Netweb Technologies India Ltd

IT - Hardware

Little Masters

CMP

Rs. 2886

Rating:

Buy

January 02, 2025

Stock Info

BSE

543945

NSE

NETWEB

Sector

IT - Hardware

Face Value (Rs)

Equity Capital (Rs cr)

Mkt Cap (Rs cr)

16,263.80

52w H/L (Rs)

3060.00 - 1139.00

Avg Daily Vol (BSE+NSE)

86,132

Shareholding Pattern

(as on 30-Sep)

Promoter

71.39

FIIs

12.13

DIIs

5.59

Public & Others

10.89

Source: Ace equity, stockaxis Research

Price performance

Return (%)

12m

Absolute

3.56

15.30

143.97

Sensex

-2.17

-6.83

8.63

Source: Ace equity, stockaxis Research

Indexed Stock Performance

Netweb Technologies India Ltd Sensex

Source: Ace equity, stockaxis Research

Well placed for sustained growth while maintaining leadership in technology

Company profile
Netweb Technologies India Ltd (“Netweb Technologies”) is one of India’s leading High-end Computing Solutions (HCS) providers, with fully integrated design and manufacturing capabilities. Their HCS offerings comprises (i) high performance computing (Supercomputing / HPC) systems; (ii) private cloud and hyper converged 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 their HCS offerings. NetWeb Technologies 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, they are one of the most significant OEMs in India amongst others. Since the inception of the erstwhile sole proprietorship, one of their Promoters, Sanjay Lodha, M/s Netweb Technologies, which the company had acquired in August, 2016, until February 28, 2023, they have 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.

Investment Arguments

One of India’s leading Indian OEM for HCS with integrated design and manufacturing capabilities
Netweb Technologies Ltd is one of India’s leading OEM for HCS with integrated design and manufacturing capabilities. They design, manufacture and deploy HCS comprising proprietary middleware solutions, end user utilities and pre-compiled application stack. The proprietary designs are cloud native which, in addition to technological benefits, are capable of catering to the evolving needs of Customers. They are 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. They are 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.

Established strong relationships with marquee customers and diverse customer base.
Netweb Technologies ability to provide end-to-end solutions right from design and development to implementation and service support enables it to procure repeat orders from existing clients and attract new clients. Their diverse customer base spread across different Application Industries demonstrates the suitability of systems, design and architecture across disparate applications. They cater to various end user industries such as 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 (Application Industries) such as Indian Institute of Technology (IIT) Jammu, IIT Kanpur, NMDC Data Centre Private Limited (NMDC Data Centre), Airamatrix Private Limited (Airamatrix), Graviton Research Capital LLP (Graviton), Institute of Nano Science and Technology (INST), HL Mando Softtech India Private Limited (HL Mando), Dr. Shyam Prasad Mukherjee International Institute of Information Technology, Naya Raipur (IIIT Naya Raipur), Jawaharlal Nehru University (JNU), Hemvati Nandan Bahuguna Garhwal University (Hemvati University), Akamai India Networks Private Limited (Akamai), A.P.T. Portfolio Private Limited (A.P.T.), and Yotta Data Services Private Limited (Yotta), Centre for Computational Biology and Bioinformatics, Central University of Himachal Pradesh (CUHP University). It also caters 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.

Significant product development and innovation through R&D
The company strives towards innovation in product range and have continued to build R&D capabilities by continuously developing R&D team to improve systems design and architecture and to expand products and solutions suite. R&D team is led by Mukesh Golla, Chief R&D Officer and has 38 members team. 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, enables the company to stay at the forefront of technological evolution and anticipate and envision the future needs of our Customers and the market. The R&D Facilities have enabled the Company to increase the product lines to 8 viz., Tyrone Cluster Manager, KUBYTS, VERTA, ParallelStor, Collectivo, SKYLUS and Tyrone Camarero AI Systems and GPU System. Netweb Technologies along with various technology partners design and innovates products and provide services tailored to specific customer requirements. It also independently designs and innovates products and solutions offerings and provides services tailored to specific customer requirements.

Operates in a rapidly evolving and technologically advanced industry with high entry barriers.
The rapidity of technological advancement necessitates continual innovation, improvement, and customisation of our 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. With continuous innovation, the Company has developed a huge product basket comprising of kernel level design (i.e., establishes complete and unrestricted access between software and the underlying hardware) and development capabilities, hardware product designs, fine-tuned printed circuit board layouts, optimized operating systems, dense architectures, mix workload capabilities, deploying servers and a repository of HPC-AI codes.

