eMudhra Ltd is a licensed certifying authority that issues digital certificates to individuals and institutions for ITR filings, banking transactions and the like.
The company was incorporated on June 16, 2008, as a wholly owned subsidiary of 3i Infotech Ltd, and it enjoyed a market share of 37.9 percent in the digital signature certificates segment in FY21. In FY20, it was 36.5 percent.
The company, which works closely with large government and banking customers, including more than 20 public and private sector banks and state governments, has launched its maiden public offering today (May 20). The subscription period will close on May 24 (Tuesday).
Features of the offer
The company intends to garner Rs 413 crore through the IPO. Of this, there will be a fresh issue of equity shares to the tune of Rs 161 crore. An offer for sale (OFS) of 9,835,394 equity shares will be worth Rs 252 crore.
Post the issue, the promoter shareholding will fall 18.16 percent -- to 61.03 percent from 79.19 percent.
The price band has been fixed between Rs 243 and 256 per equity share, with a face value Rs 5 each. Of the total offer size, 50 percent of the net offer will be reserved for qualified institutional buyers (QIBs), 35 percent for retail investors, and the remaining 15 percent for non-institutional investors.
Brokerage recommendations
Brokerages recommend investors to exercise caution while subscribing to the issue. They say only those investors who have a high risk appetite should go for the issue.
The company has its inherent strength of being the largest licensed certifying authority in India. It is a one-stop shop solution provider in secure digital transformation, and it has a diverse, long-standing and growing customer base. It has partnerships with leading Indian and global channel partners and enterprise solution partners.
But there are concerns about the prospects of the company. According to a report from Angel One, the company’s success will be largely dependent on its ability to anticipate, adapt and respond effectively to the technological changes, evolving industry standards, changing regulations as well as R&D. It is highly dependent on technology and operates in a highly competitive industry.
The brokerage says the scale of operation for the company is relatively modest and the digital security and paperless transformation market is highly competitive. “At the upper end of the price band, the post-issue FY22 annualised P/E works out to 49.0x, which, we believe, is factoring in the positives,” it said. However, taking into account the concerns highlighted earlier, it recommended a ‘neutral’ rating.
COVID-19 has forced organisations to adopt digital solutions like digital identity, security and paperless transformation solutions faster. “We feel that this trend will continue and players like eMudhra, which is a one-stop shop player in secure digital transformation, is expected to benefit from the growth in the addressable market,” said a report from Choice Broking.
While highlighting the concerns related to the company, it said that the company is prone to risks due to, “unfavourable government policies and regulations, difficulty in adapting to the rapidly changing technology and customer requirements, and difficulty in expanding international operations and rise in competition”.
Since there are no listed peers with a similar business, peer comparison is not feasible. “At the upper price band of Rs 256, the company is demanding a P/E multiple of 114.5x (to its FY21 earnings of Rs 2.2 per share), which seems to be high,” the report said.
“Annualising the 9MFY22 performance, the demanded P/E multiple comes out to be 49x and considering the current turbulence in the global equity market, we assign a ‘subscribe with caution’ rating for the issue,” the report said.
Brokerage firm Arihant Capital Markets recommends that only investors with high-risk appetite can ‘subscribe’ to the IPO. “At the upper price band, the issue has been offered at a P/E of 44x to its FY22E annualised EPS of Rs 5.8 (9MFY22 EPS was INR 4.4)”, it said.
That said, eMudhra reported revenue from operations of Rs 131.59 crore for FY21 -- up 13 percent from Rs 116.45 crore in FY20. For the nine months ended December 2021, the company clocked Rs 137.24 crore in revenues.
The company has consistently achieved a double-digit growth in profit after tax (PAT) since FY19. It recorded a PAT of Rs 18.4 crore in FY20. This jumped 38 percent to Rs 25.36 crore in FY21. Profit for the nine months ended December 2021 was at Rs 303.34 crore.
Looking after the decent financial performance of the company and the unique business model, Hem Securities recommended a ‘subscribe’.
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