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Netweb Technologies India

• Netweb Technologies India is coming out with a 100% book building; initial public offering (IPO) of 1,28,37,894 shares of Rs 2 each in a price band Rs 475-500 per equity share. 
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on July 17, 2023 and will close on July 19, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 237.5 times of its face value on the lower side and 250.00 times on the higher side.
• Book running lead managers to the issue are Equirus Capital and IIFL Securities.
• Compliance Officer for the issue is Lohit Chhabra. 

Profile of the company

The company is one of India’s leading high-end computing solutions (HCS) provider, with fully integrated design and manufacturing capabilities. Its HCS offerings comprises (i) high performance computing (Supercomputing / HPC) systems; (ii) private cloud and hyperconverged 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. It is one of India’s leading Indian origin, owned and controlled OEM in the space of HCS providing Supercomputing systems, private cloud and HCI, data centre servers, AI systems and enterprise workstations, and HPS solutions. In terms of number of HPC installations, the company is one of the most significant OEMs in India amongst others. Since the inception of the erstwhile sole proprietorship, one of its Promoters, Sanjay Lodha, Netweb Technologies, which the Company had acquired in August, 2016, until May 31, 2023, it has undertaken installations of (i) over 300 Supercomputing systems, (ii) over 50 private cloud and HCI installations; (iii) over 4,000 accelerator / GPU based AI systems and enterprise workstations; and (iv) HPS solutions with throughput storage of up to 450 GB/ sec.

The company 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. It also cater to an Indian Government space research organisation and an R&D organisation 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. It designs, manufacture and deploy its HCS comprising proprietary middleware solutions, end user utilities and precompiled application stack. It develops homegrown compute and storage technologies, deploy supercomputing infrastructure to meet the rising computational demands of businesses, academia, and research organisations, 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. 

Proceed is being used for:

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

Industry overview

The India IT Industry market was $201,000 Mn in FY 2022. The market is forecasted to be $225,000 Mn in FY 2023 and is forecasted to reach $ 372,706 Mn by FY 2029 with a CAGR of 8.8% over the forecast period (FY2023-2029). A stable economy, the expansion of e-commerce, the upgrade of mobile networks to 4G and 5G, and the implementation of 'Make in India' and PLI Schemes are some of the elements that will contribute to the expansion of the IT industry in India. India IT market by computation type is segmented into HPC Systems, Workstations, other devices infrastructure, software, IT business services, Emerging tech and telecom services. While the Production Linked Incentive Scheme (PLI) for IT Hardware was notified in March 2021, the PLI Scheme 2.0 for IT Hardware, effective as of May 2023, is anticipated to result in broadening and deepening of the manufacturing ecosystem by encouraging the localization of components and sub-assemblies and allowing for an extended period to develop the supply chain within the country. In addition to providing applicants with increased flexibility and options, the scheme is attached to incremental sales and investment thresholds to further encourage growth. In addition, the PLI Scheme 2.0 for IT Hardware includes incentive-based components for semiconductor design, IC manufacturing, and packaging. The scheme seeks to incentivise companies to utilize the existing installed capacity to fulfil the increasing domestic demand.

The India high-performance computing (HPC) market was $492.9 Mn in FY 2022. The market is forecasted to be $538.8 Mn in FY 2023 and is expected to reach $918.6 Mn by FY 2029 with a CAGR of 9.3% over the forecast period (FY 2023-2029). India HPC market by computation type is segmented into parallel computing, distributed computing, and exascale computing. Parallel computing had the largest share in FY 2022 and is expected to reach $542 Mn by FY 2029 with a CAGR of 8.9% over the forecast period (FY 2023-2029). HPC power is leveraged by both public and private sectors in India. Presently, some of the key sectors like Education, Agriculture, Energy and Power, Drug Design are adopting HPC for their growth while many Automobile Industries, Construction Industries, Atmospheric Sciences, Bioinformatics, and Computational Fluid Dynamics domains etc., are making continuous progress by utilizing HPC. India HPC market by application is segmented into Government & Defence, BFSI, IT & ITES, Telecommunications, Media, Oil & Gas, and Others. Adoption of HPC in the Government and IT & ITES sectors held the largest share in FY2022. The India private cloud & Hyperconverged infrastructure (HCI) market was $2,369.2 Mn in FY 2022. The market is forecasted to be $2,796.8 Mn in FY 2023 and is expected to reach $8,007.4 Mn by FY 2029 with a CAGR of 19.2% over the forecast period (FY2023-2029).

