Bumper listing of Route Mobile pegs up its valuation

There is another bumper listing this IPO season — that of Route Mobile. The cloud-based communications platform provider's shares today listed at ₹708. This is more than double its issue price of ₹350 per share. The company’s shares touched an intra-day high of ₹717 on the National Stock Exchange and an intra-day low of ₹625.

At the current price, the market is valuing Route Mobile at nearly 50 times its 2019-20 earnings. If we annualize its June 2020 quarter earnings, the stock is currently valued at nearly 32 times its expected 2020-21 earnings. Whether we look at FY20 earnings or the expected FY21 earnings, the shares seem overvalued. At the issue price, the Route Mobile was valued at about 25 times FY 2020 earnings. Large and mid-Indian IT services companies currently trade at about 28-30 times, trailing twelve-month earnings.

This exuberance in the Route Mobile share price is a reflection of the investor appetite seen during the IPO. The issue was subscribed 73 times, with retail investors bidding for 12 times their quota.

What could also enthused investors about the company’s prospects is that its revenues grew at a 20 per cent CAGR from 2017-18 to 2019-20. The increasing popularity of cloud-based communications platforms, along with Route Mobile’s relationships with mobile network operators and e-commerce companies should aid its growth. The company’s recent move to allow startups to use its products from a public repository can also aid revenue growth.

Route Mobile’s ₹600 crore IPO consisted of an offer for sale worth ₹360 crore and a fresh issue of ₹240 crore. The funds from the fresh issue will be used to make acquisitions pay off debt and to buy office space in Mumbai.

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