eMudhra coming up with IPO to raise around Rs 421 crore

eMudhra

• eMudhra is coming out with a 100% book building; initial public offering (IPO) of 1,64,60,908 shares of Rs 5 each in a price band Rs 243-256 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  
• The issue will open for subscription on May 20, 2022 and will close on May 24, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 5 and is priced 48.60 times of its face value on the lower side and 51.20 times on the higher side.
  
• Book running lead managers to the issue are IIFL Securities, Yes Securities (India) and Indorient Financial Services.
  
• Compliance Officer for the issue is Johnson Xavier.
  

Profile of the company

The company is the largest licensed Certifying Authority in India with a market share of 37.9% in the digital signature certificates market space in Financial Year 2021 having grown from 36.5% in Financial Year 2020. It is engaged in the business of providing Digital Trust Services and Enterprise Solutions to individuals and organisations functioning in various industries. As part its Digital Trust Services, it issues a range of certificates including individual/organizational certificates, SSL/TLS certificates and device certificates (used in IoT use cases) to build a digital trust backbone. Under its Enterprise Solutions vertical, it offer a diverse portfolio of Digital Security and Paperless Transformation Solutions, complementing its Digital Trust Services business, to customers engaged in different industries, thereby making the company a ‘one stop shop’ player in secure digital transformation to provide a wide spectrum of services and solutions from issuance of certificates as a certifying authority to offering identity, authentication and signing solutions.

As a part of the company’s Enterprise Solutions, it provide identity, authentication and authorization solutions, that are both web and mobile app enabled, thereby enabling enterprises to secure, manage, and govern identities of their consumers, employees/ partners and IoT. Its enterprise solution partners are broadly categorized into system integrators which comprise of large IT companies who bundle its solution as part of a larger turnkey offering to the end customer; technology partners with whom the company has a direct and seamless integration for selling its products on their platform (for instance, signing invoices originating in technology partners’ ERP systems or sales quotations originating from their CRM systems seamlessly via emSigner); and lastly, resellers and distributors, who resell or distribute its digital products and solutions to their customer base. 

Proceed is being used for:

• Repayment or pre-payment, in full or in part, of all or certain borrowings.
  
• Funding working capital requirements.
  
• Purchase of equipments and funding of other related costs for data centers proposed to be set-up in India and overseas locations.
  
• Funding of expenditure relating to product development.
  
• Investment in eMudhra INC for augmenting its business development, sales, marketing and other related costs for future growth.
  
• General corporate purposes.
  

Industry overview

The Digital Trust Services market which includes SSL/TLS certificates, Digital Signature Certificates and IoT device certificates have strong growth potential. SSL/TLS certificates contribute to 65.1% of the market and valued at $760.0 Mn. by the end of FY 2021. Historically the market has grown at a CAGR of 20.1% from FY 2016 to FY 2021. Digital Signature Certificates market has grown at 9.3% in the last 5 years. However, growth projections look strong till FY 2026 and expected to grow at a CAGR of 13.4%. IoT is fast growing market and would push the need for device certificates. The IoT device certificates market is expected to grow in double digits in the next 5 years. The Government vertical is the biggest contributor for the Digital Trust market. The demand is mostly driven by the use of Digital Signature Certificates. Citizens can access government schemes by proving their identity and using digital signatures. People can file income tax returns, file patents and take part in e-auctions using digital signatures. Likewise in BFSI, banks and customers can sign e-policies, by digitally signing documents which is considered as legal bindings. The Digital Security Solutions market comprises of Identity and Access Management and PKI. With digital transformation holding center stage, the relevance and importance of IAM and authentication services have increased multi-fold. Frauds around digital identity have increased and concepts like zero trust security architectures have emerged.

The Indian Digital Security Solutions market (which includes IAM and PKI) is the biggest contributor of the Digital Security and Paperless Transformation market. IAM is the single largest revenue pocket within all subsegments of the market. Digital Trust and Paperless Transformation contribute to 20.3% and 15.1% of the overall market respectively. Growth of Digital Trust Services is expected to be 17.1% in the next 5 years as against 15.9% in the last 5. This high growth will primarily be driven by strong use of digital signature certificates across industries like Govt. and BFSI in India. Also, as the number of IoT devices increase, enterprises would be bothered about their security and hence look towards IoT device certificates. The growing number of cyber-attacks would be a strong growth driver for the Indian SSL/TLS market in the years to come. The Indian Digital Trust Services market is currently valued at INR. 3777.3 Mn. in FY 2021 at the OEM level. Since FY 2016 till FY 2021, the market has grown at a CAGR of 15.9%. Growth till FY 2026 is expected to be even faster than the last 5 years (likely to be CAGR 17.1%) due to stronger adoption of digital technologies in enterprise processes and government initiatives.

