CPaaS Expansion And Network API Adoption Will Drive Significant Long Term Upside

Catalysts

About Route Mobile

Route Mobile provides a global cloud communications platform that enables enterprises and mobile operators to deliver secure, omnichannel customer engagement at scale.

What are the underlying business or industry changes driving this perspective?

• Accelerating shift by enterprises toward digital, omnichannel communication using WhatsApp, RCS, e-mail and integrated CPaaS solutions is driving new product revenue growth of more than double the consolidated rate, supporting faster top line expansion and structurally higher gross margins over time.
• Deepening partnerships within Proximus Global, including Telesign, BICS and initiatives like Konera, are unlocking high margin routing synergies and large global enterprise access with minimal incremental sales and marketing cost, which should support EBITDA margin improvement and earnings growth.
• Early mover investments in network API capabilities and CPaaS in a box offerings for mobile operators position Route Mobile to benefit from the convergence of telecom infrastructure and enterprise applications, opening new recurring revenue streams with attractive unit economics and EBIT margins.
• Scaling high value telco solutions such as AI powered firewalls and spam protection for major MNOs, exemplified by the multi network deployment with Claro, should drive non SMS revenue mix higher and support continued gross profit margin expansion and more stable cash flows.
• Focused pivot from low margin volume SMS traffic toward higher quality customers, bundled omnichannel deals and sector specific use cases such as transportation ticketing and financial services is improving customer mix, which may support sustained double digit EBITDA growth and healthier net margins.

Assumptions

This narrative explores a more optimistic perspective on Route Mobile compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Route Mobile's revenue will grow by 8.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.8% today to 8.7% in 3 years time.
• The bullish analysts expect earnings to reach ₹5.1 billion (and earnings per share of ₹80.27) by about December 2028, up from ₹1.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, down from 24.9x today. This future PE is lower than the current PE for the IN Software industry at 36.4x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business is still heavily dependent on SMS traffic, with management indicating around 85% of SMS volumes are transactional and only 8% to 9% of revenue currently from new products. A faster than expected structural shift of enterprise communication from SMS to richer channels without Route Mobile capturing enough share could cap or reverse top line growth and pressure revenue.
• Unit economics remain sensitive to pricing and route costs in a highly competitive CPaaS market, and management admits they periodically walk away from low margin volume and are optimizing routing. Any renewed pricing pressure or inability to pass through higher operator connectivity costs could erode gross margins and EBITDA margins.
• The strategy assumes rapid scaling of newer offerings such as WhatsApp, RCS, network APIs, CPaaS in a box and AI firewalls, yet these markets are nascent and crowded with well-capitalized global players. Slower adoption or loss of share to competitors could leave the revenue mix skewed to lower growth SMS and limit earnings expansion.
• The model increasingly leans on Proximus Global related party traffic, routing synergies and large telco and SI partnerships like Tech Mahindra and Microsoft. Any deterioration in these relationships, changes in transfer pricing, or failure of expected synergies and joint go to market initiatives to materialize could constrain incremental high margin revenue and EBIT.
• Recent write offs of advances to an operator and an aggregator and earlier trade receivable issues highlight counterparty and execution risk around minimum guarantees and vendor structures. If similar credit events or misjudged commitments recur despite current assurances, they could reduce reported profit after tax, depress net margins and dampen earnings visibility.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Route Mobile is ₹1000.0, which represents up to two standard deviations above the consensus price target of ₹870.0. This valuation is based on what can be assumed as the expectations of Route Mobile's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1000.0, and the most bearish reporting a price target of just ₹720.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be ₹58.5 billion, earnings will come to ₹5.1 billion, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 15.2%.
  
• Given the current share price of ₹675.6, the analyst price target of ₹1000.0 is 32.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.