Pros and strengths

One of India’s leading Indian origin owned and controlled OEM for HCS: The company is one of India’s leading Indian origin owned and controlled OEM for HCS with integrated design and manufacturing capabilities. It designs, manufactures and deploys its HCS comprising proprietary middleware solutions, end user utilities and pre-compiled application stack. Its deep expertise in system design and architecture, has helped it innovate and build bespoke solutions. Further, its proprietary designs are cloud native which, in addition to technological benefits, are capable of catering to the evolving needs of Customers. It 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. It is also an Indian origin OEM to build Supercomputing systems, private cloud and HCI, data centre servers, AI systems and enterprise workstations, and HPS solutions under the ‘Make in India’ initiative of the Government of India. It is also one of the few OEMs in India eligible to seek production linked incentives in terms of the Government of India’s IT Hardware PLI Scheme for the manufacture of servers and the Telecom and Networking PLI Scheme for the manufacture of networking and telecom products.

Long standing relationship with a marquee and diverse customer base: The company designs, develops, and implements its entire solutions package which helps it engage with the Customers in a more holistic manner. This enables it to embed ourselves within the institutional framework of its Customers and helps in customer retention and repeat business. Its diverse customer base spread across different Application Industries demonstrates the suitability of its systems, design and architecture across disparate applications. Further, it is provide comprehensive implementation and service support which ensures that it caters to end-to-end needs of the Customers, which it consider to be one of the factors that enables it to attract new Customers.

Significant product development and innovation through R&D: The industry in which the company operates is R&D intensive and relies significantly on technically qualified resources. It has endeavored to inculcate a culture of innovation in the company and instill a firm that R&D is a key element of its growth and will continue to remain so. It has continued to strive towards innovation in its product range and have 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. It has dedicated R&D Facilities which, as on May 31, 2023, comprised a 38 member technically skilled R&D team all of whom are professionally qualified. Its R&D team is led by Mukesh Golla, Chief Research & Development Officer, who holds a bachelor’s degree in technology (computer science and engineering) from the Jawaharlal Nehru Technological University, Hyderabad and has been associated with its HCS since 2004. Its R&D team’s in-depth understanding of high-end computing solutions, their ability to meet the advanced technological challenges and their constant efforts at innovation, coupled with experience in working on innovative products in India, enable it to stay at the forefront of technological evolution and anticipate and envision the future needs of its Customers and the market.

Operate in rapidly evolving and technologically advanced industry with high entry barriers: The company operates in a rapidly evolving and technologically advanced industry which requires it to stay abreast of the developments and improve and customise its designs, and hardware and software offerings. The nature of the industry and the rapidity of technological advancement necessitates continual innovation, improvement, and customisation of its solutions. Modification of designs and changes in implementation of the offerings requires technical skill set and expertise which is a significant entry barrier in the industry for new entrants. It is one of India’s leading HCS provider, with fully integrated design and manufacturing capabilities enabled by its blend of proprietary hardware designs, middleware stack and software solutions. As a result of its continuous R&D in data centre server development, it has the capabilities of manufacturing servers that are suitable for building private cloud solutions, Supercomputing systems clusters, and modern data centres.

Risks and concerns

High working capital requirement: The company’s business operations are subject to high working capital requirements. Currently, it meets its working capital requirements through a mix of internal accruals and working capital facilities from scheduled commercial banks and loans from unsecured lenders i.e., a lender who has advanced a loan without any collateral. While its internal accruals, working capital facilities availed from its lenders and Net Proceeds of the Offer will be sufficient to address its working capital requirements, it cannot assure that it will continue to generate sufficient internal accruals and, or, be able to raise adequate working capital from lenders to address its future needs. Further, while there have been no instances in the past, wherein the company was unable to meet its working requirement, any inability to meet its present working capital requirements or its enhanced working capital requirements will have an adverse impact on its results of operation, business and financial condition.

