Route Mobile Records Weak Operating Performance In Q4, 2022

BUY

CMP: Rs1213  

Target Price: Rs1630

* ROUTE delivered better-than-expected revenue growth in Q4, while EBITDAM missed expectations. Revenue grew by 11.2% QoQ/72.7% YoY to Rs6.3bn. EBITDAM declined 180bps QoQ to 9%, 200bps below estimates due to a miss on gross margins, expansion of sales and tech teams for the Masivian business, and expenses related to events.

* Billable transactions stood at 18bn in Q4 (highest ever in a quarter) vs. 16.3bn/8.8bn QoQ/ YoY. For FY22, billable transactions grew 63% YoY to 52bn. Revenue per transaction, excluding email, stood at Rs0.448 (Rs0.385 including email) vs. Rs0.435 in FY21.

* FY22 revenues grew 42.4% YoY (organic growth of ~33%). ROUTE expects the strong revenue growth momentum to continue in FY23 and has guided for at least 40% YoY growth in FY23. It expects EBITDAM to expand ~150bps in FY23 from the Q4FY22 level.

* We cut FY23/FY24 estimates by 0.4%/2.6% considering Q4 performance. Retain Buy with a revised TP of Rs1,630 (earlier Rs2,150) but lower the target multiple to 32x from 42x, factoring in moderation in medium-term growth assumptions due to macro uncertainties and potential business disruptions in new-age tech companies, corrections in CPaaS firms' valuations and dilution in medium-term return ratios with acquisition-led growth.