Route Mobile drops 5% as Q4 earnings disappoint; brokerages hopeful of better times

Route Mobile reported a decline in its Q4 net profit while revenue showcased marginal growth.

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Shares of Route Mobile, a cloud communications platform service provider, slumped 5 percent in early trade on May 7 as the company's Q4 results disappointed the Street.

Struggling through several one-off pressures, the company's net profit for the March quarter declined 9 percent on year to Rs 95.2 crore.

Route Mobile shares fell 4.6 percent to Rs 1,464 on the National Stock Exchange at 12.33 pm.

Brokerages said headwinds, including weakness in the company's subsidiaries- MR Messaging (Europe) and Masivian (Latin America) - along with the devaluation of the Nigerian currency were a major drag on Route Mobile's earnings.

In addition, a decline in international long-distance revenue due to a shift in volumes from ILD SMS to alternative channels such as WhatsApp and RCS (rich communications services) and weak seasonality also dented its bottomline. The changes adversely impacted the company's revenue, which was up less than 1 percent on-year at Rs 1,017 crore in the quarter.

Realisations were also hit by a change in business mix with a higher share of domestic volumes. This resulted in a contraction in the company's EBITDA margins to 12.3 percent from 13.1 percent clocked in the year-ago period.

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Despite the dismal Q4 earnings, analysts are focused on the company's partnership with Telesign, which is set to close in the coming days. Company executives had previously indicated post-merger revenue synergies of over $100 million from the deal, with Route Mobile set to leverage Telesign's and Proximus's strong presence in the US and Europe.

However, Route Mobile refrained from giving out guidance for FY25 as it awaits the closure of its transaction with Proximus. It will offer more details, including synergy benefits, later.

Meanwhile, the company confirmed its deal with Vodafone Idea, which is expected to generate additional revenue of about Rs 5oo crore in FY25.

Brokerages see these deals as a big positive for Route Mobile.

"While core volume growth may face headwinds due to a slowdown in ILD, incremental revenue contributions from the Vodafone Idea deal are likely to more than compensate for these challenges," Nuvama Institutional Equities said.

Nuvama anticipates Route Mobile will deliver strong double-digit growth in FY25/26, led by core business growth and its Vodafone Idea deal. In addition, the comfortable valuation of the stock ushers more confidence for Nuvama, prompting the firm to retain its 'buy' call with a price target of Rs 2,020.

Emkay Institutional Equities said Route Mobile's growth in FY25 will be aided by a ramp-up of large deals, coupled with synergy benefits. However, the firm cut its FY25/26 EPS by 3.3 percent, factoring in the Q4 miss and near-term headwinds. Emkay has an 'add' call on the stock with a trimmed target price of Rs 1,700.

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