Netweb Technologies India

High end computing

Production linked incentives, diversified and long-standing relationships with clients, and healthy collaborations

Netweb Technologies India (NTI) is one among India‘s leading high-end computing solutions (HCS) provider, with fully integrated design and manufacturing capabilities.The company‘s high-end computing offerings include high performance computing (supercomputing / HPC) systems; private cloud and hyper converged infrastructure (HCI); Artificial Intelligence (AI) systems and enterprise workstations; high performance storage (HPS / Enterprise Storage System) solutions; data centre servers; and software and services for its HCS offerings. The company is one of India‘s leading Indian origin-owned and controlled original equipment manufacturer in the space of HCS providing supercomputing systems, private cloud and hyper converged infrastructure, data centre servers, AI systems and enterprise workstations, and high-performance storage solutions.

The company in FY2023 forayed into developing new product lines, viz., Network Switches and 5G Oran Appliances.

NTI has its manufacturing facility located in Faridabad, Haryana which is equipped with capabilities to design, develop, manufacture and test its products, and cater to its software and service portfolio. In addition to its registered office in Faridabad, the company has 15 offices across India.

NTI also holds the distinction of being among the select few Original Equipment Manufacturers (OEMs) in India eligible to benefit from production linked incentives under the Government of India‘s IT Hardware PLI Scheme. This allows them to engage in the manufacturing of servers. They are also eligible for the Telecom and Networking PLI Scheme, enabling them to manufacture networking and telecom products.

The company has undertaken installations of over 300 Supercomputing systems, over 50 private cloud and HCI installations; over 4,000 accelerator / GPU based AI systems and enterprise workstations; and HPS solutions with throughput storage of up to 450 GB/ second.

The company caters to marquee customers across various end-user industries including information technology, information technology enabled services, entertainment and media, banking, financial services and insurance (BFSI), national data centers and government entities including in the defense sector, education and research development institutions. The company also caters to an Indian Government space research organization and a Research & Development (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.

NTI designs, manufactures and deploys its high-speed computing systems comprising proprietary middleware solutions, end user utilities and precompiled application stack. The company develops homegrown compute and storage technologies, deploy supercomputing infrastructure to meet the rising computational demands of businesses, academia, and research organizations, particularly, under India‘s National Supercomputing Mission. Further, thus far, two of its supercomputers have been listed 10 times in the world‘s top 500 supercomputers.

The company collaborates with various technology partners, such as Intel Americas, Inc. (Intel), Advanced Micro Devices, Inc. (AMD), Samsung India Electronics Private Limited, Nvidia Corporation (Nvidia), and Seagate India Private Limited to design and innovate products and provide services tailored to specific customer requirements. The company also independently designs and innovates its products and solutions offerings and provides services tailored to specific customer requirements.

Object of the offer

The IPO consists of a fresh issue of Rs 206 crore and an offer-for-sale of up to 8.5 million shares by its existing promoters and shareholders. The OFS comprises up to 2.86 million shares by Sanjay Lodha, up to 1.43 million each by Navin Lodha, Vivek Lodha and Niraj Lodha, and up to 1.35 million by Ashoka Bajaj Automobiles LLP.

Out of the proceeds from the fresh issue, Rs 32.29 crore will be used for funding capital expenditure requirements, Rs 128 crore for long-term working capital requirements and Rs 22.50 crore will be used to repay its debt.

On June 28, the company raised Rs 51 crore from institutional investors in a pre-IPO placement, that reduced the fresh issue size in the IPO. The company has allotted 10.2 lakh shares LG Family Trust (20,000 equity shares), Anupama Kishor Patil (100,000 shares), 360 ONE Special Opportunities Fund - Series 8 (500,000 shares), and 360 ONE Monopolistic Market Intermediaries Fund (400,000 shares) in the pre-IPO placement.

Strengths

The company is one among India‘s leading Indian origin owned and controlled original equipment manufacturers for high-end computing solutions with integrated design and manufacturing capabilities. The company‘s proprietary designs are cloud native which, in addition to technological benefits, are capable of catering to the evolving needs of customers. The company is one of the few players in India who can offer a full stack of product and solution suite with comprehensive capabilities in designing, developing, implementing, and integrating high performance computing solutions.

The company has established long standing relationship with marquee customers across different industries that it caters to.

The order book as on May 31,2023 stood at Rs 90.2 crore.

The company also has diverse customer base spread across different Industries which demonstrate the suitability of the company‘s systems, design, and architecture across disparate applications. Further, the company also provides comprehensive implementation and service support which ensures that it caters to the end-to-end needs of its customers, which is one of the factors that enables the company to attract new customers.

The company has continued to strive towards innovation in its product range and has continued to build its R&D capabilities by continuously developing its R&D team to improve its systems design and architecture and to expand its products and solutions suite.

The company is one among the India‘s leading high-end computing solutions provider and operates in a rapidly evolving and technologically advanced industry with high entry barrier.

The company plans to expand its product portfolio by offering 5G and private 5G solutions and Network Switches.

Weaknesses

The company faces customer concentration risk as the revenue contribution from its top 10 customers is 57.8% of the total revenues in FY2023.

Loss or decline in demand for the company‘s high-end computing solutions will have an adverse effect on the company‘s business.

The company is dependent on few application Industries for majority of its revenue from operation and loss of customers in these applications industry will have an adverse impact on financial condition of the company.

The company has entered into various non-disclosure agreements with its technology partners to collaborate on designs and innovation of products and solutions, most of which are governed by foreign laws. Any failure to comply with the terms of such agreements resulting in breach under such agreements may have monetary implications and cause reputational harm.

There are common pursuits between the NTI and a member of its promoter group and any breach of the non-compete agreement may adversely impact the company‘s business operation.

NTI and one of the members of its promoter group use identical intellectual property rights in their respective jurisdictions. Any adverse actions initiated against the member of its promoter group in relation to the business operations carried out under these brands may adversely impact the business of the company.

A significant proportion of the company‘s orders are from government-related entities which award the contract through a process of tender and the company‘s performance will be affected if it fails to successfully bid for such tenders.

Contingent liabilities as on31 March 2023 stood at Rs 23.6 crore.

Inability to obtain or protect the company‘s intellectual property rights may adversely affect the company‘s business.

The operations of the company are working capital intensive and failure to raise the required working capital will impact the operations of the company.

The company operates in a competitive industry and any inability to compete effectively may lead to declining market share and reduced operating margins.

Valuation

In FY2023, consolidated sales were up by 80.1% to Rs 444.97 crore compared to FY2022. OPM increased by 172 bps to 15.73%, which led to a 102.4% increase in operating profit to Rs 70.02 crore. Other income decreased 25.3% to Rs 0.68 crore, while interest cost increased 11.8% to Rs 4.07 crore and depreciation increased 123.3% to Rs 3.66 crore. PBT increased 108.3% to Rs 62.96 crore. Tax expenses for FY23 was Rs 16.03 crore compared to tax expense of Rs 7.77 crore in FY2022. Net profit increased 109.0% to Rs 46.94 crore.

FY2023 EPS on post-issue equity works out to Rs 8.37. The company has issued 1020000 equity shares on June 28, 2023, on a pre-IPO placement to institutional investors at a price of Rs 500 per equity share. At the upper price band of Rs 500, P/E works out to 59.73.

The company does not have any listed peers.