IPO Analysis: eMudhra Ltd

IPO Ratings: Invest for long-term

About the issue:

The company is a licensed certifying authority that issues certificates to individuals and institutions from digital signature certificates for ITR filings, banking, etc. to enterprise solutions which include digital security, paperless transformation and others. It is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 5 per equity share. The maiden offer comprises of fresh issue of Rs 161 crore and offer for sale by existing shareholders of Rs 251.79 crore, according to its red herring prospectus. The price band of the issue has been fixed at Rs 243 to Rs 256 per equity share. The IPO opening date is May 20, 2022, and it will be closing on May 24, 2022. The issue will be listed on the exchange on June 1, 2022. The IPO market lot size is 58 shares. A retail-individual investor can apply for up to a maximum of 13 lots (754 shares or Rs 193,024).

The objects of the issue are:

• Repayment or pre-payment, in full or in part, of all or certain borrowings.
• Funding working capital requirements.
• Purchase of equipment and funding of other related costs for data centres proposed to be set-up in India and overseas locations.
• Funding of expenditure relating to product development.
• Investment in eMudhra INC for augmenting its business development, sales, marketing and other related costs for future growth.
• General corporate purposes.

eMudhra IPO Details:

About the company:

eMudhra Limited is India's largest licenced Certifying Authority ("CA"). The company's business is divided into two verticals Digital Trust Services and Enterprise Solutions. eMudhra Limited is engaged in the business of providing services like individual/organizational certificates, digital signature certificates, SSL/TLS certificates and device certificates, a portfolio of digital security and paperless transformation solutions, multi-factor authentication, mobile application security, website security testing, IT policy assessment, etc.

The company has strong digital signature certificate expertise and is the only Indian company to be directly recognised by renowned browsers and document processing software companies such as Microsoft, Mozilla, Apple, and Adobe, allowing it to sell digital identities to individuals and organisations worldwide and issue SSL/TLS certificates for website authentication.

The company has issued over 50 million digital signature certificates through the network of 88,457 channel partners spread across India. As of September 30, 2021, the company is serving 36,233 retail customers and 563 enterprises.

As of September 30, 2021, eMudhra's Enterprise Solutions are used by the top 10 banks, 6 top automotive companies and 19 top companies amongst the top 500 ranked companies in India by Economic Times in Financial Year 2020.

Competitive Strengths:

Largest licensed Certifying Authority in India.

The company is a one-stop shop solution provider in secure digital transformation and is well-positioned to capture the favourable industry dynamics in India and globally.

Technology certifications, accreditations and membership in international bodies.

Technology backed infrastructure to support quality and security of services and solutions.

Diverse, longstanding and growing customer base.

Partnerships with leading Indian and global channel partners and enterprise solution partners.

Experienced promoter, board of directors and senior management team.

Company Financials:

Its revenues from operations grew at a CAGR of 13.82 per cent from financial years 2019 to 2021. Its EBITDA for December 31, 2021 and for Financial Years 2021, 2020 and 2019 were Rs 503.56 million, Rs 407.87 million, Rs 322.88 million and Rs 323.10 million, respectively, and grew at a CAGR of 12.36 per cent over such period. Its profit after tax grew at a CAGR of 20.60 per cent over such period.

Recommendation:

Paperless solutions experienced a huge spike in demand for signing documents and is expected to stay for long as digital becomes the future. e-Sign is one of the most important digital and paperless solutions. The Indian government has been laying strong focus on e-Sign which is part of the Digital India campaign.

Company’s retail customers grew from 58,872 as of March 31, 2019 to 115, 905 as of March 31, 2021. Its enterprise customers grew from 249 as of March 31, 2019 to 518 as of March 31, 2021. Further, as of December 31, 2021, it caters to 143,406 retail customers and 626 enterprises. Further, the revenue contribution of the digital products offered under its enterprise solution vertical has consistently grown from Rs 361.78 million in the Financial Year 2019 to Rs 643.43 million in the Financial Year 2021. As of December 31, 2021, its Enterprise Solutions are used by 10 out of top 10 banks, 6 of top 10 automotive companies and 19 out of top 20 companies amongst the top 500 ranked companies in India by Economic Times in Financial Year 2020.

According to company commissioned report titled “Digital Security and Paperless Transformation Market” dated November 8, 2021 from Frost and Sullivan, eMudhra is the largest licensed Certifying Authority in India with a market share of 37.9 per cent in the digital signature certificate market space in Financial Year 2021 having grown from 36.5 per cent in Financial Year 2020. It is also the only Indian company to be admitted as a member of European Cloud Signature Consortium as well as Certifying Authority/Browser Forum, a global forum that governs the use of SSL/TLS certificates. It is also the only Indian company to be accredited to Webtrust which makes our digital signature certificates directly recognized by browsers across the world allowing us to issue digital signature certificates in many countries.

In Indian Digital Trust Services market, it has a market share of 17.8 per cent and it enjoys 19.0 pr cent market share in the Digital Transformation Solutions market in India for Financial Year 2021. Company’s rich client base include the likes of large corporates like Infosys, Hindalco, Baud Telecom, L&T Infotech, TCS, JSW Steel and others.

To conclude, the company appears to have a strong market position which is reflected by its healthy market share. It has earned recognition of top browsers and companies and its financials too are looking attractive. Hence, we recommend our readers to invest in the IPO for long-term.