Varanium Cloud coming with an IPO to raise Rs 36.60 crore

Varanium Cloud

• Varanium Cloud has come out with an initial public offering (IPO) of 30,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 122 per equity share.
  
• The issue opened on September 16, 2022 and will close on September 20, 2022.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 12.20 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is First Overseas Capital.
  
• Compliance Officer for the issue is Hetal Harshal Somani.
  

Profile of the company

The company is a fast-growing Indian technology company that is focused on providing services surrounding digital audio, video and financial blockchain (for PayFac) based streaming services.

The company operates in the following key verticals:

• Provision of digital audio and video content streaming services to various content owners and telecom operators in India and internationally on a SaaS (Software As A Service) model such as Voice & Video over Internet Protocol solutions (VoIP) in the B2B and B2C segments.
  
• Online payment facilitation services (PayFac).
  
• Provision of low bandwidth digital education content platforms (EdTech) with complete Learning Management Systems (LMS) focused on non-urban areas under Edmission brand.
  
• Provision of information technology related services to startups and SMEs to help them transition their business to digital platforms and manage the relevant infrastructure on a IaaS (Infrastructure As A Service) model.
  

Varanium’s unique network transportation technology allows content to be delivered to end devices faster and cheaper. Varanium’s technology is also completely device agnostic and can be delivered to any mobile device or screen, wired or wireless, agnostic of operating system or type of screen. It reduces transmission needs by giving people what they need, rather than transmitting the entirety of the file which necessitates the need for multiple copies to be made and proximity to the end user. Its algorithm first profiles the end user for device and IP characteristics. Once the profiles are created, server works to determine the fastest possible delivery route to the end user. Depending on the user profile created, the server computes the maximum potential file size that can be supported by the end user and commences real time transcode.

Proceed is being used for:

• Setting up 3 Nos. containerized edge data centres.
  
• Rollout of 3 Edmission flagship digital learning centres.
  
• General corporate purpose.
  

Industry overview

Currently, India is the world’s second-largest telecommunications market with a subscriber base of 1.16 billion and has registered strong growth in the last decade. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP) according to a report prepared by GSM Association (GSMA) in collaboration with Boston Consulting Group (BCG). In 2019, India surpassed the US to become the second largest market in terms of number of app downloads. The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The Government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms have made the sector one of the fastest growing and the top five employment opportunity generator in the country.

India is the world’s second-largest telecommunications market. The total subscriber base, wireless subscriptions as well as wired broadband subscriptions have grown consistently. Tele-density stood at 85.91%, as of December 2021, total broadband subscriptions grew to 792.1 million until December 2021 and total subscriber base stood at 1.18 billion in December 2021. Gross revenue of the telecom sector stood at Rs. 64,801 crore ($8.74 billion) in the first quarter of FY22. The total wireless data usage in India grew 16.54% quarterly to reach 32,397 PB in the first quarter of FY22. The contribution of 3G and 4G data usage to the total volume of wireless data usage was 1.78% and 97.74%, respectively, in the third quarter of FY21. Share of 2G data usage stood at 0.48% in the same quarter. Over the next five years, rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses. By 2025, India will need 22 million skilled workers in 5G-centric technologies such as Internet of Things (IoT), Artificial Intelligence (AI), robotics and cloud computing.

Pros and strengths

Transport technology: The company’s technology makes it low bandwidth provider of cloud-based SaaS services to audiences that are traditionally not reachable. It has developed a simple approach to transporting digital content, that addresses the limitations of today’s conventional streaming technology. Rather than creating a fixed set of file sizes and resolutions and restricting delivery to certain network bandwidths, it start at the end user device and tailor the content and delivery to suit the specifications at the end user device. In contrast to delivering the entirety of the content file, it split up the file into encrypted “Slivers” of the size that can be transmitted through the lowest available network speed to the end user, thereby reducing reliance on network bandwidths. This transport technology will help bring connectivity to many parts of the world that lack access because of economic status or poor infrastructure.

Low cost of delivery: The development of owning the technology and the company’s own data center has minimized its reliance on third-party commercial hardware and software, optimized its operating costs and given it the flexibility to innovate and scale its business rapidly. The efficiency of its technology and minimal dependence on third party data center providers allows it to deliver content and services to customers at the lowest costs.

