in Indian Rupees, it transacts a significant portion of its business in several currencies other than Indian Rupees including Euro, U.S. Dollar, AED, Naira and Cedi, Pound Sterling and Singapore Dollar. The exchange rate between the Indian Rupee and foreign currencies has fluctuated significantly in recent years and may continue to fluctuate in the future. Any significant appreciation of the Indian Rupee against foreign currencies in which the company does business can fundamentally affect its competitiveness in the long term. As its Restated Financial Statements are presented in Indian Rupees, such fluctuations could have a significant impact on reported results.

Operate in highly evolving market: The markets in which the company operates are highly competitive and subject to frequent changes due to technological improvements and advancements, availability of new or alternative services and changing client preferences and demands, and can require significant investment in research and development by market participants. It expects competition to intensify further, as new entrants emerge in the industry due to the opportunities available and as existing competitors seek to expand their services. Consolidation among its competitors may also leave it at a competitive disadvantage. In addition, as it expands into international markets, it will increasingly compete with local and global providers of messaging services and telecommunications value added services. Increased competition may result in pricing pressure and force company to lower the selling price of its services or cause a loss of business. In addition, its competitors may offer new or different services in the future which are more popular than its current services. If the company is not successful as its competitors in its target markets, its sales could decline, or margins could be negatively impacted and it could lose market share, any of which could materially harm its business.

Outlook

Incorporated in 2004, Route Mobile is among the leading Communications Platform as a Service (CPaaS) provider and a tier-one application-to-peer (A2P) service provider. Its enterprise communication services include new age solutions in Messaging, Voice, Email, and SMS Filtering, Analytics & Monetization. The company has been able to diversify its service offerings in the mobile operator segment with its acquisition of 365squared to include SMS analytics, firewall, filtering and monetization solutions. The company’s existing direct and indirect reach to mobile subscribers globally provides it the ability to attract varied categories of enterprises that need to communicate with their clients. On the flip side, the company is dependent on limited number of clients for a substantial portion of revenues. A reduction in the services it perform for such limited number of clients or the loss of a major client could result in a significant reduction in its revenue. Besides, the loss in the services of the members of its senior management and other key team members, particularly to competitors, or its failure to otherwise retain the necessary management and other resources to maintain and grow its business, may have an adverse effect on company’s results of operations, financial condition and prospects.

The issue has been offered in a price band of Rs 345-350 per equity share. The aggregate size of the offer is around Rs 599.99 crore to Rs 608.69 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue increased by 13.58% from Rs 8,523.77 million in fiscal 2019 to Rs 9,681.02 million in fiscal 2020. Profit for the year was Rs 691.02 million in fiscal 2020 compared to Rs 545.32 million in fiscal 2019.  The company intends to leverage newer solutions with its existing customers and position itself as the partner of choice for these customers. It also intends to leverage its existing platform, diverse enterprise client base and Super Network to capitalize on the growth opportunity in cloud-communications space and endeavour to be a onestop communications solution provider to such enterprise clients and MNOs.