Route Mobile Ltd
NSE:ROUTE
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 368.35
1 879.55
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Route Mobile Ltd
Earnings Call Analysis
Q1-2025 Analysis
Route Mobile Ltd
In the first quarter of FY '25, Route Mobile reported remarkable financial results, with a revenue increase of 14% year-on-year and 8.5% sequentially, reaching INR 11,034 million. This achievement is particularly notable given that Q1 is traditionally the company's weakest quarter. The significant revenue growth came alongside a direct margin growth of 17.6%, illustrating strong operational efficiency. The volume of billable transactions also peaked at over 37 billion, marking the highest quarterly transaction volume to date.
EBITDA rose by 11.5% year-on-year and 14.5% quarter-on-quarter, totaling INR 1,379 million, with the EBITDA margin now standing at 12.5%, up from 11.8% in the previous quarter. However, the profit after tax experienced a modest increase of 1.5% year-on-year, totaling INR 931 million. The PAT margin declined to 8.4% from both 9.5% a year ago and 9.2% in the previous quarter, driven mainly by a higher effective tax rate resulting from increased profitability in the U.K.
A key highlight of the quarter was the acquisition of an 83.1% stake by Proximus Group, which enhances Route Mobile's market reach into mature markets like the U.S. and Europe. This strategic partnership is expected to amplify Route Mobile's product portfolio and generate synergies with TeleSign, further validated by a recent five-year deal between Proximus and Microsoft focusing on digital communication services.
Looking forward, Route Mobile projects FY '25 revenue growth between 18% and 22%, with an expected EBITDA margin of approximately 13%. Furthermore, the company anticipates free cash flow generation to improve significantly, with a cash conversion rate from EBITDA targeted at 50% to 75%. Management expressed confidence that the integration with TeleSign will unlock substantial revenue synergies, although some benefits may take time to manifest fully.
While the revenue growth story remains strong, Route Mobile is facing challenges related to rising workforce costs, which surged by about 27% sequentially, driven by annual increments and one-off retention incentives. These increased costs, coupled with foreign exchange losses and regulatory issues, may pressure profit margins. Nevertheless, the company remains optimistic about maintaining and potentially enhancing its direct margin growth, leveraging innovative products like WhatsApp ticketing and RCS.
About 45% of Route Mobile's business comes from international markets, where price increases for long-distance messaging services have pushed some enterprises towards alternative channels. However, the company continues to capture domestic market share, with a staggering 25% year-on-year increase in revenue within India. As messaging channels evolve, management expects overall traffic volumes, including from their flagship firewall solutions, to improve steadily.
Overall, Route Mobile's first-quarter results reflect a robust growth trajectory amidst strategic partnerships and operational expansion. With a solid revenue guidance and an emphasis on optimizing operational efficiencies, the prospects remain favorable for Route Mobile, positioning it well to achieve its aspirational target of generating $1 billion in revenue within the next two to three years.
You don't have any saved screeners yet
Good evening, ladies and gentlemen. I'm Sagar, moderator for this conference. Welcome to the conference call of Route Mobile Limited, arranged by Concept Investor Relations, to discuss its Q1 and FY '25 results.
We have with us today Mr. Rajdip Kumar Gupta, Managing Director and Group CEO; Mr. Gautam Badalia, Group Chief Strategy Officer and Chief Investor Relations Officer; and Mr. Suresh Jankar, Chief Financial Officer. [Operator Instructions].
Before we begin, I would like to remind you that some of the statements made in today's earnings call may be forward-looking in nature and may involve risks and certain uncertainties. Kindly refer to the Slide #2 of the presentation of the detailed disclaimer. Please note that this conference is being recorded.
I now hand the conference over to Mr. Rajdip Kumar Gupta. Thank you, and over to you, sir.
Thanks, Sagar. Good evening, everyone. Wishing all of you good health and prosperity. It gives me immense pleasure to highlight that Route Mobile has demonstrated an industry-leading revenue growth of 14% year-on-year basis and 8.5% on a sequential basis despite global headwinds and geopolitical situation.
During the quarter gone by, Proximus Opal completed the acquisition of 83.1% stake in Route Mobile. This acquisition will help Route Mobile in entering mature markets like USA and Europe, expand its product portfolio and unlock synergies with TeleSign. We are thankful to all our minority shareholders for approving the related party transactions. Some of these related-party transaction may take time to ramp up. However, the green shoot of the synergy from group was further validated recently when Proximus and Microsoft announced a 5-year strategic partnership on digital communication services, including CPaaS.
As a group, we are working on similar such large strategic deals and we will update you as and when it materialize. The following are some of the key highlights of our quarter gone by. We welcome the new Board members to the Route Mobile Board and it will be a privilege to learn and invite the best practices at Route Mobile from their vast experience.
We continue to gain significant market share in India and have demonstrated staggering 25% year-on-year growth and 12% sequential growth. Route Mobile's largest firewall deal with Vodafone Idea went live in April '24. There were a few teething issues during the month of April, which was resolved during that month.
