Netweb Technologies IPO Detailed (Subscribe)

Highlights

Netweb Technologies India Ltd. (NTIL) is a Delhi-based High-end Computing Solutions (HCS) provider. They serve a variety of industries, including IT, IT-enabled services, entertainment, media, BFSI, national data centres, and government agencies. The company has a manufacturing plant in Faridabad, Haryana, with 16 offices throughout India.

NTIL’s three supercomputers have been named among the top 500 supercomputers in the world 11 times. Netweb engages with technological partners such as AMD, Intel, Samsung India, and Nvidia to build and innovate product offerings. Netweb is expanding its geographical footprint, targeting the European, Middle Eastern, and African (EMEA) markets.

The Company’s Products and Solutions include (i) Supercomputing Systems (ii) Private Cloud and HCI (iii) AI Systems and enterprise workstations (iv) Date Centre Servers (v) HCS Software and Services. The company also caters to an Indian Government space research organisation and an R&D organisation of the Ministry of Electronics and Information Technology.

The government of India is involved in carrying out R&D in information technology and electronics and associated areas including Supercomputing.

Key Highlights

• The India high-performance computing (HPC) market was USD 492.9 Mn in FY 2022. The market is forecasted to be USD 538.8 Mn in FY 2023 and is expected to reach USD 918.6 Mn by FY 2029 with a CAGR of 9.3 pct over the forecast period (FY 2023-2029). The company believes this allows much room for growth.
• NTIL has in-house both design and manufacturing capabilities and has undertaken the installation of over 300 supercomputing systems and over 4,000 accelerator/GPU-based AI systems and enterprise workstations as of May 2023.
• It is a HCS provider based in India catering to many Indian and multinational Customers based in India. The company now proposes to expand and grow its geographical footprint in EMEA by offering the following HCS, (i) private cloud and HCI, (ii) HPC solutions, (iii) AI systems and enterprise workstations, and (iv) 5G products and solutions, where its Company has already established its footprints.
• The company proposes to continue to expand its product portfolio including by offering 5G and private 5G solutions and Network Switches.
• The company strives to expand verticals namely oil and gas in India, and deepen its penetration across sectors such as the automobile sector particularly in the western and southern regions of India, BFSI clusters in the western region of India, and multi-sector corporates in order to expand its customer base.
• NTIL has reported robust growth in the business with an increment in profitability over FY20-23. The company reported a 41.8 pct CAGR rise in the total operating revenue to Rs. 445cr in FY23.
• The Supercomputing system and Private Cloud & HCI verticals (which contributed roughly 72 pct of total revenue in FY23, compared to 63 pct in FY20) climbed by 39.8 pct and 61.7 pct CAGRs, respectively. Net revenue cost increased by 36.5 pct CAGR (lower than top-line growth), resulting in an 879bps improvement in gross margin.
• Despite a relatively lower rise in labour and other expenses, the EBITDA margin increased by roughly 10.6 percentage points to 15.7 pct in FY23, up from 5.2 pct in FY20.

Key Risks

• Dependence on top 10 Customers for ~60 of the revenue in FY23.
• Netweb derives a majority portion of revenues from operations from a select few of HCS offerings. Loss or fall in demand for such offerings could have a negative impact on the company’s business, revenue from manufacturing operations, and financial position.
• The company has not entered into hedging transactions in respect of its foreign currency exposure.
• The company had low-capacity utilisation in FY23, FY22 and FY21.

Valuation

Netweb Technologies India Ltd is one of the few OEMs in India eligible to avail of production-linked incentives under the Government of India’s IT Hardware PLI Scheme. The company has established itself as a reliable source of a diverse range of computing solutions and has consistently exhibited impressive financial performance.

There are no comparable rivals in the listed space with NTIL’s business model and product offerings. It is demanding a P/E multiple of 59.7x (FY23 earnings) at the upper end of the price range, which appears to be on the high side. The issue seems to be aggressively priced discounting all the near-term positives. However, investors with surplus cash can Subscribe from a longer-term perspective.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.