Orient Techno IPO review (May apply)

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Review By Dilip Davda on August 17, 2024

•    The company is engaged in IT solutions and related services providing across the business verticals.
•    The company has posted steady growth in its top and bottom lines for the reported periods. 
•    It had orders on hand worth Rs. 101+ cr. as of June 30, 2024.
•    Based on FY24 earnings, the issue is relatively fully priced discounting all near term positives.
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Orient Technologies Ltd. (OTL) is an information technology (IT) solutions provider headquartered in Mumbai, Maharashtra incorporated in the year 1997. Over the years it has built deep expertise to develop products and solutions for specialized disciplines across business verticals which are: • IT Infrastructure: Products and solutions include Data Centre Solutions and End-User Computing; • IT Enabled Services (ITes): Services include Managed Services, Multi-Vendor Support Services, IT Facility
Management Services, Network Operations Centre Services, Security Services, and Renewals; and • Cloud and Data Management Services: Services include migration of workload from data centres to cloud.

OTL's business operations involves technologically advanced solutions for which the company collaborates with a wide range of technology partners including Dell International Services India Private Limited (Dell) and Fortinet, Inc. (Fortinet) and Nutanix Netherlands B.V. (Nutanix). A key facet of its product and service offerings is OTL's ability to tailor and customize offerings to the specific needs of customers. Its collaboration with technology partners heightens its ability to design and innovate products and provide solutions tailored to specific customer requirements. Its range of customized offerings and ability to specifically tailor solutions to the specific needs of customers has enabled it to garner prominent customers across industries and count leading public and private sector entities across diverse customer industries such as banking, financial services, and insurance (BFSI), IT, ITes, healthcare / pharmaceutical (Customer Industries). Its constant endeavor is to nurture every client relationship to ensure that it translates into a long-term association. It has also continually engaged with customers to understand their requirements better to be able to provide more holistic services and to identify new areas where it can engage with them.

Its expertise, honed over the years, in conjunction with the strength of its collaborative efforts with technology partners enables it to provide customized IT solutions to customers. It also tracks the developments in the business segments in which it operates in to stay abreast of emerging trends and capitalize on new business opportunities. All these factors enable it to strengthen, and forge long-term and more successful, relationships with existing customers. As of June 30, 2024, its order book stood at Rs. 101.20 cr. As of the said date, it had 1482 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 120 cr. (approx. 5825243 shares at the upper cap), and an Offer for Sale (OFS) of 4600000 equity shares (worth Rs. 94.76 cr. at the upper cap). The company has announced a price band of Rs. 195 - Rs. 206 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 10425243 shares worth Rs. 214.76 cr. The issue opens for subscription on August 21, 2024, and will close on August 23, 2024. The minimum application to be made is for 72 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.04% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 10.35 cr. for acquisition of office premises at Navi Mumbai, Rs. 79.65 cr. for capex needs., and the rest for general corporate purposes. 

The Book Running Lead Managers (BRLMs) to this issue is Elara Capital (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 133 per share (based on Rs. 10 FV), in February 2024. It has also issued bonus shares in the ratio of 3 for 2 in December 2010, 1 for 1 in January 2012, 0.03 for 1 in March 2017, 0.08 for 1 in March 2018, 0.03 for 1 in March 2020, 0.06 for 1 in March 2022, and 1 for 1 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.65 per share. 

Post-IPO, its current paid-up equity capital of Rs. 35.82 cr. will stand enhanced to Rs. 41.64 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 857.82 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 469.12 cr. / Rs. 33.49 cr. (FY22), Rs. 542.01 cr. / Rs. 38.30 cr. (FY23), and Rs. 606.84 cr. / Rs. 41.45 cr. (FY24). 

For the last three fiscals, the company has posted an average EPS of Rs. 11.14 and an average RoNW of 27.66%. The issue is priced at a P/BV of 4.21 based on its NAV of Rs. 48.95 as of March 31, 2024, but its IPO price band ad is missing its post-IPO NAV data at the lower and upper price band. 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 20.70. Based on FY23 earnings, the P/E stands at 22.39. Thus the issue is fully priced, discounting all near term positives. 

The company reported PAT margins of 7.17% (FY22), 7.16% (FY23), 6.87% (FY24), and RoCE margins of 45.25%, 31.45%, 28.42% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has paid dividends of 2.23% (FY22), 22.86% (FY23), and 17.14% (FY24) It has already adopted a dividend policy in October 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Dynacons Systems, Wipro Ltd., HCL Techno, LTI MindTree, Allied Digital, Dev Info., Tech Mahindra, and Silicon Rental as their listed peers. They are trading at a P/E of 31.0, 24.2, 27.6, 36.1, 25.0, 25.1, 61.6, and 14.1 (as of August 16, 2024). However, they are not truly comparable on an apple-to-apple basis.   

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with the offer has handled 2 pubic issues in the past three fiscals, out of which NIL issues closed below the offer price on the listing date. 

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