Pros and strengths

Largest licensed Certifying Authority in India: The company is the only Indian company to be directly recognized by renowned browsers and document processing software companies such as Microsoft, Mozilla, Apple and Adobe, allowing it to sell digital identities to individual/organization and issue SSL/TLS certificates for website authentication, globally. It is also the only Indian company to be accredited to Webtrust which makes its digital signature certificates directly recognized by browsers across the world allowing it to issue digital signature certificates in many countries. It is one of the largest players in the Indian Digital Trust Services market with a market share of 17.8% and it enjoy 19.0% market share in the Digital Transformation Solutions market in India for Financial Year 2021. Its relevant experience in the digital secure and paperless transformation industry enabled it in identifying and capitalising the market opportunity offered by the Indian digital certificates market and garner the capabilities of serving all kind of subscribers who use digital certificates for income tax return filing, filings to be made with Ministry of Corporate Affairs (Registrar of Companies) filings, tenders, foreign trade, banking, railways etc.

One stop shop solution provider in secure digital transformation: The company, with a view of capitalising this opportunity ventured into the business of providing Enterprise Solutions in the year 2012 to customers engaged in different industries. The company’s Enterprise Solutions are majorly divided into three broad categories viz., eSignature workflow solutions for paperless office (emSigner), authentication solutions (emAS) and public key infrastructure solutions (emCA). As part of these offerings, it provides capabilities, such as password-less authentication that free users from the challenges and security risks associated with weak and forgotten credentials. As part of its Enterprise Solutions, it also provide eSignature solutions with global, full service, enterprise delivery capabilities that allows it to cater to paperless transformation of large enterprises with complex enterprise workflows going beyond simple document signing use cases with support for scalability, data security and ease of use.

Technology certifications, accreditations and membership in international bodies: The company is a registered certifying authority with the Controller of Certifying Authorities and are the only Indian company to be admitted as a member of European Cloud Signature Consortium as well as Certifying Authority/ Browser Forum, a global forum that governs the use of SSL/TLS certificates. It has obtained a variety of accreditations, security/compliance certifications which it maintain on an ongoing basis for example, Webtrust Accreditation to provide services as a public certifying authority globally and list its digital signature certificate roots with renowned browsers. All the services provided under trust solutions, are compliant with the quality standard of ISO 9001 and are certified by the applicable certification body. Further, its cloud offerings are compliant with SOC2 Type 2 and its eSignature workflow solutions, emSigner is listed on the SAFE Identity Qualified Product List (QPL). It is the only Indian company to be accredited by Webtrust, thereby making its digital signature certificates directly recognized by browsers across the world allowing it to issue digital signature certificates in many countries.

Diverse, longstanding and growing customer base: The company services marquee customers through its Digital Trust Services and Enterprise Solutions and has been able to form a portfolio of renowned customers in private as well as in public sectors, including, Infosys, Hindalco Industries, Mashreq Bank, Baud Telecom Company, Cholamandalam MS General Insurance Company, Thales DIS CPL India, Larsen & Toubro Infotech, DB Schenker, JSW Steel, Bharti AXA Life Insurance Company, TATA Consultancy Services, etc. The company works closely with large government and banking customers, 20+ public and private sector banks and state governments. The company has held longstanding relationships with its top five clients, and therefore have evolved as a strategic leader in the digital signature certificates market.

Risks and concerns

Dependent on one channel partner for significant portion of revenues: The company is dependent upon Bluesky Infotech, one of its channel partners and Group Companies for a significant portion of its revenues and business operations. For the nine months period ended December 31, 2021 and Fiscals 2021, 2020 and 2019, 7.92%, 8.03%, 10.78% and 14.02%, respectively of its revenues were derived from Bluesky Infotech, pursuant to the Registration Authority Agreement entered into on June 18, 2014. Although the Registration Authority Agreement is valid until terminated by the parties to the agreement, and the said agreement does not have a specific term, there can be no assurance that the said agreement will not be terminated, due to any reason whatsoever. Further, there can be no assurance that there will not be any breach of the terms of the Registration Authority Agreement, thereby resulting in an early termination of the agreement. Additionally, since, Bluesky Infotech is one of the highest revenue contributing channel partners, it is dependent on the said partner for distribution and marketing of the digital products and solutions and the loss of Bluesky Infotech due to any reason whatsoever, could result in a significant dip in its revenues, thereby adversely affecting profitability, business, financial condition and results of operations.

