Netweb Technologies
IPO Size: Rs. 631 cr
- Rs. 206 cr Fresh Issue: working capital (Rs. 128 cr), debt repayment (Rs. 23 cr), capex (Rs. 32 cr)
- Rs. cr Offer for Sale (OFS) by the promoters (98% to reduce to 76%)
Price band: Rs. 475-500 per share
- Rs. 51 cr pre-IPO placement undertaken at Rs. 500 per share, on 30th Jun 2023
M cap: Rs. 2,803 cr, implying 23% dilution
IPO Date: Mon 17th Jul to Wed 19th Jul 2023, Listing Thu 27th Jul 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
One of India’s Largest Supercomputer Maker
Netweb Technologies provides high-end computing solutions, with supercomputing and private cloud solutions, accounting for 3/4th of its FY23 revenue of Rs. 445 cr. Three of company’s proprietary supercomputers feature in world’s Top 500, including ‘Param Ambar’ used by ISRO. Artificial intelligence (AI), currently accounts for 7% of revenue, but can grow exponentially given the sector tailwinds. Netweb has technological collaboration with Intel, AMD Inc, Samsung, Nvidia, Seagate and is not a contract manufacturer, unlike many listed electronic manufacturing services (EMS) peers. Indian Government organisations (like higher education and research institutes, space and defence firms) accounting for half the revenue. Company has forayed into new products like network switches (Rs. 1,100 cr domestic market in FY23) and 5G ORAN appliances, used in data center and telecommunication, besides, been awarded 2 PLIs for IT hardware and telecom and networking products.
Asset Light Business
Netweb’s fixed asset turnover ratio of 18x is the highest among EMS Peers - 4x for Syrma, 6x for Kaynes, 7x for Cyient DLM and 9x for Avalon. It is undertaking Rs. 32 cr capex for a greenfield plant at Faridabad, which has incremental revenue potential of approximately Rs. 575 cr FY26E onwards, given the high asset turnover ratio.
Super Growth
While Rs. 455 cr topline of FY23 is still not very large, it has increased rapidly from Rs. 156 cr in FY20, with H2FY23 alone recording revenue of Rs. 302 cr. It guides 40% revenue CAGR for the next few years, given the strong industry tailwinds and planned capex.
High Value-Add Business
In addition to super growth, Netweb’s margins are superior, as it provides full-stack solutions (no box-selling). FY23 gross margins were healthy at 27%, with 16% EBITDA and 10.6% net margin. Thus, Rs. 4 cr PAT in FY20 jumped to Rs. 47 cr in FY23, with H2FY23 PAT at Rs. 32 cr.
Potential Red Flags:
- An alleged insider trading case settled with SEBI by the promoters, as recently as 8th March 2023.
- Current auditor is the 3rd in past 3 years
- Debt doubled in 3 months, to Rs 71 cr as of 26.6.23, from Rs. 36 cr as of 31.3.23. Long term debt is rated A-/Stable from Crisil.
Attractively Priced IPO
Annualising H2FY23 EPS of Rs. 6.2, current year PE multiple works out to about 38x, which is not seen expensive, given the niche technology-focused business, growth prospects, high double-digit margins and 68% RoE. Infact, going by the PE multiples of 40-70x enjoyed by the EMS industry presently, this valuation multiple has room to expand.
22nd Jul 2023 at 10:10 pm
15th Jul 2023 at 11:19 pm
15th Jul 2023 at 11:52 am