A tech company in the communication space, Route Mobile provides cloud-communication, rich-communication, voice, email and SMS analytics services to enterprise clients. These services help companies communicate with their clients through SMS, IVR calls or OTT platforms (example, Whatsapp). The company derives more than 80 per cent of its revenue from overseas markets.
Route Mobile charges for each transaction and its revenues have grown at 37 per cent per annum in the last three fiscals on the back of a surge in the number of billable transactions on its platform. Its working-capital needs are low owing to the prepaid payment options, which are opted by many clients. However, the lack of pricing power (margins have contracted by almost 10 percentage points) is a major concern. The company's plans to search for inorganic growth avenues could be a tacit indication that its future growth is not very likely in its current segment. Also, concentration risk exists for the company, since its top five clients contributed more than 60 per cent to the revenues.
The growing adoption of digital communication methods by businesses to communicate with their customers is expected to benefit the company in the long run. Route Mobile had a debt-to- equity ratio of just 0.2 and has not needed any capital infusion prior to its IPO. The company's net profit has grown at a CAGR of 20 per cent for the three fiscals and the company has an operating margin of about 12 per cent. The stock currently trades at a TTM P/E of 158 and does not have any listed peers.
Computer Age Management Services
India's largest registrar and transfer agent (RTA), Computer Age Management Services (CAMS) provides financial infrastructure and services to mutual funds, insurance providers and alternative investments funds. It derives a majority of its revenue from mutual fund services, with its clientele including four of the five largest fund houses.
With its revenue based on the quantum of average AUM (assets under management) of its mutual fund clients, the company's pan-India presence and a vast portfolio of services are strong selling points. Its dominant market share, coupled with long-standing relationships with clients (owing to high costs associated with the switching of RTAs), is also a big advantage. However, since the prices it can charge are capped by SEBI, any adverse regulatory changes can affect its profitability. Also, the flip side to its dominant position is that there isn't too much space to grow and its future growth is likely to be driven by the growth of the industry's overall AUM.
The Indian mutual fund industry is on a strong footing. Factors such as the growing awareness of mutual funds, increasing participation of retail investors and higher disposable incomes are expected to increase the penetration of mutual funds in the country. The company sports high profitability (operating and net profit margins) and return ratios. Its low reinvestment requirements support its policy of paying at least 65 per cent of its profits as dividends. The company does not have many competitors and is currently trading at a TTM P/E of 63 times.