Our new product revenue continues to witness very strong momentum, registering 94% year-on-year growth and 16% sequential growth. We are India's largest WhatsApp ticketing enabler for Metro as a premier partner of Meta. We have demonstrated similar use cases over RCS II.
In terms of FY '25 guidance, we expect our revenue growth to be in the 18% to 22% band with approximately 13% EBITDA margin. The free cash generation for the business should improve meaningfully during the year and we expect the cash conversion from EBITDA to be within the 50% to 75% band. Further, in terms of our capital allocation strategy, we have done fairly well in terms of our geographical expansion strategy through organic as well as inorganic initiative.
At this point of time, our immediate priorities in terms of our inorganic strategy is to augment our existing product portfolio with few cutting-edge futuristic technology, some of these proposed acquisition may not warrant significant capital to be deployed. Hence we shall continue to maintain a similar dividend payout ratio of up to 20% of our consolidated PAT for FY '25.
Last but not the least, it gives me immense pleasure to highlight that Route Mobile Limited is yet again recognized as niche player in the Gartner's Magic Quadrant for CPaaS '24.
With this, I will now turn it over to Gautam to take us through the financials. Thank you for your time. Over to you, Gautam.
Thank you, Rajdip. Good evening, everyone. We have already uploaded our quarterly earnings presentation on our website as well as on the stock exchange website. Hope you had a chance to go through the presentation.
I'll quickly summarize our financial and operating performance during the quarter gone by before opening the floor for Q&A. The key takeaways from our financial performance in Q1 FY '25 has been the strong revenue growth and the direct margin growth momentum. Revenue growth of 14% and direct margin growth of 17.6% on a Y-o-Y basis, coupled with registering double-digit growth in EBITDA, both on a Y-o-Y as well as on a sequential basis.
As highlighted previously, Q1 is seasonally not our strongest quarter and yet we have delivered an industry-leading growth -- revenue growth. In volume terms, we processed over 37 billion billable transactions in Q1, which is again the highest quarterly billable volumes processed by us till date. Such exemplary financial performance in Q1 FY '25, a large global deal win by Proximus Group, which is a validation of the group synergy. And the VI, Vodafone Idea firewall deal going live, takes a strong foundation for the robust FY '25.
The normalized cash flow conversion from EBITDA stood at 110%, you may refer to Slide 17 of the earnings presentation. In terms of the operating overheads, there were significant increases in workforce cost, that is the employee benefit expenses increased by around 27% on a sequential basis. It includes the annual increments and certain one-off incentives take to employees for retention and to reward them for the exhaustive integration work done by the team to reap the synergies from the group.
We also stopped capitalizing the digital identity project TruSense at Masivian. The employee cost amounting to INR 14.5 million with respect to such capitalization was expensed out during the quarter. In terms of the other operating overheads, there were nonoperating noncash ForEx translation loss of INR 119 million and onetime cost of INR 8.6 million incurred for seeking expert opinions on transfer pricing for the related party transactions with the Proximus group and for the mandatory tender offer.
With this backdrop, let me walk you through our financial performance. In terms of Q1 FY '25 performance, revenue from operations grew by 14% Y-o-Y and 8.5% sequentially to INR 11,034 million in Q1 FY '25. Billable transactions stood at over INR 37 billion in Q1 FY '25 as compared to INR 27 billion in Q1 FY '24 and INR 34 billion in Q4 FY '24.
Average realization per billable transaction declined to INR 0.30 compared to INR 0.33 in Q1 FY '24 due to increase in domestic volumes in India. Sequentially, it remained stable at INR 0.30. We had a net revenue retention of 105%. You may refer to Slide 13 of the presentation.
In terms of direct margin, after adjusting for noncash impact of INR 38.8 million related to refundable security deposits provided to an MNO, which has been amortized and booked under purchase account under IND AS 109. Gross profit margin expanded to 22.1% as compared to 21.4% in Q1 '24 and 21.8% in Q4 '24. EBITDA for Q1 increased by 11.5% Y-o-Y and 14.5% Q-o-Q to INR 1,379 million. EBITDA margin expanded from 11.8% in Q4 FY '24 to 12.5% in Q1 FY '25.
On a Y-o-Y basis, it declined by about 30 basis points, primarily due to reasons mentioned above. Adjusted for ForEx impact of INR 111 million. Profit after tax improved by 1.5% Y-o-Y to INR 931 million in Q1 FY '25. PAT margin declined from 9.5% in Q1 FY '24 and 9.2% in Q4 FY '24 to 8.4% in Q1 FY '25, primarily due to increase in the effective tax rate to 21%. This increase was mainly due to increase in profitability in U.K., which is today taxed at 25% and the implementation of tax in UAE.
During the quarter, we onboarded about 61 new employees and about 60 employees left during the same period. With this, we open the floor for Q&A.
[Operator Instructions] The first question is from the line of Jyoti Singh from Arihant Capital Markets Limited.
