Buy Route Mobile; target of Rs 1000: Emkay Global Financial

Emkay Global Financial' research report on Route Mobile

Route Mobile posted a strong operating performance in Q2. Revenue grew 6.5% QoQ to Rs11.2bn, above our estimate, primarily led by international business, ILDO business’ expansion, and domestic volume growth (offset partially by lower realizations), combined with routing synergies. EBITDAM expanded by 80bps QoQ on the back of the 70bps expansion in gross margin. The rebound in operating performance was marred by a one-off write-off of advances amounting to Rs1.36bn to an MNO and SMS aggregator, resulting in a reported net loss of Rs212mn in Q2. The company is prioritizing profitable growth over volumes and is focused on sustaining margins with an upward bias by optimizing the customer mix, scaling up the telco business, which offers higher margins, and onboarding higher-margin accounts. The management expects the growth momentum to continue in H2, aided by new product sales, large enterprise wins, and seasonality. We tweak FY27-28E EPS by ~1%, while raising our FY26E adjusted EPS by ~19%, considering the Q2 performance.

Outlook

The stock valuation (at ~23% cash/market cap) is not demanding; however, consistency in operating performance is key for a sustainable rerating, in our view. We retain BUY, with an unchanged TP of Rs1,000 at 16x Sep-27E EPS.