IPO Analysis: Protean eGov Technologies Ltd

IPO Rating: Apply for the long-term

About the Issue: 

Protean eGov Technologies Limited, formerly recognised as NSDL e-Governance Infrastructure Limited, has been dedicated to creating citizen-centric and population-scale e-governance solutions for over two decades. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 10. The IPO price range is set between Rs 752 and Rs 792 per equity share, resulting in a total issue size of Rs 490.33 crore at the upper price band. 

The IPO is scheduled to commence on November 06, 2023, and will conclude on November 08, 2023. The anticipated listing on the exchange is set for November 17, 2023. The market lot size for the IPO is 18 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 14 lots, equivalent to 252 shares or a total investment of Rs 1,99,584 assuming the upper price band. 

Objects of the Issue 

Considering that the issue is exclusively an offer for sale, it is crucial to emphasize that the company will not directly profit from the offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed under the number of offered shares they sell as part of the offer. 

Promoters 

The company is professionally managed and does not have an identifiable promoter. 

Company Profile 

Founded in 1995, Protean eGov Technologies Limited, formerly recognized as NSDL e-Governance Infrastructure Limited, has been dedicated to creating citizen-centric and population-scale e-governance solutions for over two decades. 

The company provides a wide range of services, including citizen services, e-governance solutions, system integration, business process re-engineering, data centre co-location, and IT consulting services for individuals, businesses, and government entities. Their efforts have led to the modernization of the direct tax infrastructure, issuance of PAN cards to individuals and businesses for tax identification, enhancement of the old-age social security system through the National Pension System (NPS) and Atal Pension Yojana (APY), and active participation in financial inclusion initiatives, such as enrolling citizens for the National Identity project. Additionally, they have played a crucial role in facilitating the BFSI sector by offering Aadhaar-based identity authentication and e-Sign services. 

The company has made significant contributions to and actively endorsed open digital building blocks, such as the Open Network for Digital Commerce (ONDC). These contributions have extended to a variety of sectors, including e-commerce, mobility, healthcare, agriculture, and education, enabling the widespread use of ONDC across these industries. 

Financials

Outlook and Valuation 

In terms of financial performance, the company has demonstrated consistent growth in its revenue over time. However, the profit figures have experienced a dip in FY23 when compared to the robust growth observed in FY22. It can be attributed primarily to increased employee costs and other expenses associated with the development of new products. Despite this, the company has maintained a significant level of profitability and posted impressive figures in the first quarter of FY24. 

In FY23, the company reported returns on equity (RoE) and return on capital employed (RoCE) at 12 per cent and 17 per cent, respectively. Additionally, the company has consistently paid dividends to its shareholders, distributing 90 per cent in FY21, 100 per cent in FY22, and 100 per cent in FY23. 

The issue is priced with a P/BV ratio of 3.60 times, calculated using its Net Asset Value (NAV) of Rs 219.71 as of June 30, 2023. When we compute the PE ratio for the company by considering annualised Q1FY24 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 24. According to the company's official documents, it has been indicated that there are no publicly listed companies in India involved in a business similar to that of the company. Hence, it appears that the offering is attractively priced. 

The company's strong business model and extensive network, along with its market leadership and exceptional domain knowledge, serve as its key strengths. These strengths have the potential to propel the company towards continued growth. Therefore, we recommend investors to subscribe to the issue with a long-term perspective.