Emkay Global Financial's research report on Route Mobile
Route Mobile reported better-than-expected operating performance in Q3. Revenue grew by 16.5% QoQ/75.2% YoY to Rs9.9bn (organic 34%) due to change in business mix driving realization, benefits accruing from firewall deal, uptick in ILD rates in India, and continued market share gains. Management is confident of achieving 70%+ revenue growth in FY23; but considering the seasonality, Q4 revenue is expected to be lower than that of Q3. Sequential growth in billable transactions was muted and stood at 27.4bn in Q3 vs. 27.2bn in Q2; growth was impacted by bulk of promotional spends and festivals-led volume uptick, largely captured in Q2, and reduction in non-critical volume of ILD messages due to price increases. Management remains watchful of global macro headwinds such as rising inflation, energy prices, potential slowdown, and geopolitical uncertainties; however, management suggested that the bulk of its revenue comes from traffic terminated in emerging markets and the impact in these markets remains limited so far. We have raised our EPS estimates by 0.8-5.8% for FY23E-25E, factoring in the Q3 performance beat.
We remain positive on medium-term growth prospects of the CPaaS industry and Route; however, poor cash conversion and potential growth moderation would weigh on the valuation multiple in our view. We maintain our Hold rating with a TP of Rs1,340 at 23x Dec-24E EPS (earlier Rs1,500/26x).