Netweb Tech IPO review (May apply)

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Review By Dilip Davda on July 13, 2023

•    NTIL is one of the Indian leading players in HCS, providing across the industry segments.
•    It has posted steady growth in its top and bottom lines. 
•    As of May 31, 2023, it had an order book of Rs. 90+ cr. 
•    Based on FY23 financials, the issue appears aggressively priced. 
•    Well-informed investors may park funds for medium to long-term rewards.

ABOUT COMPANY:
Netweb Technologies India Ltd. (NTIL) is one of India's leading high-end computing solutions (HCS) providers, with fully integrated design and manufacturing capabilities. (Source: F&S Report). Its HCS offerings comprise (i) high-performance computing (Supercomputing / HPC) systems; (ii) private cloud and hyper-converged infrastructure (HCI); (iii) AI systems and enterprise workstations; (iv) high-performance storage (HPS / Enterprise Storage System) solutions; (v) data centre servers; and (vi) software and services for its HCS offerings. 

The company 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. (Source: F&S Report) In terms of the number of HPC installations, it is one of the most significant OEMs in India amongst others. (Source: F&S Report).

It caters 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 caters to an Indian Government space research organization and an R&D organization 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 designs manufactures and deploys HCS comprising proprietary middleware solutions, end-user utilities and precompiled application stack. It develops homegrown compute and storage technologies, and deploys supercomputing infrastructure to meet the rising computational demands of businesses, academia, and research organizations, particularly, under India's National Supercomputing Mission. Further, thus far, 3 of its supercomputers have been listed 11 times in the world's top 500 supercomputers. (Source: F&S)

NTIL has recently, in Fiscal 2023, forayed into developing new product lines, viz., Network Switches and 5G ORAN Appliances. The company is compliant with the "Make in India" policy of the Government of India. As of May 31, 2023, its R&D team comprised 38 members, 273 full-time employees, and 6 contract workers, and its order book stood at Rs. 90.21 cr.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares issue worth Rs. 206.00 cr. (approx. 4120000 shares at the upper cap) and an offer for sale (OFS) of 8500000 shares (worth Rs. 425 cr.) having a face value of Rs. 2 each. It has announced a price band of Rs. 475 - Rs. 500 per share Thus the overall size of the issue is 12620000 shares worth Rs. 631 cr. at the upper price band. The issue opens for subscription on July 17, 2023, and will close on July 19, 2023. The minimum application to be made is for 30 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.51% of the post-IPO paid-up capital of the company. NTIL has done a pre-IPO private placement worth Rs. 51 cr. at a price of Rs. 500 per share in June 2023, resultantly its original plan for an IPO of a fresh equity issue worth Rs. 257 cr. stands reduced to Rs. 206 cr. From the net proceeds of the fresh equity issue, the company will utilize Rs. 32.29 cr. for funding capital expenditure, Rs. 128.02 cr. for long-term working capital, Rs. 22.50 cr. for repayment/prepayment of certain borrowings and the rest for general corporate purposes. 

The company has reserved 20000 shares for its eligible employees and is offering them a discount of Rs. 25 per share. From the rest issue, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

Equirus Capital Pvt. Ltd. and IIFL Securities Ltd. and the joint Book Running Lead Managers (BRLMs) and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 2.80 to Rs. 500 per share (based on a face value of Rs. 2 per share) between October 2018 and June 2023. It has also issued bonus shares in the ratio of 4 for 5 in February 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.11, Rs. 0.35, Rs. 0.43, Rs. 0.84, and Rs. 1.56 per share. 

Post-IPO, NTIL's current paid-up equity share capital of Rs. 10.39 cr. will stand enhanced to Rs. 11.21 cr. Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 2803.20 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, NTIL has posted a turnover/net profit of Rs. 144.29 cr. / Rs. 8.23 cr. (FY21), Rs. 247.94 cr. / Rs. 22.45 cr. (FY22), and Rs. 445.65 cr. / Rs. 46.94 cr. (FY23). 

For the last three fiscals, the company has reported an average EPS of Rs. 6.28 and an average RoNW of 64.35%. 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). 

If we attribute FY23 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 59.67. Thus the issue appears aggressively priced discounting all near-term positives.  

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

COMPARISON WITH LISTED PEERS:
As per the offer document, NTIL has shown Syrma SGS, Kaynes Technology and Dixon Technologies as their listed peers. They are currently trading at a P/E of 155.05, 103.61, and 121.18 (as of July xx, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 41 public issues in the last three fiscals, out of which 13 issues closed below the offer price on the listing date.

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