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Company Overview

Incorporated in 1999, Netweb Technologies India Ltd. (NTIL) is in the business of providing high-end computing solutions (HCS) to its customers. The various HCS offerings include (a) computing (Supercomputing / HPC) systems; (b) private cloud and hyper-converged infrastructure (HCI); (c) AI systems and enterprise workstations; (d) high-performance storage (HPS / Enterprise Storage Sys- tem) solutions; (e) data center servers; and (f) other software and service offerings which are sold under the ‘Tyrone’ brand. Equipped with fully integrated design and manufacturing capabilities, the company has developed its compute and storage technologies and deploy supercomputing infra- structure catering to the computational demands of businesses, academia, and research organiza- tions, particularly under India's National Supercomputing Mission. Over the years, the company has expanded its end-user industries to information technology, information technology-enabled services, entertainment and media, banking, financial services and insurance (BFSI), national data centres and government entities including the defense sector, and education and research development in- stitutions. In its new foray, the business has developed two new product lines, i.e. Network Switches and 5G ORAN Appliances which are critical to the data center industry for enterprise IT and the tele- communication industry for enabling 5G services. The marquee customers include IIT Jammu, IIT Kanpur, Airamatrix, NMDC Data Centre, Graviton, INST, HL Mando, IIT Naya Raipur, JNU, Hemvati University, Akamai, A.P.T. Portfolio, Yotta Data, CUHP University, an Indian government space re- search organization, and an R&D organization of the Ministry of Electronics and Information Technol- ogy, Government of India.

Objects of the issue

The net proceeds from the fresh issue will be used towards the following purposes:

* Funding capital expenditure requirements for civil construction of the building for the surface
mount technology (SMT) line and interior development, and purchase of equipment/machinery
for the new SMT production line (SMT) Line.
* Funding of long-term working capital requirements
* Repayment or pre-payment, in full or in part, of certain outstanding borrowings
* General corporate purposes.

Investment Rationale

High focus on R&D augmenting the company’s product portfolio

The company believes in evolving itself with the ever-changing technology through a high focus on its R&D resources. Through this focus, the company has developed eight product lines which include Tyrone Cluster Manager, KUBYTS, VERTA, ParallelStor, Collectivo, SKYLUS, and Tyrone Camarero AI Systems and GPU System and collaborate with various technology partners, such as Intel Ameri- cas Inc. (Intel), Advanced Micro Devices, Inc. (AMD), Samsung India Electronics Private Limited, Nvidia Corporation (Nvidia), and Seagate India Private Limited catering to their specific requirements. The company has capabilities of manufacturing servers suitable for building private cloud solutions, supercomputing systems clusters, and modern data centres. Going forward, the business intends to expand its bouquet of product offerings in 5G and private 5G solutions and Network Switches. The 5G market is expected to grow at an exponential CAGR growth of 90% from FY2024-28 which as a result will increase the demand for HCI and private cloud infrastructure in India, thus presenting the company with an attractive business opportunity.

Expanding geographic footprint and increasing penetration in existing verticals

Presently, the business has concentrated its efforts on offering its HCS offerings to the domestic market and growing deeper in this segment. Looking ahead, the business aims to grow its geograph- ical footprint in EMEA (Europe, Middle East, and Africa) region by offering the following HCS in (i) private cloud and HCI, (ii) HPC solutions, (iii) AI systems and enterprise workstations, and (iv) 5G products and solutions, where the company has already established its footprint. The 5G market in European and African countries is expected to grow at a CAGR of 45.7% between 2023 and 2029. As mentioned above, the company focuses on leveraging its 5G IT infrastructure roll-outs to target this growing business space. Apart from this, the business strives for its reach by expanding verticals in oil and gas in India, deepening penetration across sectors such as the automobile sector, particu- larly in the western and southern regions of India, BFSI clusters in the western region of India, and multi-sector corporates to expand its customer base. Oil & Gas companies are increasingly relying on powerful computers/supercomputers to process complex data faster which enables these compa- nies to cut costs while boosting productivity and success rates of projects. The BFSI industry growth is expected to be driven by the use of high-performance computing solutions, such as supercomput- ers and AI. Thus, we expect a large addressable market for companies like NTIL due to the growing need to process large amount of data at faster speeds.

Valuation & Outlook

NTIL presents a unique business model and is the only domestic company offering HCS offerings (with high entry barriers) which makes it stand out due to lack of listed domestic and international players in the field. The company is a leading player in the controlled OEM (original equipment manufacturers) space for HCS offerings. Presently, the business has its manufacturing facility located in Faridabad, Haryana. Moving ahead, it aims to eliminate the reliance on third-party entities for manufacturing server motherboards and related printed circuit board (PCB) assemblies through surface mount technology (SMT) by setting up a manufacturing facility in Haryana with the aid of net proceeds received from the IPO. Another positive is the growing order book of the company which has increased from Rs. 485.61 mil- lion in FY21 to Rs. 902.05 million in FY23. Over the years, the company has displayed a consistent financial performance, as reflected by its healthy ROCE of 64.42% in FY23 and net debt-equity consistently inching downwards from 1.31 in FY21 to 0.3 in FY23. The company has almost seen a 3x rise in revenues and a near 6x rise in profitability, with a consistent improvement in the margin profile. On the upper end of the price band, the issue is valued at a P/E of 55.1x based on FY2023 earnings which we feel is fairly valued. We, there- fore, recommend a “Subscribe” rating for the issue.

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