Netweb Technologies India Limited IPO

About the company:

Business Overview:

Netweb Technologies India is a prominent provider of high-end computing solutions (HCS) in India, offering comprehensive design and manufacturing capabilities. The company’s HCS portfolio encompasses a wide range of cutting-edge solutions: high-performance computing (Supercomputing / HPC) systems, private cloud and hyper-converged infrastructure (HCI), AI systems, and enterprise workstations, high-performance storage (HPS / Enterprise Storage System) solutions, data center servers, and software and services tailored to complement its HCS offerings. It caters to marquee customers across various end-user industries including IT, ITeS, entertainment and media, BFSI, national data centers, and government entities including the defence sector, education, and research development institutions. It also caters to an Indian Government space research organization and an R&D organization of the Ministry of Electronics and Information Technology. Over the years, Netweb has designed, developed, and deployed some of India’s most powerful supercomputing systems such as AIRAWAT – India’s largest and fastest AI supercomputing system used by the Centre for Development of Advanced Computing (CDAC), Agastya used by IIT Jammu, PARAM Ambar used by ISRO.

IPO Details:

The Objective of the Fresh Issue:

The company intends to utilize the net proceeds received towards the following objects:

1. Funding capital expenditure which includes civil construction of the building for the surface mount technology (SMT) line, interior development, and purchase of equipment for its new SMT production line.

2. Funding its long-term working capital requirement.

3. Repayment of its outstanding borrowings.

4. General corporate purposes.

Key Strengths:

1. The industry in which Netweb Technologies operates is R&D intensive and relies significantly on technically qualified resources. As of May 31, 2023, it comprised a 38-member technically skilled R&D team all of whom are professionally qualified.

2. The Indian Supercomputing systems market is expected to grow from USD 539 million in Fiscal 2023 to USD 919 million in Fiscal 2029 at a CAGR of 9.3%. This provides an incentive for the company to increase its market share at a faster pace.

3. The company is one of the few OEMs in India eligible to seek production-linked incentives in terms of the Government of India’s IT Hardware PLI Scheme for the manufacture of servers and the Telecom and Networking PLI Scheme for the manufacture of networking and telecom products.

4. The company embeds itself within the institutional framework of its customers which assists them in customer retention. Netweb’s customer accretion between April 1, 2020 and March 31, 2023 had grown at a CAGR of 11.26%. During fiscal 2023, ~58% of revenue from operations was contributed by its top 10 customers.

Risks:

1. Employee compensation in India is increasing at a faster rate than in the United States and Western Europe. This could result in increased costs relating to managers and other mid-level professionals which may have an adverse effect on its business operations and financial condition.

2. Netweb caters to a number of overseas customers, including Indian MNCs having operations overseas. As a result, it is highly dependent on prevailing economic conditions in India and other economies. The company’s results are significantly affected by factors influencing the Indian and global economies.

3. Any slowdown in the growth of the Indian economy or manufacturing sector or any future volatility in the global process could adversely affect the company’s business operations.

Financial Snapshot:

Conclusion:

Netweb Technologies has displayed a consistent track record of financial performance and growth. It has been able to grow both its revenues and profits without any external equity funding. The company comes at an earnings valuation of 66x, considering EPS as of March 31, 2023, and the upper price band. While the PE of its listed peers Dixon Technologies, Syrma SGS Technology, and Kaynes Technology as on July 14, 2023 is 101x, 64x, and 89x respectively. This presents a favorable opportunity for the investors as the company offers an attractive valuation compared to industry peers. Considering these factors, we recommend that the investors may SUBSCRIBE for Netweb Technologies IPO, as the company exhibits potential for sustained growth and profitability.