Sir, my question is on the promoter holding side, like a post acquisition, it is showing 83%. So how we have done that and what's our planning to reduce it? Because as per norm, this is not...
Yes, Jyoti. So pursuant to the open offer, the promoter shareholding actually increased to 83-plus percent. And we have a stipulated time frame of 1 year to bring it back to the minimum public shareholding of 75%.
So sir, I mean, who will be -- like I don't know whether I can ask -- I mean, who will be participating in this or any one will going to buy from the promoter side?
Yes. So I mean, there are various means to kind of get this done either through block deal up to 2% during the year or through an offer for sale. So we are already kind of working on those avenues to streamline and be compliant with the minimum public shareholding.
So I think Gautam the question was like is promoter going to buy? I think that was the question.
Okay. No. So promoter will be selling and it will largely be open to the investors. It could be institutional, retail, HNI.
Okay. And sir, but first is why we go beyond the 70%?
So in the open offer, so I mean Proximus signed an agreement to acquire about 58% shareholding from the founding family of Route Mobile, founding promoters of Route Mobile. And while they continue to be promoters, but they don't have any shareholding right now in the Route mobile per se. And in the open offer, which was up to 26%, they got a significant chunk in the open offer, which kind amounted to their -- to Proximus shareholding going beyond 75%, close to 83% plus.
The next question is from the line of Nikhil Choudhary from Nuvama.
My first question is regarding any color management can provide on revenue synergy?
Nikhil, as I said in my speech also, there's a large deal win by Proximus Group. It's a 5-year deal we signed with Microsoft and CPaaS is definitely one of the key area for growth. And there are some multiple deals we are working on with Proximus with the large IT companies and other enterprises, which we will announce very soon.
At the same time, we are working very closely with TeleSign because TeleSign do work with multiple aggregators in market. And I think probably we would like to work with them very closely to get all the traffic through Route Mobile channel. And I think that's a strategy we are working or wherever we are competitive as a company as a Route Mobile, we are working on those kind of synergy right now, which you will see the impact in coming quarters.
Sure. So should we assume that in your guidance, you are tracking in those revenue synergy?
I think, yes. Gautam, correct me.
Yes. So Nikhil, I think as we speak, I think we got the minorities approval, I think, around the 17th of June. And then to some extent, I think some of those post minority approval synergies are kind of there in the numbers. And we have also been working with TeleSign and there is a certain amount of revenue throughput that already comes and it has come during the quarter gone by itself. But we definitely believe that some more in terms of throughput will increase in the months to come.
And so today, the guidance that we have kind of [indiscernible] they think the existing run rate with TeleSign. And as and when, as I said, I mean, some of the previous incremental throughput that will come that is today, not baked into the numbers, and that could be an upside.
Second thing, in terms of new product revenue ramp-up, we have seen, that's about INR 100 million on quarterly basis, right? But the kind of revenue we have guided for Vodafone Idea is much more higher, right? The last quarter said that it could be INR 500 crore in FY '25. So just wanted to understand why such a small number for this quarter?
Sorry, Nikhil, can you just repeat your query, I think the connection between Vodafone and the new products?
I think we recognize firewall deal within this, right or we are just recognizing firewall...
No, no, no, new product is without the firewall, without the firewall. Firewall will be reported separately.
Got it. Understood. So one thing I want to understand in terms of guidance, sorry to push -- sorry for pushing this. Is the INR 500 crores if we account for Vodafone Idea and plus revenue synergy -- material revenue synergy from TeleSign. The core business growth looks quite conservative, Gautam. So any color of what is leading to that? Are we still seeing pressure on organic R&D volume?
No. So I think the way we are looking at it, maybe, I mean it's kind of leading to some amount of double counting. So essentially, with Voda, only we get the rev share, right? I mean we generate the revenue from other prices globally, right, which will terminate on Vodafone Idea. And whatever we generate revenues for Vodafone Idea, we get [indiscernible] out of it, which is the firewall piece of the revenue.
Now coming to whatever is being terminated onto the Vodafone's network that includes [indiscernible] TeleSign to Vodafone as well. So to that extent, I mean, I believe there may be some amount of double counting there. And hence, the numbers, I mean, at the gross level, may look a little higher, but when you net it off, it may be a little lesser than the -- I mean, the numbers that we are accounting for.
So in the INR 500 crores of incremental revenue for Vodafone that you are talking about, it would bake in some amount of revenues that would come from TeleSign onto the Vodafone network.
The next question is from the line of Amit Chandra from HDFC Securities.
So just to continuation on the last question in terms of guidance. So if you can tell us what was the incremental or the contribution of the VI deal? Or we should consider whatever incremental is there in this quarter is from VI. And as April was not in the full swing. So maybe INR 100 crores is the quarterly run rate. So maybe whatever guidance for the full year, half of that is assumed to be coming from the Vodafone. So on the base business, assuming that the ILD volumes have been recovering and we are seeing now volumes recovery in the domestic business. So 10% growth in the base business, is it too conservative? Or we can see some upside there also.
