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Rox Hi-Tech

• Rox Hi-Tech is coming out with an initial public offering (IPO) of 65,64,800 equity shares of face value of Rs 10 each in a price band Rs 80-83 per equity share.
• The issue will open for subscription on November 7, 2023 and will close on November 9, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 8.00 times of its face value on the lower side and 8.30 times on the higher side.
• Book running lead manager to the issue is Swaraj Shares and Securities.
• Compliance Officer for the issue is Thenmozhi.

Profile of the company

Rox Hi-Tech, headquartered in Chennai, India, is a customer-centric IT solutions provider with a vision to being committed to excellence. The company has evolved from an IBM Business Partner into a prominent player in the IT segment. The company offers a comprehensive range of distributed IT solutions, including consulting, enterprise and end-user computing, managed print and network services. It is in the business of providing end to end IT solution provider.

The company is engaged in the business of dealing in Computer Hardware components, pheripheral devices, all kinds of electronic data processing equipments, providing in all kinds of software, including packaged & Customized software & Implement software solutions in the domains like Customer Relationship Management (CRM), Supply chain Management (SCM) and Business Operations (BO) and to help the customers to solve the problems and business challenges by implementing IBM's ON-DEMAND Solutions. Further the company has objective to set up and run Software/hardware training Centers, Software Consultancy, System Studies, Management consultancy, techno economic feasibility studies of projects, design and development of management information systems in India and outside India and to focus on Identification, selection, training of Software manpower for onsite placement in India and outside India for its own use and/or clients use and recruitment and job placement services in India and outside India.

Proceed is being used for:

• Funding for capital expenditure: (A) Setting up a Network Operations Centre (NOC) & Security Operations Centre (SOC) at Chennai; (B) Setting up a Chennai Medical Automation Centre; (C) Setting up a Global Software Delivery Center at Noida.
• Funding its working capital requirements.
• General corporate expenses.

Industry Overview

The IT & BPM sector has become one of the most significant growth catalysts for the Indian economy, contributing significantly to the country’s GDP and public welfare. The IT industry accounted for 7.4% of India’s GDP in FY22 and it is expected to contribute 10% to India’s GDP by 2025. As innovative digital applications permeate sector after sector, India is now prepared for the next phase of growth in its IT revolution. India is viewed by the rest of the world as having one of the largest Internet user bases and the cheapest Internet rates, with 76 crore citizens now having access to the internet. The current emphasis is on the production of significant economic value and citizen empowerment, thanks to a solid foundation of digital infrastructure and enhanced digital access provided by the Digital India Programme.

According to National Association of Software and Service Companies (Nasscom), the Indian IT industry’s revenue touched $227 billion in FY22, a 15.5% YoY growth. According to Gartner estimates, IT spending in India is expected to increase to $101.8 billion in 2022 from an estimated $81.89 billion in 2021. Indian software product industry is expected to reach $100 billion by 2025. Indian companies are focusing on investing internationally to expand their global footprint and enhance their global delivery centres. The data annotation market in India stood at $250 million in FY20, of which the US market contributed 60% to the overall value. The market is expected to reach $7 billion by 2030 due to accelerated domestic demand for AI.

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. The industry is expected to grow to $350 billion by 2025 and BPM is expected to account for $50 55 billion of the total revenue.

Pros and strengths

Scalable business model: It design, develop, deploy and maintain IT solutions for end user utilities and pre-compiled application stack. Its expertise in system design and architecture, has helped it innovates and build solutions. Further, its proprietary designs are cloud native which, in addition to technological benefits, are capable of catering to the evolving needs of Clients.

Exclusive agreement for certain domains: The Company is empanelled with preferred partner with SAP, Cisco, IMB, Google and Lenovo amongst and has entered into collaboration agreement for certain domains with them. Being a preferred partner, it become advantageous for the company to have an edge over its competitors.

Marque clientele: It design, develop, and implement its entire solutions package which helps it engages with its Clients in a more holistic manner. This enables it to embed ourselves within the institutional framework of its Clients 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.

Risks and concerns 

Success dependent on long-term relationship with customers: Its business relationships with its customers have been built over time and while it, generally, do not enter into long term contracts with its customers and significant portion of its revenue is routed through purchase orders, it has garnered repeat orders from its customers. Consequently, its business, results from operations and financial condition are heavily dependent on its maintaining its relationship with its Customers, and, in particular, continuing to receive orders from such Customers and failure to do so, or inability to do so on commercially viable terms could have an adverse impact on its revenue and, or, margins, and, consequently, its profitability.

Face intense competition: It operates in an intensely competitive industry that experiences rapid technological developments, changes in industry standards, and changes in customer requirements. Its competitors include large IT consulting firms, captive divisions of large multinational technology firms, large Indian IT services firms, in-house IT departments of large corporations, in addition to numerous smaller local competitors in the various geographic markets in which it operates.

Working capital requirements: Its business requires significant amount of working capital and major portion of its working capital is utilized towards employee cost. As on March 31, 2023, it have Rs 1,897.48 Lakh outstanding working capital loan. Its growing scale and expansion may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sourcing of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations. Further, it has high inventories and outstanding amount due from its debtors which may adversely affect its cash flows and its business operations.

Outlook

The company is a customer-centric IT solutions provider with a vision to being committed to excellence. The company has evolved from an IBM Business Partner into a prominent player in the IT segment. The company offers a comprehensive range of distributed IT solutions, including consulting, enterprise and end-user computing, managed print and network services. On the concern side, it operates in an intensely competitive industry that experiences rapid technological developments, changes in industry standards, and changes in customer requirements. Its competitors include large IT consulting firms, captive divisions of large multinational technology firms, large Indian IT services firms and in-house IT departments of large corporations.

The issue has been offered in a price band of Rs 80-83 per equity share. The aggregate size of the offer is Rs 52.52 crore to Rs 54.49 crore based on lower and upper price band respectively. On performance front, total revenue has increased by 30.12% from Rs 102.97 crore in the fiscal year ended March 31, 2022 to Rs 133.99 crore in the fiscal year ended March 31, 2023. Net Profit has increased by 913.12% from profit of Rs 1.51 crore in the fiscal year ended March 31, 2022 to profit of Rs 15.33 crore in the fiscal year ended March 31, 2023. Meanwhile, it intends to expand its geographical footprint, by creating its presence to greater geographical proximity with some of its key clients. This will allow it to build on its existing relationships with them and also allow it to work on more strategic projects with its clients in the key industry sectors it caters to, which require closer geographical proximity. It will also aim to acquire new strategic clients in the industries it focuses on and strengthen its capabilities in specific areas.