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An emerging IT infrastructure provider

Orient Technologies Ltd. (OTL), established in 1997, headquartered in Mumbai, is an information technology (IT) solutions provider with expertise in developing products and solutions for specialised disciplines across its business verticals. OTL provides customised offerings to its clients by collaborating with wide range of technology partners including DELL, Fortinet and Nutanix. The business verticals include IT infrastructure comprising data center solutions and end-user computing (contributes to ~52% of topline in FY24); ITenabled (ITeS) services (contributes to ~22% of topline in FY24 ), and cloud and data management services (contributes to ~26% of topline in FY24). OTL serves leading public and private sector entities across diverse end use industries such as BFSI, IT, IteS, healthcare/ pharmaceutical.

* The global IT industry registered a growth of 5.6% CAGR (CY19-CY23) and is expected to grow at CAGR of 7-9% from CY23-CY27 reaching $ 1,150 – 1,220 bn by CY27. (source: CRISIL).

* The Indian data centre industry witnessed a growth of ~25%CAGR (FY18-24) and is expected to grow at 30-35% CAGR (FY24-FY27) to Rs.280bn by FY27E led by rise in digital share, 5G rollouts, and advanced technologies like AI, Big data etc. (source: CRISIL).

* OTL has a order book worth Rs.101cr as of June FY24, of which 30% belongs to Government & PSUs and 20% is from BFSI segment.

* Revenue and PAT has grew consistently for past 3 years and clocked a 14% and 11% CAGR respectively led by growth across its business verticals, broadening of product range and rise in customer base.

* On the other side, the EBITDA margin is stable with a negative bias ranging from 9.8% in FY22 to 9.4% in FY24, owing to a rise in the direct expenses of the company.

* The RoE (return on Equity) also shrunk to 24% in FY24 from 36% in FY22.

* OTL has recently ventured into Daas (Device as a service model), wherein the IT equipment leasing industry in India is poised to grow ~10-11.5% CAGR over FY24-28E to ~Rs. 570bn in FY28. Hence, the DaaS providers (Hardware and end to end lifecycle services) like Orient technologies Ltd will have an edge over IT equipment leasing players. OTL intends to utilise ~Rs.70cr from IPO proceeds for Daas segment.

* At the upper price band of ?206, OTL is available at a P/E of 20.7x (FY24), which appears to be attractively priced compared to its peers. Considering its expansion to other related areas including IT facility management, network operations centre (NOC), cybersecurity, data management, Daas services and positive industry tailwinds, we assign a “Subscribe” rating on a short to medium term basis.

Purpose of IPO

The offering includes both a fresh issue of Rs. 120cr and an Offer-for-Sale (OFS) of Rs. 94.8cr. The objective of the offer is to utilize the net proceeds for acquisition of office premise at Navi Mumbai ( Rs.10.3cr), Funding for capital expenditure requirements (Rs. 80cr) and other general corporate purpose.

Key Risks

* OTL operates in highly competitive industry.

* OTL is heavily reliant on its top 10 customers. (accounts for ~38% of FY24 topline).

* The trade receivables grew significantly at ~33%YoY in FY24, thereby receivables days rose to 83 in FY24 from 75 in FY22.

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SEBI Registration Number: INH200000345