Valuable data insights: Data on user behaviors and transactions completed on its platform provides it with valuable insights to help improve the consumer experience, operate more efficiently and create innovative and relevant products and services. Its technology creates a profile for each user, continuously recording the user’s device type, operating system, network, last recorded speed, and application usage. Some of the application data available to it include content viewing trends, details around payments and remittances transacted, and types of products delivered. It utilize this data to monitor the use of its existing services and to drive further innovation.

Risks and concerns

Rely on telecommunications and information technology systems: The company’s business could be impacted by the failure of telecommunications network operators to provide it with the requisite bandwidth which could also interfere with the speed and availability of its platform or services, as well as by breakdowns at the level of its Internet service providers. Additionally, systems and software that are developed internally may contain undetected errors, defects or bugs, which it may not be able to detect and repair in time, in a cost-effective manner or at all. In such circumstances, it may be liable for all costs and damages, as it would not be entitled to any indemnification or warranty that may have been available if it had obtained such systems or software from third-party providers.

Geographical constraints: Currently, all the company’s facilities and registered office are situated in Maharashtra and it is carrying its business mainly from these facilities. Hence its major revenues are generated from operations in this region only. In the event that demand for its services in general reduces or stops by any reason including political discord or instability or change in policies of State, then its financial condition and operating results may be materially and adversely affected. Geographical and functional expansion of its business domain requires establishment of adequate network. As it seek to diversify its regional focus it may face the risk that its competitors may be better known in other markets, enjoy better relationships with customers. Its lack of exposure in geographical boundaries outside its operating region could impact its future revenues.

Require certain registrations, licenses, approvals: The company requires certain statutory and regulatory approvals, licenses, registrations and permissions, and applications need to be made at the appropriate stages for its business to operate. There can be no assurance that the relevant authorities will issue these approvals or licenses, or renewals thereof in a timely manner, or at all. An inability to obtain or maintain approvals or licenses required for its operations may adversely affect its operations. Government approvals, licenses, clearances and consents are often also subject to numerous conditions, some of which are onerous and may require significant expenditure. Furthermore, approvals, licenses, clearances, and consents covering the same subject matter are often required at both the Central Government and State Government levels. If it fails to comply, or a regulator claims that it has not complied, with these conditions, it may not be able to commence or continue with work or operate these projects. Further, it may become liable to penal action if its activities are adjudged to be undertaken in the manner not authorized under the applicable law.

Outlook

Varanium Cloud is a technology company focused on providing services surrounding the digital audio, video, and financial blockchain (for PayFac) based streaming services. At the core of Varanium is a transformative, transportation technology that delivers cloud content and services at low bandwidth, reaching large populations of the world who were previously underserved. Sitting above the software layer, and within the Transport Control Protocol (TCP) layer, Varanium’s unique network transportation technology allows content to be delivered to end devices faster and cheaper. Varanium’s technology is also completely device agnostic and can be delivered to any mobile device or screen, wired or wireless, agnostic of operating system or type of screen. The company’s algorithm first profiles the end user for device and IP characteristics. Once the profiles are created, server works to determine the fastest possible delivery route to the end user. Depending on the user profile created, the server computes the maximum potential file size that can be supported by the end user and commences real time transcode.  On the concern side, although it has been profitable in the past, it expects to make heavy investments in growing its business, which could reduce its profitability compared to past periods. In addition, as a public company, it will incur significant accounting, legal and other expenses that it did not incur as a private company. As a result of these increased expenditures, its profitability could decline in future periods.

The company is coming out with a maiden IPO of 30,00,000 equity shares of Rs 10 each at a fixed price of Rs 122 per share to mobilize around Rs 36.60 crore. On performance front, the Total Income for FY 2022 is Rs 3535.21 lakh as compared to Rs 419.51 lakh during FY 2021 registering an increase of 742.70%. Profit after Tax (PAT) has increased from Rs 289.25 lakh for the FY 2021 to Rs 840.19 lakh in FY 2022. This increase was mainly due to increase in operating income. During FY 2022, the company recorded PAT margin of 23.77% as against 68.95% for FY 2021. Meanwhile, through its wired and wireless customers, it plans to increase its penetration of the partners’ subscriber base as it increases its hosting capacity through co-location and building its own data centers. It plans to launch its services in new geographies as it complete the build out of its infrastructure and increase data center capacity.