Route Mobile Limited — Q3 FY25 earnings call

Call held 28 Jan 2025

Management summary

Route Mobile delivered industry-leading growth in Q3 FY25 and 9M FY25, despite macro headwinds and structural shifts in the CPaaS industry. The company reported strong revenue and gross profit growth, robust cash generation, and an interim dividend. Management highlighted strategic integration with Proximus Global, BICS, and Telesign to leverage combined capabilities and drive future growth, while addressing one-off costs and market dynamics.

Highlights

  • Revenue from operations grew 13.1% YoY to ₹34,006 million for 9M FY25.

  • Q3 FY25 gross profit margin sustained at 21.1%.

  • Adjusted EBITDA margin for Q3 FY25 was 11.9% (₹40.72 crores), with 9M FY25 adjusted EBITDA margin at 12.33%.

  • New product revenue grew 150% for 9M FY25, with quarterly new product revenue CAGR of 40%.

  • Processed 116.6 billion billable transactions in 9M FY25, with average realization increasing to ₹0.304 in Q3 FY25.

  • Cash and cash equivalents stood at ₹9,303 million and net cash at ₹7,457 million as of December 31, 2024.

  • CFO to EBITDA conversion was a staggering 102% for 9M FY25.

  • Board recommended an interim dividend of ₹3 per share.

Key financials

  1. Revenue from Operations 34,006 Mn +13.1%YoY
  2. Gross Profit Margin 21.1%
  3. Adjusted EBITDA ₹40.72 Cr
  4. Adjusted EBITDA Margin 11.9%
  5. PAT Decline -4% -4%YoY
  6. Interim Dividend ₹3

What they filed

Q1 FY27: revenue up 8.2%, net profit down 46.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue209 206 208 183 180 −14%186 −10%221 +6%198 +8%
EBITDA26 24 43 16 16 −38%23 −4%29 −33%6 −62%
Net profit48 29 26 30 33 −31%30 +3%41 +58%16 −47%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Telesign Business (Related Party)
    ₹298 Cr Revenue (9M FY25)₹150 Cr Revenue (Last Full Year)
  • Geographic Mix
    51% India Revenue Share
  • New Products
    150% Revenue Growth (9M FY25)40% Quarterly Revenue CAGR
  • Billable Transactions
    116.6 Bn Volume (9M FY25)38.9 Bn Volume (Q3 FY25)40.5 Bn Volume (Q2 FY25)31.2 Bn Volume (Q3 FY24)₹0.304 Average Realization (Q3 FY25)₹0.275 Average Realization (Q2 FY25)

Guidance & targets

Growth

  • CAGR Growth Growth · next 3 years · Medium confidence 15%
    And then going forward on a three-year basis, I think we already had kind of indicated about a 15% CAGR growth.

    — Gautam Badalia, Chief Executive Officer

  • Q4 FY25 Performance Growth · Q4 FY25 · Medium confidence better than Q3
    I think the endeavor will definitely be to do better than Q3 that we have performed.

    — Gautam Badalia, Chief Executive Officer

Profitability

  • Adjusted EBITDA Margin Profitability · FY25 · Medium confidence 12.5%-13%
    And we still maintain that we will be closer to 12.5%, 13%.

    — Gautam Badalia, Chief Executive Officer

Tax Rate

  • Effective Tax Rate Tax Rate · null · Medium confidence 20%
    And in terms of the effective tax rate, I think it is fair to assume it to be in the vicinity of 20%.

    — Gautam Badalia, Chief Executive Officer

Revenue

  • Revenue Aspiration Revenue · 3-4 years · Low confidence $1 billion
    But that aspiration of $1 billion definitely is an aspiration that we want to achieve sooner than later.

    — Gautam Badalia, Chief Executive Officer

Risks & concerns

  • Structural shift in CPaaS industry due to macro headwinds and artificially inflated traffic.

    medium

    The industry is grappling with issues like artificially inflated traffic and macro headwinds, leading enterprises to evaluate alternate communication channels.

    Management acknowledged

  • Contingent liability related to an exclusive firewall contract in Southeast Asia.

    medium

    Challenges due to increased sanction conditions and structural shifts in the market have led to renegotiation of contract terms, deemed material by auditors.

    Management acknowledged

  • Impact of WhatsApp pricing changes on new product revenue growth.

    low

    WhatsApp pricing adjustments had a 'little bit of an impact' on new product revenue growth, causing it to be 'adjusted southwards'.

    Management acknowledged

  • Related party transactions (e.g., with Telesign) occurring at lower margins.

    low

    Transactions with related parties are happening at EBIT margin levels, which are lower than the company's operating margins, making them dilutive.

    Management acknowledged

Areas of evasion (1)

  • Specific details on LLM infrastructure (NVIDIA GPUs vs. Intel GPUs) were deferred to a separate discussion.