So let me just start with this question. Maybe Gautam, you can add to it. So Amit, we have definitely seen a growth in certain traffic coming from ILD site, but we have also seen a huge growth on the domestic volume in India on our platform. At the same time, I think the new product growth, we have seen the 94% growth, which we already shared with you guys. I think overall growth wise, we are working very strongly on our firewall because there are multiple issues we have noticed in last few -- last quarter that there are many gray routes where like delivering messages to the Vodafone network, we try to mitigate those risks.
And I think now we believe that from this quarter onwards, all these leakages, which was there and there are still a few leakages, which we're trying to highlight Vodafone Idea to overcome. And Vodafone Idea is completely supporting us. And I think the current firewall and its capabilities, we believe that volume may increase. But there are certain brands who have cut down their volumes for sure, which is like they just wanted -- don't want to spend that kind of money.
But in terms of Route Mobile volume, we have seen a stable volume as plus there is a little growth as well on our ILD volumes. Gautam?
Yes. And just to highlight, Amit, I think this is not a seasonally best quarter for us. So I think gradually, I think the traffic will ramp up further.
Okay. And also in terms of the revenue from OTT, we have won some deals there. So obviously, that is showing up in the new growth areas. But can this piece grow much faster because the ramp-up that you're seeing on...
Yes, Amit, you're right. Definitely, yes, because quarter 2 and 3 because of the festivity, I think we will definitely going to see some growth on those side as well.
So any quantification you can please share?
Probably, no, Amit, we will not quantify but what I can just share with you right now, yes, we have seen a growth already because there were some large campaign happened in this month and we have seen some growth. And we believe in this quarter because of certain more such events are going to happen and we will see growth. So I may not quantify at this point of time but I can only share that the things are looking good at this point of time for ILD business.
Okay. Now the only thing is that, that confidence has not been reflected in terms of the guidance or we are being more conservative as we move into the year, we can see how it progresses but obviously the traction is...
Amit, I think at least when the entire CPaaS market is growing at lower single digits, like we as a company giving 18% to 22%, still as one of the best guidance we are giving based on certain clear ideas we have about our pipeline. So I think if we overperform definitely in the past, we have done but we are not trying to be conservative out here. But based on the current market scenario and if you see the entire CPaaS growth globally, we are still giving a best guidance to the market.
Okay. And sir, now with the new management fully coming in and being the first quarter, any changes we used to work or any changes in terms of the sales approach or in terms of how we are seeing the market. And anything if you want to highlight in terms of the change...
Yes, yes. Definitely, there is a lot of positive things to highlight because of Proximus as a group. We've got a direct access to large enterprises like Microsoft and there are many enterprise access we already received and we are working on certain large contracts because of them. So I think on overall side, if you see the deal value, the entire partnership with Proximus is going to help us to win more large accounts, which we are going to announce very soon. I think the entire management proxies very supportive.
My role has now extended not to only just to Route Mobile, but as a group. And I'm here to bring more synergies to Route Mobile and my idea is to how we can optimize lots of other costs for TeleSign and other group to make Route Mobile the biggest story together.
The next question is from the line of Dipesh from Emkay Global.
A couple of questions. First is about, I think you indicated about CPaaS market is growing in low single digits. Seems to be very muted growth compared to where the market used to grow earlier. So if you can give just some sense about what factor is affecting growth. This year, obviously, because of specific large deal as well as related party pass-through revenue related thing, we are benefiting. But from structural medium-term perspective, if you can give some sense -- what affecting growth and how you expect it to change? And I have some follow-up, but maybe you can answer it first.
Yes. Let me just answer this question, Dipesh. So as a group strategy, we are very -- we know the potential of domestic market, the kind of success we have seen in India, the kind of success we have seen in Middle East market, at the same time in LatAm. We want to replicate this success again to various markets where we are not operating for, there are markets like Indonesia, Cambodia, Philippines, Malaysia, and other markets in Africa, along with Mexico, these are the markets where we're going to focus completely on the domestic side of the business, which is a very sticky business and we believe that market is going to grow multifold.
And we as a group, we already have a mandate to do that and we are working on those strategies. So it is not about just if you see the overall growth on the international traffic terminating internationally has been seen some kind of a degrowth but if you see the domestic use cases has increased multifold, and that is the exciting thing for all the CPaaS players to look at right now, where we have seen the growth in domestic market where you -- any market you operate from right because of the digital adoption and various other points. You can go to the next question, maybe Gautam can answer.
Rajdip, just continuing on this question. Now in a way, you are indicating same market, unlikely to grow that fast. That is one would interpret because your focus was on expanding into other markets to maintain momentum rather than you finding similar growth is possible, which we earlier used to see in the same kind of market.