Expanding and augmenting product portfolio
Netweb Tech proposes to set up a manufacturing facility for setting up SMT line to eliminate reliance on third party for the purpose of manufacturing server motherboards and related printed circuit board (PCB) assemblies for its products. It proposes to continue to expand product portfolio by offering 5G and private 5G solutions and Network Switches, particularly having focus on the BFSI segment which is expected to emerge as the largest industry vertical for enterprise networking in India by 2027. The company have already forayed into this market and received approval to participate in and seek production linked incentives under, the Telecom and Networking PLI Scheme under the category of manufacturing of switches, 5G edge and enterprise equipment, and 5G RAN equipment. It proposes to also expand portfolio to include reduced instruction set computer architecture based HCS systems.

Q2FY25 Result Highlights
Netweb Technologies delivered yet another quarter of robust performance in Q2FY25. Revenue rose 73% YoY to Rs.251 cr as compared to Rs.145 cr registered in the same quarter of the corresponding fiscal. During the quarter, EBITDA witnessed a remarkable growth of 73% YoY to Rs.38 cr while margins contracted marginally by 12 bps to 14.9% YoY. PAT clocked an impressive growth of 69% YoY to Rs.26 cr aided by impressive revenue and operational performance.

Segmental Growth:
Income from AI Systems grew by a staggering 229% YoY, and its contribution to the company's operating revenue increased to 14.8% in the September Quarter.

Key Conference call takeaways

AI has rapidly become a pivotal contributor to our revenue, growing its share to 15% in H1FY25, with a growth of 193% YoY increase.
Netweb has started receiving export orders, and this aligns with the company’s growth strategy to enter overseas markets.
The Company showed improvement in its cash conversion cycle, reducing it to 100 days from 129 days in the previous quarter.
Order Book: The Company’s order book increased to Rs.370 cr as of Sep 24 against Rs.217 cr as of Sep 23.
Net Debt: Net Debt stood at Rs.66 cr as of Sep 24.
New products: Launched eight new advanced server models.
Guidance – Management has guided for revenue growth of 35% YoY and EBITDA Margin to remain in the range of 14-14.5% for FY25.
Growth will be maximum in the AI segment, 15% of revenue. Don’t see AI revenue crossing 20% from the current 15%.

Key Risks & Concerns

High client concentration - Company’s top 5 clients together constituted 50.3% of revenue in FY24. Any unforeseen events impacting these 5 customers or change in outsourcing policies of these 5 clients could have a negative impact on Netweb.

Heavy dependence on few of the HCS offerings - Out of the HCS offerings, Supercomputing systems, and private cloud & HCI have generally been the largest revenue generating business verticals contributing 39% and 30% of total revenue respectively in Q1FY25.

Foreign Exchange Fluctuations - The company does not enter into hedging transactions in respect of forex exposure. Any losses, on account forex rate fluctuations may adversely affect the business, results of operations and financial condition.

Outlook & Valuation

Netweb Technologies Ltd delivered impressive earnings for the quarter ended Q2FY25. Netweb presents a unique business model and is the only domestic company offering HCS (High end Computing Solutions) offerings (with high entry barriers) due to the lack of listed domestic and international players in the field. Netweb Technologies intends to leverage its presence in the fast-growing HCS (High end Computing Solutions) industry with a focus on developing refined, customized computing systems to address the high-end computational requirements of customers. The company is a leading player in the controlled OEM (original equipment manufacturers) space for HCS offerings.

Netweb’s growth drivers include a focus on quantum computing and launching the latest technology servers for NVIDIA, Intel, and AMD and their exploration of acquisition opportunities. Their partnership with NVIDIA for AI servers is expected to develop 10 variants of CPUs and servers. Their in-house design manufacturing and software development capabilities set them apart from their competitors. Netweb anticipates a 30-35% sales growth over the next five years. Their focus on R&D and the introduction of 304 new products indicates repetitive orders from their existing clients which cover almost 69% of overall sales.

Netweb boasts of a strong business pipeline and order book, combined with ongoing enhancements in their capabilities and expansion of both operations and product portfolio, placing them well for sustained growth while maintaining leadership in technology. At a CMP of Rs.2887, the stock is trading at 66x FY27E. We recommend BUY rating on the stock.

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