IPO Analysis: Netweb Technologies India Ltd

IPO Rating: Apply for long term

About the issue:

Netweb Technologies India Ltd (NTIL) is one of India’s leading high-end computing solutions (HCS) provider, with fully integrated design and manufacturing capabilities. The company is coming out with its initial public offering (IPO) of equity shares with a face value of Rs 2 per equity share. The price band of the issue has been fixed at Rs 475 to Rs 500 per equity share. The issue size is Rs 631 crore at a higher price band.

The IPO opening date is July 17, 2023, and it will be closing on July 19, 2023. The issue is likely to be listed on the exchange on July 27, 2023. The IPO market lot size is 30 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (390 shares or Rs 195,000) at the upper price band.

Objects of the Issue

The Company proposes to utilize the Net Proceeds towards funding the following objects:

1. Funding capital expenditure requirements for:
   1. Civil construction of the building for the surface mount technology (SMT) line and interior development
   2. Purchase of equipment/machinery for new SMT production line (SMT Line).
2. Funding long-term working capital requirement
3. Repayment or pre-payment, in full or in part, of certain of our outstanding borrowings.
4. General corporate purposes.

Promoter holding

The pre-issue shareholding is 97.80 per cent, post the IPO the promoter stake will be 75.45 per cent.

Company profile

NTIL is one of India’s leading Indian-origin, owned and controlled OEMs in the space of HCS providing Supercomputing systems, private cloud and HCI, data centre servers, AI systems and enterprise workstations, and HPS solutions. In terms of the number of HPC installations, the company is one of the most significant OEMs in India amongst others.

The company’s HCS offerings comprise of

1. High-performance computing (Supercomputing / HPC) systems;
2. Private cloud and hyper-converged infrastructure (HCI);
3. AI systems and enterprise workstations;
4. High-performance storage (HPS / Enterprise Storage System) solutions;
5. data centre servers; and
6. software and services for our HCS offerings.

As of May 31, 2023, the company have undertaken installations of (i) over 300 Supercomputing systems, (ii) over 50 private cloud and HCI installations; (iii) over 4,000 accelerator / GPU-based AI systems and enterprise workstations; and (iv) HPS solutions with throughput storage of up to 450 GB/ sec.

NTIL cater to marquee customers across various end-user industries such as information technology, information technology enabled services, entertainment and media, banking, financial services and insurance (BFSI), national data centres and government entities including in the defence sector, education and research development institutions (Application Industries) such as Indian Institute of Technology (IIT) Jammu, IIT Kanpur, NMDC Data Centre Private Limited (NMDC Data Centre), Airamatrix Private Limited (Airamatrix), Graviton Research Capital LLP (Graviton), Institute of Nano Science and Technology (INST), HL Mando Softtech India Private Limited (HL Mando), Dr. Shyam Prasad Mukherjee International Institute of Information Technology, Naya Raipur (IIIT Naya Raipur), Jawaharlal Nehru University (JNU), Hemvati Nandan Bahuguna Garhwal University (Hemvati University), Akamai India Networks Private Limited (Akamai), A.P.T. Portfolio Private Limited (A.P.T.), and Yotta Data Services Private Limited (Yotta), Centre for Computational Biology and Bioinformatics, Central University of Himachal Pradesh (CUHP University).

The company also cater to an Indian Government space research organisation and an R&D organisation of the Ministry of Electronics and Information Technology, Government of India which is involved in carrying out R&D in information technology and electronics and associated areas including Supercomputing.

NTIL design, manufacture and deploy its HCS comprising proprietary middleware solutions, end-user utilities and precompiled application stack. We develop homegrown compute and storage technologies, and deploy supercomputing infrastructure to meet the rising computational demands of businesses, academia, and research organisations, particularly, under India's National Supercomputing Mission. Further, thus far, 3 of our supercomputers have been listed 11 times in the world's top 500 supercomputers.

Financials

On the financial performance front, for the last three fiscals, NTIL has (on a consolidated basis) posted a revenue/net profit of Rs 142.79 crore /Rs 8.23 crore (FY21), Rs 247.03 crore/Rs 22.45 crore (FY22), and Rs 444.97 crore/Rs 46.93 crore (FY23).

Valuation and Outlook

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 59.72. The issue is priced at a P/BV of 27.19 based on its NAV of Rs. 18.39 as of March 31, 2023, and at a P/BV of 7.99 based on its post-IPO NAV of Rs 62.54 per share (at the upper cap). Hence the issue is aggressively priced.

The company paid a dividend of 25% for FY23. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

The company has a strong earnings growth of 78 per cent supported by its order book of 90+ crore. However, the issue is priced aggressively. Looking at the current market scenario, the company’s presence in niche segments and the higher growth it has achieved, the issue is likely to give you listing gains. Besides, the company represents a high-growth sector. Hence, we recommend to subscribe the issue for long term.

Disclaimer: The article is for informational purposes only and not an investment advice.