Route Mobile Stock: A player in telecommunication segment

In a recent media update, Route Mobile (formerly Routesms Solutions Ltd.), an Indian cloud communications platform as a service (CPaaS) provider, revised their estimates for the upcoming Q2 results. It predicted that revenue would reach a record high in Q2FY23 and is expected to improve even further in the third quarter of FY23. Route Mobile’s Chief Strategy Officer, Gautam Badalia, told CNBC TV-18, “Based on how Q2 is shaping up for us, we’ll record the highest revenue ever, which also portend well for Q3. Further, we are really optimistic about the December quarter.” The Route’s share price responded favourably to this most recent news by giving 3.45% intraday gains when markets were down. While the stock experienced some profit booking as it once more displayed a red candle the very next day.

Route Mobile was founded in 2004 and is headquartered in Mumbai. The company has offices in Asia-Pacific, the Middle East, Africa, Europe, and North America. It provides a wide variety of cloud solutions for many businesses around the world, including messaging, voice, email, SMS filtering, analytics, and monetization. In Q1FY23, their sales increased by 94.72% YoY, followed by PAT growth of 105.29% YoY. Following the same trend, the business intends to have a strong Q2FY23 performance and, based on their FY23 guidance, great FY23 results. So, let’s take a look at what the company indicated in their guidance and see if there’s any hidden investing opportunity.

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Despite severe competition, company doesn’t expect any margin pressure

“We had been projecting a growth rate of roughly 50% for this fiscal year. However, thanks to recent deal victories, we will be closer to 60% than 50%.”, said Gautam Badalia, Chief Strategy Officer, adding, “this is the kind of momentum we are currently experiencing.”

Despite an increase in competitiveness, the company did not observe any effects on margins. A prominent telecom provider’s aggressive pricing forced the firm to lose a client in the first quarter, but it sees no consequence from that and claims that incident was an isolated one. In addition, the company predicted that its transaction volume, which stood at 52 billion last fiscal year, will more than double in FY23.

Additionally, the current market scenario seems precarious; practically all international markets are currently undergoing a bloodbath, which is also being experienced by Indian markets. One could observe the rupee suffering against the dollar, adding to the pressure on foreign exchange reserves. In relation to the dollar, the rupee has already fallen to an all-time low and has corrected against other currencies as well.

However, the situation appears to be favourable for Route Mobile’s exports and top line. The company acknowledged that it is heavily exposed to the UK, but that the recent dramatic decline in the value of the pound will not materially affect it since the majority of its billings, including those from the UK, are made in US dollars. According to the company, 70% of its overall billings are made in US dollars and euros, and they expect to gain from the rupee’s decline versus the US dollar.

Besides this, Route Mobile noted that the company has some financial commitments in euros and that the euro’s decline will be advantageous to the company. “By itself, currency decline benefits us. “Due to currency volatility, we should gain 5–6%”, said Badalia.

Future Plans: Route Mobile aims for twin acquisition

According to a top corporate executive, Route Mobile will complete two acquisitions by the end of FY23 as it tries to expand its business of providing security solutions to fight online fraud.

Route is in discussions to acquire two businesses—a European and an Indian organisation. While the Indian acquisition target will enable Route to provide voice solutions using artificial intelligence (AI) and machine learning (ML) technology, the Europe-based acquisition target will assist it in the development of mobile identification services.

According to Rajdip Gupta, group chief executive of Route Mobile, “as digital acceptance, particularly for banking and payments, develops, so does the risk of digital fraud, we, as communication platform service providers, aim to solve the security issue when it comes to digital transactions.”

We’re working with a telco on the proof-of-concept and will soon begin testing with a few banks, he said. In addition to banks, he continued, other prospective customers for this service in the future include digital wallet businesses.

Univest‘s View: A robust bet for long term

Over the last year, the stocks touched a high and low ofRs. 2388 and Rs. 1052, respectively. From the peak level of 2388, the stock fell sharply as a result of market challenges that affected the entire industry. But now that things appear to be getting better, JM Financial has given the stock of Route Mobile a buy recommendation with a target price of Rs. 1730 per share and a potential gain of 20% over the course of a year.

The stock currently can be seen consolidating sideways, therefore if it breaks the resistance of 1600 levels and it reach towards the 1750 levels. As the upcoming quarter is expected to be one of the best quarters, investors can expect the stock to resume an uptrend and head higher.. Therefore, existing investors can stay invested while others can wait for the stock to get technically bullish through EMA crossover before making a fresh entry.

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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