It's not like that way. As I said, India is still -- if we see it's a very large market and the digital adoption in India is increasing multifold. So the market in India is still going to grow multifold, and we will definitely get a benefit out of that. And if we talk about the Africa market or the LatAm market are also going to adopt more digital channels and all the CPaaS companies or a company like Route Mobile who are already based out of those markets, we'll definitely get advantage of that.
So it is not about just international story that international players permitting messages to different domestic markets, but it is all about the domestic enterprise is also getting stronger than better use cases they are using right now. So I see it's a combined story together, Dipesh.
Okay. Second question is about, I think, what kind of changes, let's say, we made in sales process compared to when Route used to be stand-alone kind of entity? And similarly on accounting side, I think some of the things which I think Gautam earlier alluded about some of the expenses earlier capitalized now expense. So if you can give just sense first on business side, from sales side can you give what kind of changes we made?
So probably, we will not be able to share publicly about our sales and strategy that how we are definitely working on multiple lever points. And I think we believe that sales and strategies are very good right now. And now it's a combined team of TeleSign and Route Mobile working together to gain more access to enterprises domestically and international that's only thing I can share at this point of time. But on your second question, Gautam, you can answer.
Yes. So Dipesh, I think on the capitalization bit, I think, TruSense if you look at it, since TeleSign has a more evolved product on digital identity. And as for the related part of resolutions that were kind of approved by the minority shareholders. We have already shared that you would be licensing, I mean their digitalized entity stack to our customers. So in a way, I mean, we're looking at onsetting the TruSense development and incremental development, while the product is already kind of being monetized with enterprises.
And hence, we stopped the capitalization of that product and started expensing out the employee-related cost and also amortizing, I mean, the cost related to TruSense.
Question was Gautam, more about any other thing because this TruSense you called out, so we are aware, but any other accounting change happened because of, let's say, post merger...
No, no, there isn't any accounting changes change per se, but I think the systems and processes have become more robust. There is more accountability and which is actually good, I mean, from a -- so we are able to kind of now, I mean, track I mean we have been doing that in the past, but I think now with additional reporting and staff, I think things have become more robust, which others well for us.
Okay. So post transaction only changes is on TruSense and then a robust process, no other changes in accounting perspective.
That's correct.
Understood. And I think Rajdip you earlier alluded about some RPT synergies will take some time to materialize. So if you can help us understand because if I look postal ballot approval, number was fairly large for next 3 years number was mentioned. If I put that into context of the guidance what we gave, guidance is not that strong. If I adjust for Vodafone and then residual kind of thing. So if you can just help us understand what is likely to realize immediately? And how one should understand this synergy benefit playing out?
So Dipesh, as I said, like 18% to 20% guidance is still one of the best industry-leading guidance. And how the synergy will pan out, probably, I may not able to share. Gautam, do you want to share anything on that?
Sorry, Dipesh, can you please repeat what is your exact query?
So exact query is about -- I think Rajdip in earlier comment made about some of the RPT benefit is likely to realize inQ1, Q2, Q3 kind of thing and some of it will take some time to materialize. So I just want to understand what is immediate, what is -- what will take time?
So I think cost of sales will be immediate. I mean, for whichever routes, I mean we are more efficient or they are more efficient, that will be immediate. What will take a little bit of time is in terms of cross-selling the new products, where they will be cross-selling our omni-channel stack and we'll be cross-selling their digitalized entity stack. So that will take a little bit of time because there are some regulatory challenges in terms of data privacy regulations and stuff, which needs to be kind of adhered to, I mean locally. The data localization, which has to be done, I mean, locally for some of the new geographies. So some of these things, I think, will take a little bit of time but the cost of sales and then to an extent, the entire share service, which is contemplated out of India, that should start to flow in from this quarter.
I mean the planning would already be I think this quarter, I think from next quarter, you will see some of those cross charging revenues of the company.
So from Q3 or Q2, I missed because you voice...
Cost of sales, as we said, it's already kind of happening. I mean from -- I mean, immediately after we started to get the minorities approval. In terms of the cross charging on the shared services that will happen from Q3 onwards.
Understand. Two questions last from my side. First is about the INR 38.8 million, which you've called out refundable security deposit related accounting amortization. Can you help us understand the nature of it? Because it seems to be -- we have earlier also signed some firewall deal, but this is something new, first time we're hearing.
This is not firewall deal. This is essentially -- I mean, an advance to a supplier where the supplier has kind of rolled out a decent price discount. And our usage with that supplier is almost 3x of that amount. So per se, I mean it is part of a regular course of business. And I mean, by November, December, I mean, they should be of our books as well, I mean, in terms of the usage.
And then last question from my side is about tax rate. This quarter, obviously, we have seen some uptake, but...
Sorry, sorry Dipesh, just wanted to kind of reclarify I think your query was on that INR 38.8 million impact on the P&L, which is noncash.
That's right.
Okay. Okay. This is for the security deposit that you have given for a firewall deal. And that security deposit essentially is deal being treated under IND AS 109 accounting standard. And hence, there is a noncash charge to the purchase tax -- and the interest and on that security deposit is charged is related to the other income.
