Netweb Technologies India Limited IPO

Netweb Technologies India Limited has filed  its DRHP with market regulator SEBI on March 28, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale both.  The size of Fresh Issue is up to [●] Equity Shares aggregating up to ₹ 257 crore and Offer for sale of up to 8,500,000 Equity Shares aggregating up to ₹ [●] crore. As part of OFS, the selling shareholders are Sanjay Lodha, Navin Lodha, Vivek Lodha, Niraj Lodha, Niraj Lodha and Ashoka Bajaj Automobiles Private Limited. 

Business Model of the Company

Netweb Technologies India Limited is one of India’s leading high-end computing solutions (HCS) providers, with fully integrated design and manufacturing capabilities. (Source: F&S Report). 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 center servers; and (vi) software and services for its HCS offerings.

The Company 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 center servers, AI systems and enterprise workstations, and HPS solutions. (Source: F&S Report) In terms of number of HPC installations, the Company is one of the most significant OEMs in India amongst others. (Source: F&S Report).

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 centers 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) etc.

Management of the Company

(i) Sanjay Lodha is the Promoter and the Chairman and Managing Director of the Company. He has been associated with the Company as a director since September 22, 1999. He holds a bachelors’ of arts (honours degree) in economics from the University of Delhi and a post-graduate diploma in business management from Apeejay School of Marketing, New Delhi. He has been leading the Strategy and Business Development department of the Company from the year 2016. He has been a part of the Governing Council of Manufacturers Association of Information Technology from 2016 to 2022 and currently serves as a Vice President with effect from June 30, 2022. He has also served on the Board of Advisors for Intel for the year 2020 and 2022. 

(ii) Navin Lodha is the Promoter and the Whole Time Director of the Company. He has been associated with the Company as a director since September 22, 1999. He holds a bachelors’ degree in commerce from Shaheed Bhagat Singh College, University of Delhi. He leads the west zone of the Company’s sales and marketing department and has over 15 years of experience in sales and marketing. Prior to joining the Company, he was associated with the erstwhile proprietorship of the Chairman and Managing Director, M/s Netweb Technologies since 2008 until its acquisition by the Company in August 2016.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Issue

The net proceeds are proposed to be utilized in the following manner:

1. 1 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 its new SMT production line (SMT Line); (collectively, Capital Expenditure).

2. Funding the long term working capital requirement;

3. Repayment or pre-payment, in full or in part, of certain of the outstanding borrowings; and 

4. General corporate purposes.purposes

Further, the Company expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, which will result in enhancement of  visibility and  brand image among its existing and potential customers.

Risks in the IPO

Lack of long term agreement with customers

The Company’s success is dependent on the long-term relationship with its Customers. In particular, the Company is heavily reliant on  top 10 Customers. The Company does not, generally, enter into long term contracts with Customers, which exposes it to risks emanating from the inability to retain the established Customers as its clients.

Significant portion of revenue is dependent on HCS Offering

The Company derives a majority portion of the revenues from operations from a select few of HCS offerings. Loss or decline in the demand of such offerings may result in an adverse effect on the business, revenue from manufacturing operations and financial condition.

Failure to comply with the terms of  agreements with partners

The Company has entered into various non-disclosure agreements with its technology partners to collaborate on design and innovation of products and solutions, most of which are governed by foreign laws. Any failure to comply with the terms of such agreements resulting in breach under such agreements may have monetary implications and cause reputational harm to the Company.

Competitive Bidding Process 

A significant proportion of the Company’s orders are from government related entities which award the contract through a process of tender. Tenders, typically, are awarded to the lower bidder once all other eligibility criteria are met. The performance of the Company could be adversely affected if it is not able to successfully bid for these contracts or required to lower bid value.

Any break down of machinery

The Company is heavily dependent on machinery for the operations. Any break-down of the machinery may have a significant impact on the business, financial results and growth prospects. The success and financial condition of the Company will depend on its ability to maximize its manufacturing capacities.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

In FY22, the total income of the company increased by 71% to Rs. 247 crore compared to Rs. 144 crore in FY21.

The total expenses of the company in FY22 increased by 63% to Rs. 217 crore compared to Rs. 133 crore in FY21.

The profit before tax in FY22 increased by 172% to Rs. 30 crore compared to Rs. 11 crore in FY21.

The profit after tax in FY22 increased by 175% to Rs. 22 crore compared to Rs. 8 crore in FY21.

The total assets of the company increased to Rs. 148 crore in FY22 compared to Rs. 110 crore in FY21.

The total equity and liabilities of the company also increased to Rs. 148 crore in FY22 compared to Rs. 110 crore in FY21.

In FY22, the company generated Rs. 5 crore from its operating activities, a significant improvement from the cash used in operating activities (Rs. 9 crore) in FY21.

The company used Rs. 5 crore in investing activities in FY22, compared to Rs. 1 crore in FY21.

From financial activities, the company generated Rs. 28 lakhs in FY22, a decrease from Rs. 11 crore in FY21.

The company had Rs. 2 crore in cash and cash equivalents at the end of FY22, which remained the same as in FY21.