Route Mobile Fundraise: Make Hay While The Sun Shines

Last week, Route Mobile’s board approved a plan to raise Rs. 2,000 crore through the public markets. Just last year, the company had raised funds through an Initial Public Offering.

The offering was well-received and was oversubscribed 89.7 times by institutional investors. Non-institutional investors oversubscribed the offering by 192.8 times, whereas the retail segment saw an oversubscription of 12.67 times.

The company is a communications technology company and acts as an interface between telephone operators and enterprises. For instance, the two-factor authentication messages one receives during online payments transactions, is facilitated by companies like Route.

It offers several other services in the communications space and has diversified into several countries. Only a third of its revenues now come from India.

The company raised around Rs 240 crore through fresh issuances and around Rs. 340 crore through an offer for sale.

Despite the IPO, the company did not really require to raise any capital. The company had revenues of Rs. 968 crore in financial year 2020 (FY20). It also had a cash balance of Rs. 114 crore as of June 2021.

Given the fact that the company was financially strong and did not operate in a capital intensive sector, the quantum and the timing of the second fundraise was surprising.

But the company’s IPO prospectus offers us some clues. The company had planned to use the IPO funds for three main purposes — purchasing office-premises, strategic initiatives or acquisitions and repayment of certain company borrowings.

While the first and the third purposes were mainly one-time expenditures, acquisitions have become a recurring phenomenon in the case of Route Mobile, which has ramped up its speed of acquisitions since 2016.

Between 2016 and 2017, the company made four acquisitions. These acquisitions were made with different purposes in mind. For instance, the 365squared acquisition allowed the company to step into the SMS filtering and analytics segment.

The Cellent and Start Corp acquisitions were made to enter the Middle-East markets.

The company declared plans for three new acquisitions, including the acquisition of SendClean from Sarv.

SendClean operates in the enterprise email space and will allow Route to grow through in this space. Nevertheless, the acquisition of Phonon Communications did not go through.

The company’s shares have been an investor favourite. The stock has doubled since it listed a year back. The IPO investors bought the shares at around Rs 345-350 and the current stock price is around Rs. 1,944 — a six-fold return.

Revenues have increased at a compounded annual growth rate of almost 41 per cent per annum. Net profit margins have also remained stable at around 10 per cent over the last three years.

The company’s stock commands a price-to-earnings ratio of 81 times and a price-to-sales ratio of eight times.

Quite visibly, the markets expect the company to continue growing at a rapid pace. The company allows investors to ride the digitization wave. Unlike other digital start-ups, Route has a strong financial base and has been profitable since inception, according to its management.

It operates on an asset-light business model and has also managed to reduce its debt after the IPO.

Route Mobile is using this opportunity to shore up its finances while it has easy access to capital in the current optimistic scenario.