So the question was this kind of deal we have said earlier also, I presume this is for large telco IL deal, which we start...
Yes, yes. So that's correct. That's correct.
That pertains to it. But we have signed in the prior quarter also some of those large deals in different markets. At that time, we have not seen such accounting adjustment. This is any different than rest.
Yes. Some of those deals, I think that thing was a little different because those deals allowed for settlement of the invoices from the advances, whereas here, it is kind of a security deposit.
Okay. And I think then you gave something telco-related discount. I am not clear, let's say, what...
That is a different deal altogether, which is I mean, related to one of the short-term loan that we have taken, which we have called out in the cash flow, which will get -- which is an advance to the telco, which will get consumed by November, December of this financial year -- of this calendar year rather.
I think I have a last question on tax rate. If you can give some sense about what one should model because you give reason for U.K. business profitability and UAE increase but not for current year, obviously, we get sense about 20% kind of number, but medium-term what number is reasonable?
Yes, it should be in the vicinity of 18% to 20% that should be the broad vicinity of the tax rate.
The next question is from the line of Swapnil from JM Financial.
My first question is with respect to the advance to the supplier that you called out. Just wanted to get a sense of like why the sudden change in policy because I don't think we have been doing such kind of deals in the past. Any particular reason we felt that such kind of business are necessity?
No. So it essentially is -- I mean supplier was willing to offer at discount, I mean, our throughput [Technical Difficulty] value. So per se, I mean, we would have used this offer, I mean irrespective of discount. So it made all the sense for us to kind of give the contract for supplier and avail the report.
And now assuming you're getting a decent discount because of this deal. Would it be fair to say that your gross margins once this deal is over will dip a bit because then the discount will not be available to you?
I mean, we'll see it at that point in time, Swapnil, but at this point in time, we are enjoying the benefit of, I mean, that discount.
There is always -- we can always negotiate with the same deal, right? But again, as I said, there are lots of increment on our new product line also. So it is not about just one deal we are talking about. We have multiple deals right now and I think most of the deals we will definitely try to negotiate with the operator to extend this deal in future. But right now, based on the new product line growth, I think we believe the affordable gross margin guidance we have, I think we will always maintain that.
Got it. Got it. The second question is with respect to your employee expenses. Now there you called out a certain increase in this particular quarter. And just wanted to sense like how should we look at your employee expenses going ahead? Will it continue to be in the same run rate of this quarter? Or there will be since it was kind of a one-off, there will be a dip?
Yes. So Swapnil, at this point in time, I think there are a few one-offs. So I think it will be worthwhile to kind of assume about a INR 20 crores, INR 21 crores kind of quarterly run rate.
Okay. Got it. And my next question is with respect to your intangible assets under development...
Sorry for this INR 20 crores, INR 21 crores of monthly cost, not quarterly.
Got it. Got it. With respect to your intangible assets under development, you called out INR 28.7 million in this particular quarter. While in the beginning, you mentioned that you're not capitalizing [indiscernible] expenses anymore. Can you just give a sense on what is the nature of this particular line item then?
Yes. So there were 2 projects that were being kind of developed by Masivian along with Route Mobile, one of the product, which is TruSense as we called out, I mean, we would kind of look at the more evolved stack of TeleSign for cross-selling. So I mean that's your stock capitalizing and we're already monetizing it with a lot of banks and enterprises there. But the other projects, I think, which was being capitalized continues to be capitalized.
Any time period as how to long this will continue and what would be the overall capitalization sitting today?
So I think in terms of the value, I think it should be on an average close to 1 million in a year. And I think we are towards the fag-end of the development of that project and it should, I think, be done, I think, in 1 year, 1.5 years time.
Okay. Got it. And sir, last bit on your top line, by any chance you can call out what is the value actual that you expect from because of the Microsoft deal and starting when can we expect that to come to your P&L? And a related question, like we have been in the past mentioning about the Amazon deal across [indiscernible] . We haven't heard of late any particular mention on that particular revenue. If you can just elaborate on that as well.
So Swapnil, we can't call out. I mean, some of these are very, very confidential. But as I said, the Microsoft deal, I think, is a large 5-year deal. And there is a lot of incentive for Microsoft to start using the Proximus CPaaS stack for termination. So I mean, we will tend to benefit from that Microsoft A2P messaging termination. And on Amazon, I think we have seen good, good traction, I think, in terms of India in terms of some other geographies.
I think as I mentioned, there was -- we already started getting some traffic for U.K. termination from Amazon. And we already testing few more destinations. I think we have already signed total 10 destinations. And there is already a test process going on, which we believe will take another few weeks to start a new destination, but right now, we are serving them for India and U.K.
Just a follow-up to that, Rajdip. Since we have been talking about so many different types of deals and the expectation is that a decent proportion of that revenue should start accruing in FY '25. 18% to 22% guidance despite all the -- so many initiatives. Looks for that conservative and in...
