High-end computing solutions provider Netweb Technologies shares have been getting robust demand in the grey market since the price band announcement for its initial public offering that closed in the previous session. Its IPO shares were available at more than 70 percent premium in the grey market, analysts said on anonymity.
The grey market is an unofficial market wherein IPO shares can be bought and sold till the listing on the bourses.
Generally, investors consider the grey market premium of any IPO to know its possible listing price.
The above grey market premium is justified considering the potential business growth in the high-end computing solutions segment, long-term customer relationships, health FY23 financials, and efforts to expand business outside India with focus on 5G products, experts said.
Even the subscription numbers for IPO are very strong as the issue was subscribed 90 times with support from across categories of investors. Qualified intitutional investors bought 228.91 times the reserved portion, and high networth individuals 81.81 times, while the portions set side for retail investors and employees were subscribed 19.15 and 53.13 times, respectively.
What analysts are saying
"The grey market premium of Netweb Technologies IPO appears justified due to its strong investment rationale and remarkable FY23 performance," Anita Gandhi, Whole time director, head of institutional business at Arihant Capital Markets said.
As a leading HCS provider in India, Netweb's integrated design and manufacturing capabilities and expertise in building Supercomputers, like PARAM Ambar for ISRO, bolster its market positioning, she said, adding that expansion plans to offer 5G products in the EMEA region align with the projected 5G market growth.
Netweb Technologies India is one of India’s leading OEMs in the space of HCS (high-end computing solutions) providing supercomputing systems, private cloud and HCI (hyper-converged infrastructure), data centre servers, AI systems and enterprise workstations, and HPS solutions from its manufacturing facility in Faridabad, Haryana.
Three of its supercomputers have been listed 11 times in the world's top 500 supercomputers.
The company caters to many Indian and multinational customers based in India and proposes to grow its geographical footprint to Europe, Middle East and Africa (EMEA). It recently forayed into developing new product lines - network switches and 5G ORAN appliances.
FY23 witnessed the introduction of 5G network in the Indian market and the 5G market in India is expected to witness a high growth rate in the years to come and is projected to grow at a CAGR of over 90 percent from FY24-FY28.
The projected growth in the 5G market in India is also expected to result in an increased demand for HCI (Hyper Converged Infrastructure) and private cloud infrastructure in India.
"The company's emphasis on research and development fosters innovation and anticipation of market needs. Long-standing customer relationships and comprehensive product offerings set Netweb apart from global OEMs," Anita said.
Currently, its HCS offerings cater to various application industries such as information technology, information technology-enabled services, entertainment and media, BFSI, and government entities, including the defence, education and research development institutions, and national data centres such as NMDC Data Centre.
The financials
A total of 509 customers contributed to the revenue from operations for FY23, increasing from 474 customers in FY22. Having long-term relationships, the repeat customers contributed over 90 percent to its revenue in FY23 against 77 percent in the previous year. Its order book as of May 2023 was Rs 90.2 crore against Rs 71.2 crore in March 2023.
With a PE of 59.7x at the upper price band of Rs 500, long-term investors may find value in subscribing to the IPO, she feels.
Dhruv Mudaraddi, research analyst at StoxBox, also believes that the high grey market premium for the company is justified on multiple grounds.
"The company has a unique business model and is the only domestic company offering HCS offerings which makes it stand out due to lack of listed domestic and international players in the field," Dhruv said.
The company’s high focus on R&D to further augment its product portfolio, marquee clientele, efforts to grow its business outside India and business strength emanating from high entry barriers offers it a competitive edge in the marketplace.
Though the valuation multiple looks a little stretched, he feels it is justified considering the headroom for business growth and consistent financial track record.
There are no directly comparable peers in the listed space which are
present in the HCS industry. Thus, Nirmal Bang compares Netweb with EMS players which are mainly into manufacturing of electronic components and are also supported by strong growth due to favorable industry tailwinds.
"We believe Netweb possesses higher growth and return ratios compared to EMS players," Nirmal Bang said.
Netweb Technologies has recorded a healthy financial performance in the last couple of years. Profit grew at a CAGR of 138.2 percent during FY21-FY23 to Rs 46.9 crore for the year ended March FY23, and the revenue increased at a CAGR of 76.53 percent to Rs 445 crore in FY23 backed by growth almost across segments.
The operating performance, too, remained strong as EBITDA (earnings before interest, tax, depreciation and amortisation) for FY23 increased by 102.4 percent to Rs 70 crore, with a margin expansion of 173 bps to 15.73 percent compared to the previous fiscal.
The Rs 631-crore public issue comprised a fresh issue of Rs 206 crore and an offer for sale of Rs 425 crore by promoters.
The fresh issue proceeds will be utilised for capital expenditure towards surface mount technology (SMT) line development, long-term working capital requirements, and repaying debts, and remaining for general corporate purposes.
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