Face significant competition: The company faces competition including from large global players like Adobe and Docusign. With the continued increase in merger and acquisition transactions in the technology industry, there is a significant likelihood that it will compete with other large technology companies in the future. These companies could have significant name recognition, considerable resources and existing IT infrastructures, and powerful economies of scale and scope, which allow them to rapidly develop and deploy new solutions. A significant number of companies are developing products that currently, or in the future may, compete with some or all aspects of its proprietary platforms. It may not be successful in convincing the management teams of its potential customers to deploy its products in lieu of existing software solutions or in-house software development projects or other competitive products and services.

Business is seasonal in nature: As part of the company’s Digital Trust Services and Enterprise Solutions, it offer digital products and solutions that cater to secure digital identity and transaction management requirements of its consumers. Its Digital Trust Services vertical is dependent upon the frequent usage of its solutions by customers in their day to day transactions and for the occasional regulatory filings such as filing of income tax returns, annual, quarterly and half yearly filings under the Companies Act, etc. It has historically experienced seasonal fluctuation in the sales/ usage of its technology platform, with higher sales volumes and usage associated with the regulatory filings during the second and third quarters of each Financial Year. These seasonal variations in consumer demand subject its sector to a considerable degree of volatility. As a result, its revenue and profits may vary during different quarters of the Financial Year and certain periods may not be indicative of its financial position for a full Financial Year or future quarters or periods and may be below market expectations. Since its business is seasonal in nature, it is vulnerable to non-availability of adequate resources such as employees and technical staff and software and hardware infrastructure to respond to the increased demand of digital products and solutions during the peak filing season.

Requires significant amount of working capital: The company’s business requires a significant amount of working capital. As per its settled business terms, it require its customers to pay the consideration either in tranches on a milestone basis as per the terms of the engagement or pay the full amount of the consideration after the completion of its service or implementation of its digital product, as a result, significant amounts of its working capital are often required for its day-to-day operations before payment is received from its customers. Any delay in processing its payments by its customers may increase its working capital requirement. The company may also have large cash outflows, including among others, losses resulting from environmental liabilities, litigation costs, adverse political conditions, foreign exchange risks and liability claims.

Outlook

eMudhra is India's largest licenced Certifying Authority (CA). The company's business is divided into two verticles Digital Trust Services and Enterprise Solutions. It is engaged in the business of providing services like individual/organizational certificates, digital signature certificates, SSL/TLS certificates and device certificates, a portfolio of digital security and paperless transformation solutions, multi-factor authentication, mobile application security, website security testing, IT policy assessment, etc. The company has strong digital signature certificate expertise and is the only Indian company to be directly recognised by renowned browsers and document processing software companies such as Microsoft, Mozilla, Apple, and Adobe, allowing it to sell digital identities to individuals and organisations worldwide and issue SSL/TLS certificates for website authentication. The company has issued over 50 million digital signature certificates through the network of 88,457 channel partners spread across India. As of September 30, 2021, the company is serving 36,233 retail customers and 563 enterprises. On the concern side, as a provider of identity and security solutions, the company pose a potential target for cyber-attacks. The security measures it has integrated into its internal systems and platform, which are designed to detect unauthorized access or activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect its internal networks and platform against certain attacks and other security incidents.

The issue has been offered in a price band of Rs 243-256 per equity share. The aggregate size of the offer is around Rs 400 crore to Rs 421.40 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue increased by 13.40% to Rs 132.45 crore for the Financial Year 2021 from Rs 116.79 crore for the Financial Year 2020, primarily due to increase in the revenue from operations of the company as a result of international expansion. The company’s profit after tax increased by 37.70% to Rs 25.35 crore for the Financial Year 2021 from Rs 18.41 crore for the Financial Year 2020. Meanwhile, to capture the opportunities arising out of such initiatives, the changing regulatory requirements and the growing demand for data privacy, data protection and digital transformation, the company is proposing to further penetrate the domestic and international market and further expand and diversify its customer base to cater to diverse industries through expansion of its channel partner and enterprise solution partner network, enabling more customers to buy directly through online channels and continuous innovation in solutions related to its industry. It further propose to integrate its product and service offering with renowned software products including in the ERP, CRM and BFSI space to enable easy adoption of its products. It plan to further adapt its products to various international local market requirements to allow it to expand into international markets.