Swapnil, as said in the past also, if you see our history, probably the last year is only a year where we guided something and we failed to achieve that, honestly. But in past also, we have overachieved our numbers. Based on the current market scenario, the current spend by some of the -- I think the spend cut by some of the large OTT players I think based on overall scenario, I think 18% to 22% is still a very good guidance, which I believe.
And definitely, we have a tendency to overachieve our numbers. We will definitely work towards it. And you are right, we do have a very strong pipeline, a very strong deal, which is going to come very soon. But some of this deal may take some long time also. Onboarding with customers like say, large enterprise customers take 3 to 4 months or sometimes 6 months also. So how much time it takes to actually start to come in as a revenue to our portfolio, we cannot comment at this point of time.
But based on the current scenario, like current pipeline and current customers, which we have already onboarded, that is the kind of guidance we are giving to the market.
The next question is from the line of Gokul Maheshwari from Awriga Capital Advisors LLP.
So in the recent commentary, you -- even in the press, you've had this aspiration of wanting to achieve $1 billion of revenue in a 2- or 3-year time frame. So keeping the guidance for FY '25 aside, given the current market conditions. Is that something which is still in your overall scheme of things? And -- or is that still an aspiration? Or is there a concrete plan to really achieve that particular guidance because if you were to achieve what you've envisaged for FY '25 to achieve $1 billion is going to be a fairly steep climb in '26 or '27. So any comments on that would be helpful.
So Gokul, if you see the kind of deals which we are working on right now and the kind of support we are getting from the Proximus group. And as I said, large deal wins like deals like Microsoft will definitely get us to that $1 billion revenue. And we are still having our aspiration to achieve that $1 billion, and we are very much sure that we will achieve that number because we can clearly see the synergy between both the companies and how we are going to move forward.
And we have already laid down our plan to reach $1 billion in the next 2 to 3 years down the road, and we are working towards that and there is no change as such in terms of my aspiration or the company's aspiration to generate $1 billion revenue as a Route Mobile. We are very much intact with our vision and our guidance also.
The next question is from the line of Keval Shah from Banyan Tree Advisors.
Just wanted to know more about ILD volumes. Sir, did you see any growth in the current quarter versus say H2 effect or the volumes remain impacted...
Sorry to interrupt. Mr. Shah, your voice is pretty much muffled. Could you please use the handset, please?
Am I audible now?
Slightly better, sir, please go ahead. Can you please repeat your question?
Yes. So just wanted to know more about the ILD volumes. So in the current quarter, did we see any growth or the volumes remain impacted as compared to, say, H2 of FY '24?
Yes. So in terms of ILD, I think we have definitely seen growth in terms of [indiscernible] volumes on a Y-o-Y basis.
And the second question is, so are these players moving the traffic to other channels or they have basically cut down the budget because I'm seeing that Amazon India started using WhatsApp for the deliver update and so?
So Keval if you see -- I think there are multiple channels available and people are exploring the different channel. But again, SMS is one channel, which is far better in conversion ratio. All these large OTT players are definitely believing in that conversion ratio on SMS is far better than all other channels, based on various reasons. And I think we always believe that definitely, there is -- maybe this will drop in overall volume for ILD in long term. But as a company with a firewall at BSNL and with Vodafone, we are very well placed in the current scenario in India with market where we believe if we do the right job with our firewall and which we are doing right now, we will definitely see some growth in our overall traffic in ILD business.
The next question is from the line of Pradeep Rawat from Yogya Capital.
So my question is regarding the change in parentage of the company. So would it be probable that domestic banks would be hesitant to give business to Route Mobile now as the parentage is foreign now?
Why so? Because all our servers, everything is -- there's no change Route Mobile. Everything is within countries, we are serving completely guided by Indian law. I don't see there's any things we have done post this merger or acquisition. I don't think that's question, right? Because there's no change as such. Everything remains as it is what we were operating before.
And the next question was regarding realization. So over the years, our realization has been falling. So what could be the reason behind that?
So this is a function of, I think, the change in geography mix. So like if the volumes in India are increasing, we have to realize [Technical Difficulty] southward impact on the realization.
And my next question is regarding our promoter. So why did our promoter sold a controlling stake in Route Mobile, which is present in a growing market for stake in a company that is present in slow growing markets like U.S. without any controlling stake. So I just wanted to understand the thinking behind that?
I think I've explained this multiple times, [ Pradeep ] in various forums. And as I said, with the combined deals, which we have won such as Microsoft and some of the deals, which we're working on is only possible because the large partner sits like these. And I think there was a multiple reason to do this. I may not say all the reasons. But as I said, what was best for the company, I have taken that call. That's the only thing I can say right now.
The next question is from the line of Ronak Chheda from Awriga Capital.
I have a couple of questions. Firstly, on the Proximus [indiscernible] about growth in direct margin and in your opening commentary, Gautam, did talk about...
Ronak, your voice is not very clear.
Am I clear now?
Yes. Go ahead.
Gautam, just wanted to understand on direct margins per se, can you quantify the current guidance in terms of growth rate for direct margins?