Q&A highlights

3 direct
Shift from SMS to OTT platforms (WhatsApp, RCS) and its impact on margins and opportunities. Direct
we are not only focusing on one channel of communication, but we are focusing on RCS in a big way and in coming days, we believe that RCS is definitely going to be more impactful, I think more value creation than SMS, but I think both the products will have their market.

This question addresses a fundamental shift in the CPaaS industry and how Route Mobile plans to adapt and monetize new communication channels, including the potential for higher value from RCS and conversational use cases.

Asked by Jyoti Singh

Reasons for Q3 growth 'slippage' compared to H2 commentary and Telesign's revenue contribution. Direct
it was only on the domestic front, I think where because we were getting that opportunistic traffic, we lost the traffic in Q3, so that was only the slippage if I were to kind of call it out.

The analyst challenged management on growth expectations, leading to a specific explanation about the loss of 'opportunistic traffic' from a particular bank and clarification on Telesign's revenue contribution, providing insight into domestic market dynamics.

Asked by Pritesh

Increase in employee costs despite minimal net employee additions and the issue of artificially inflated traffic. Direct
in the employee cost base, there is a long-term incentive plan, I think, which is there, which is almost to the tune of about Rs. 5.77 crores, which was not there and that pertains to July to December in 2024.

This question probed into cost structure anomalies and a significant industry-wide issue (fake bot traffic), eliciting clear explanations for both, which are crucial for understanding profitability and market health.

Asked by Yash Darak

3 min read 7 chapters

Detailed narrative

Strong Financial Performance Amidst Industry Headwinds

Route Mobile reported a robust financial performance for Q3 FY25 and 9M FY25, demonstrating industry-leading growth despite a challenging market. Revenue from operations grew 13.1% year-on-year to ₹34,006 million for the nine months ended December 31, 2024. Gross profit margin remained stable at 21.1% in Q3 FY25, and the adjusted EBITDA margin for the quarter stood at 11.9% (₹40.72 crores). The company also achieved a strong CFO to EBITDA conversion of 102% for 9M FY25, underscoring its cash generation capabilities.

Strategic Integration with Proximus Global and Leadership Evolution

The company announced an evolving organizational structure under Proximus Global, integrating BICS, Telesign, and Route Mobile. Rajdipkumar Gupta assumed the role of Managing Director, focusing on international market acceleration and product diversity, while Gautam Badalia became CEO of RML, guiding day-to-day operations. This integration is expected to enrich offerings by leveraging BICS' global connectivity and Telesign's digital identity expertise, aiming for faster product rollout and deeper global support across more than 100 countries.

Growth in New Products and Transaction Volumes

Route Mobile witnessed significant growth in its new product segment, which expanded by 150% for 9M FY25, with a quarterly CAGR of 40%. The company processed 116.6 billion billable transactions in 9M FY25. Average realization per billable transaction marginally increased from ₹0.275 in Q2 FY25 to ₹0.304 in Q3 FY25, driven by a change in the mix of domestic and ILD traffic volumes in India. Next-generation products also grew 21% year-on-year.

Impact of One-Off Costs and Related Party Transactions on Margins

Operating margins were marginally impacted by a one-off long-term incentive plan expense of ₹5.77 crores pertaining to July-December 2024, booked in Q3 FY25. Additionally, a forex loss in Q3 FY25, compared to gains in previous quarters, affected PAT margins. Management clarified that related party transactions, such as the ₹298 crores business with Telesign in 9M FY25, occur at EBIT margin levels, which are lower than the company's operating margins, thus being dilutive.

Addressing Industry Shifts: SMS to Conversational Messaging and Digital Identity

Management acknowledged the industry shift from SMS to OTT platforms like WhatsApp and RCS. They emphasized focusing on RCS for greater value creation and supporting customers transitioning to WhatsApp. The company is developing unique conversational use cases, replicating solutions like metro ticketing in Indonesia. They also highlighted the opportunity in digital identity solutions, which offer better margins and increased stickiness with enterprises by curbing digital fraud, rather than just OTP-based authentication.

Outlook and Future Strategy

Route Mobile aims for a 15% CAGR growth over the next three years. For FY25, the adjusted EBITDA margin is expected to be closer to 12.5%-13%, with an effective tax rate around 20%. The company plans to outperform Q3 FY25 in Q4 FY25. Management expressed optimism about cross-sell synergies from the Proximus Global integration, expecting significant, high-margin opportunities from selling omni-channel solutions and digital identity products to existing BICS and Telesign customers.

Contingent Liability and Market Dynamics

A contingent liability related to an exclusive firewall contract in Southeast Asia was highlighted, stemming from challenges like increased sanctions and structural market shifts. The company is actively renegotiating the terms of this agreement. Management also discussed the impact of 'artificially inflated traffic' (fake bot traffic) on the CPaaS industry, noting that its reduction has shaved off some industry growth but Route Mobile is well-positioned to capitalize on these changes.

This is an AI-generated summary of a publicly available earnings call transcript.
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