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Review By Dilip Davda on November 1, 2023

•    PETL is in the unique eGovernance business and working with various departments of Government of India. 
•    It has posted growth in its top line bur marked a minor setback in bottom line for FY23.
•    Based on Fy24 annualized earnings, the issue appears fully priced. 
•    PETL is expanding its reach in neighboring countries for eGovernance plans.
•    Investors may park funds for the medium to long-term rewards in this dividend paying company.

PREFACE:
Protean eGov (erstwhile NSDL eGovernance) has established itself in a niche place for eGovernance motive of the Government of India and is planning to scale up its footprint in neighboring countries. The company changed its name and logo as Protean which means ever-changing, variable, multifaceted, multitalented and that goes well with the operations of PETL as a whole. 

ABOUT COMPANY:
Protean eGov Technologies Ltd. (PETL) - (erstwhile known as NSDL eGovernance Infrastructure Ltd.) is one of the key IT-enabled solutions companies in India (Source: CRISIL Report) engaged in conceptualizing, developing and executing nationally critical and population scale greenfield technology solutions. It collaborates with the government and have extensive experience in creating digital public infrastructure and developing innovative citizen-centric e-governance solutions. The company was originally setup as a depository in 1995 and created a systemically important national infrastructure for capital market development in India. It has been the chief architect and implementer for some of the most critical and large-scale technology infrastructure projects in India. (Source: CRISIL Report) 

PETL were among the leading Indian companies in the e-governance sector in terms of profitability, operating income, operating profit and operating profit margin in Fiscal 2023 (Source: CRISIL Report) It is a professionally managed company and is led by an experienced senior management team whose expertise and industry experience have helped it grow operations and innovate services. Since inception and as of June 30, 2023, it has implemented and managed 19 projects spread across seven ministries and autonomous bodies ushering change in public delivery of services. 

PETL has been instrumental in establishing public digital infrastructure and creating e-governance interventions impacting multiple sectors of the Indian economy. Some of its key interventions include:
• Modernizing the direct tax infrastructure in India through projects like Permanent Account Number ("PAN") issuance, the Tax Information Network ("TIN") including Online Tax Accounting Systems ("OLTAS").
• Strengthening the old age security system in the country by building the core IT infrastructure as a Central Recordkeeping Agency ("CRA") for the National Pension System ("NPS").
• Enabling the universal social security system for all Indians, particularly the workers in the unorganized sector by creating technology infrastructure as a CRA for the Atal Pension Yojana ("APY").
• Contributing to the India Stack, a set of application programming interface ("API") that allows governments, businesses, startups and developers to utilize a unique digital infrastructure to prepare solutions that are presence-less, paperless and enable cashless service delivery. It has also enabled the BFSI sector by providing Aadhaar-based identity authentication and e-Sign services, as a licensed certifying authority empaneled by the Controller of Certifying Authorities. PETL appointed as a registrar for enrolling citizens for Aadhaar.
• Improving accessibility to education and skill financing through creation of efficient digital marketplaces enabling discovery of financial resources through platforms such as Vidya Lakshmi, and Vidyasaarathi.
• Contributing to and supporting open digital building blocks such as Open Network for Digital Commerce ("ONDC") for use-cases across sectors like e-commerce, mobility, healthcare, agriculture and education. It is one of the key and early contributors to the open source community and protocols that are powering ONDC. (Source: CRISIL Report)

PETL's market share has been 45% in PAN issuance, 58% in TIN, 94% in NPS and 100% in Atal Pension Yojana (APY). It has embraced an impact weighted framework to guide all business decisions with a focus on Environment, Social and Governance ("ESG") framework and committed to build a value system guiding it to contribute towards a sustainable and responsible future.

Its market-first innovations have been consistently implemented across various sectors and products such as TIN in taxation, pilot infrastructure for GST which laid out the foundation for the roll-out for a unified tax accounting system in India. PETL is actively contributing to and supporting open digital building blocks using open source technology and protocols that powers ONDC for use cases in sectors like e-commerce, mobility and open finance as of September, 2023, ONDC is live in 400+ cities in alpha phase and seven (7) cities in beta/test phase. Difference in alpha and beta phases is that more focus and marketing efforts are done in the beta phase. ONDC has on boarded about 1.79 lakh sellers'/service providers across the country with 47 network participants gone live. (Source: CRISIL Report) These network providers are buyers', and seller applications and logistics providers. (Source: CRISIL Report)

As of June 30, 2023, its PAN and TIN facilitation centres network was in over 12,000 PIN codes spread across over 700 districts in India. In addition, as of June 30, 2023, it covered over 26,000 nodal offices of the central government, over 263,000 nodal offices of state governments and had over 87,000 points of presence across India for the administration of the NPS. As of June 30, 2023, it had 635 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary issue (i.e. Offer for Sale - OFS) of 6191000 equity shares of Rs. 10 each. It has announced a price band of Rs. 752 - Rs. 792 per share and mulls mobilizing Rs. 490.33 cr. at the upper cap. The issue opens for subscription on November 06, 2023, and will close on November 08, 2023. The minimum application to be made is for 18 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE only. The issue constitutes 15.31% of the post-IPO paid-up capital of the company. Since this being an OFS, no funds are going to company. The issue is being made to provide exit to its current stakeholders in part, unlock its value and listing gains. 

The company has reserved 150000 equity shares valued at Rs. 11.88 cr. for eligible employees and offering them a discount of Rs. 75 per share. From the remaining shares it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The issue is lead managed by ICICI Securities Ltd., Equirus Capital Pvt. Ltd., IIFL Securities Ltd., and Nomura Financial Advisory and Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue.  

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 310.00 - Rs. 647.00 between March 2019 - August 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs.10.00, Rs. 26.00, Rs. 49.50, Rs. 55.00, Rs. 112.00, and Rs. 950.10 per share. 

Post-IPO, PETL's current paid-up equity capital of Rs. 40.45 cr. will remain same as this is a pure secondary offer. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 3203.38 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PETL has (on a consolidated basis) posted a total income/net profit of Rs.652.03 cr. / Rs. 92.19 cr. (FY21), Rs. 770.18 cr. / Rs. 143.94 cr. (FY22), and Rs. 783.87 cr. / Rs. 107.04 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 32.21 cr. on a total income of Rs. 233.17 cr.  It posted a minor setback in bottom line for FY23, which is attributed to higher employee cost and other expenses for development of new products. 

For the last three fiscals, the company reported an average EPS of Rs. 28.99and an average RoNW of 14.64%. The issue is priced at a P/BV of 3.60 based on its NAV of Rs. 219.71 as of June 30, 2023 as well as on the post-IPO basis.  

If we attribute annualized FY24 earnings to its post-IPO paid-up equity capital, then the asking price is at a P/E of around 24.86. Thus the issue appears fully priced. According to the management, it is set for bright prospects ahead as it is expanding its offerings to neighboring countries to implement eGovernance. 

For the reported periods of the offer document, the company posted PAT margins of 15.28% (FY21), 20.83% (FY22), 14.42% (FY23), and 14.61% (Q1-FY24), and RoCE margins of 16.93%, 22.91%, 16.13%, and 4.60% respectively. 

DIVIDEND POLICY:
The company is a dividend paying one and has paid a dividend of 90% (FY21),100% (FY22), and 100% (FY23). It has already adopted a prudent dividend policy in March 2021 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 74 public issues in the past three financial years, out of which 26 issues closed below the offer price on listing date. 

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