On the growth rate for direct margin. So I think -- the growth rate on direct margin will be great better than the revenue margin growth because of our direct margin expansion plus yes, it will grow in line with some of the revenue growth.
So for this quarter, you've grown faster, should we assume a similar this or it would be in line with revenue?
Yes, I think we should be able to maintain this and because of the new products as Rajdip said, we'll be able to also expand it. So the only thing -- only thing that Ronak I'll just call out here is -- it also is a function of the some of the related study on that. May be a little dilutive, I mean, from a direct margin and EBITDA standpoint, but it would be, I mean, accretive or at par with the EBIT margin.
My second question is almost 45%, 47% of our business comes from territories outside of India, right? So we understand what is happening in Indian markets and the customer is choosing to either shift or cut down on their expenses. But can you talk about the volume growth in markets which are of India let's say, for the current quarter on a sequential in a Y-o-Y basis. And in terms of your guidance, what is the outlook for markets ex of India? Can you talk about these markets? And what are the trends which we are seeing there? The existing market, not the newer ones.
Yes. So I think we've witnessed some growth, I think, in terms of the rest of the world volumes as well. But you're absolutely right. I think in geographies where the ILD prices had gone up very significantly. I mean some of them were kind of quoting at $0.15, $0.20, there is a natural pushback from the enterprises to use the ILD ATP messaging route, and that's where, I mean, they're looking at either gray routes or alternate channels.
So I mean there is some degree of headwinds, I mean, in some of those markets. But for market, sir, I think the pricing is more palatable, I mean to a lot of these large enterprises. I think we continue to witness the volume increase.
And last question is on RCS. What we understand is the pricing for RCS is between SMS and WhatsApp is. And we read about Rajdip's comments in the press about how it started this technology. So just wanted to understand, let's say, when you are envisaging the kind of growth rate over the next 2, 3 years, and if these platforms like RCS and WhatsApp will be scale up, your profit growth would kind of not mirrored the revenue growth rate because the realization for units will come down significantly. So just wanted to pick your thoughts on how you are seeing profit growth in terms of over next 2 to 3 years?
I think, Gautam, you can add to it , but I think RCS prices and Whatsapp prices are better higher than SMS for sure. And definitely, there's a higher margin than SMS in both the channels.
So Rajdip, when you're looking at, let's say, 25% kind of appropriate over the next 2 to 3 years for the current business, and if your -- and your direct profit grows in line, direct margin growth in line are faster. Should we assume a similar trend for other profits also when the channel sits below line items as well?
Gautam, you can just add to this.
So Ronak, I think you're absolutely right. I think on the new products, we are already witnessing I mean, staggering growth rates. I mean, so quarter-on-quarter, 15% Y-o-Y 94%. So I think we will be able to kind of have a similar kind of a play on RCS as well. And then the good thing is, I mean, even TeleSign, I mean for all these customers, there are now requirements, I mean, that they have for RCS for WhatsApp. And we are seeing some good conversations, good, good pipelines, I think, being built on those products as well. So I think it looks much brighter I think, on the new products worked and give us maybe a couple of quarters, we should be able to announce some big deals on both those accounts or both these platforms.
The next question is from the line of Pankaj Kumar from PK Shares & Finance.
My question is regarding the gross profit margin, EBITDA margin and PAT margin. We have a competitor, which is listed on Indian securities markets. And it has a very good profit margin compared to [indiscernible]. I would like to know why is there such a gap between the two companies' profit margins?
I don't think I should comment on that. Like maybe Gautam, you can answer the other questions.
So Pankaj, I think we have consistently been kind of trending around this kind of margin. And I can -- I think we can only talk about our numbers. I think -- and in terms of given our guidance, I think we believe it should be -- I mean, in that vicinity with a little bit of an upward adviser in terms of margin expansion. And that's where I think we are.
No, I would like to understand from you, like their other player has the same business as yours? And why is it able to earn better margins than yours? I mean why can't we achieve the same margins?
Pankaj, it will be very difficult for us to kind of comment on what others are doing. I mean we can comment for our performance. And I think if you look at for the last 8, 10, 12 quarters as well. I mean you would have been kind of trending in this kind of margin. I mean there is definitely room for what this margins to improve, as I said, and I think we are working towards well.
The next follow-up question is from the line of Jyoti Singh from Arihant Capital Markets Limited.
So my question, sir, what is our average ILD price versus what are the international competitors charge?
Jyoti, the price that operators give us is about $0.05. And due to confidentiality and I mean competition sensitive, we'll not be able to comment on what price we offer it.
We can't share that Jyoti, sorry.
So are we at discount or at a premium to global players?
Jyoti, as I said, we cannot share any such information over this call.
Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Rajdip Kumar Gupta for closing comments.
Thank you, everyone. Thank you for joining this call and looking forward to answer all your questions. Thank you once again. Thank you, and have a nice evening.
Thank you. On behalf of Route Mobile Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.