Operations heavily dependent on R&D and technology partnerships: Research and development (R&D) activities are integral to the company’s business, and it relies on constant R&D for developing or innovating new products and solutions. Its technologies pertaining to its product and solutions offering are complex to implement and operate, require specialized knowledge and expertise of qualified personnel. Its ability to offer a wide array of products and solutions offerings is enabled and supported by its dedicated R&D team at its R&D facilities located in Faridabad and Gurgaon, Haryana, and Hyderabad, Telangana (R&D Facilities). As at May 31, 2023, its R&D team comprised 38 members. It invests a substantial amount in training and development of its R&D personnel to ensure its teams can effectively manage and maintain its product and solutions portfolio. Continuous R&D is critical to its continued growth and business prospects and it expects to continue deploying significant resources towards R&D.

Rely on third party logistics service providers: The company’s business operations and arrangements with its Customers require it to provide the delivery of products and installation of solutions at their warehouses/ stores/ facilities. It engages third party logistics service providers for delivery of its products to its Customers. Timely delivery of its products and its ability to provide an uninterrupted supply of products is critical to business and maintaining relationship with Customers. In addition, certain of its customers may impose significant penalties on it caused either by delayed delivery of products or a defect in the products delivered. While there have been no instances of imposition of penalties by the Customers owing to delay in delivery schedules of its products, Fiscal 2023, Fiscal 2022 and Fiscal 2021 which had a material adverse impact on its business, and adversely affected its financial results, if its inventory of its products is not dispatched on time or if there is an unanticipated delay in the delivery of its products or if the products are not properly maintained or are damaged or destroyed, it could lose such inventory which could have an adverse impact on its production cycle, results of operation and financial condition.

Heavily dependent on machinery for its operations: The company operates out of its manufacturing facility located in Faridabad, Haryana, which is equipped with capabilities to (i) design, develop, manufacture and test its products, and (ii) cater to its software and service portfolio. Its manufacturing facility is equipped with various machinery and quality testing equipment, such as, climatic chamber with data logger, energy efficiency tester, tool and kits for integration and testing, clamp meter, digital multimeter, ESD generator, sound level meter, insulation resistance tester, etc. Its success and its financial condition are predicated on its ability to maximise its manufacturing capacities. Implementation, maintenance and support costs of the company’s HPS solutions is expensive, and requires significant investment in hardware, software, infrastructure, and specialised technical staff. Any failure in its ability to procure, and, or maintain its hardware, software, infrastructure, and specialised technical staff may significantly impacts its manufacturing processes and could have an adverse impact on business, results of operations and financial condition.

Outlook

Netweb Technologies 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. Two of the company's supercomputers have been listed 10 times in the world's top 500 supercomputers. As of February 28, 2023, 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/ sec. Its Supercomputing systems use its ‘Tyrone’ cluster management suite which is an integrated set of software components that can be deployed in a variety of configurations. It has a specialised Supercomputing testing facility through which it tests parallel codes for its Supercomputing systems for quality assurance of its Supercomputing systems. On the concern side, the company operates in a competitive industry with a number of other entities that offer competing products and solutions, both in India and internationally. Besides, it operates in a technologically advanced industry which is subject to certain risks including perceived risks which are applicable to its various HCS offerings.  

The company is coming out with an IPO of 1,28,37,894 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 475-500 per equity share. The aggregate size of the offer is around Rs 609.80 crore to Rs 641.89 crore based on lower and upper price band respectively. On the financial front, the company’s total income increased by 79.74% from Rs 2,479.41 million in the Fiscal 2022 to Rs 4,456.50 million in the Fiscal 2023 primarily due to an increase in its revenue from operations from Rs 2,470.33 million in Fiscal 2022 to Rs 4,449.72 million in the Fiscal 2023. The company’s profit for the year increased by 109.04% from Rs 224.53 million in Fiscal 2022 to Rs 469.36 million in Fiscal 2023. Meanwhile, in order to manufacture the company’s products, without any reliance on any third-party entity, it proposes to set up a manufacturing facility at Pocket 14, Faridabad Industrial Town (FIT), Sector 57, Faridabad, Ballabhgarh, Haryana towards setting up its new SMT line which is one of the Objects of the Offer. The company proposes to continue to expand its product portfolio including by offering 5G and private 5G solutions and Network Switches.