Canarys Automations
- Canarys Automations is coming out with an initial public offering (IPO) of 1,51,72,000 equity shares of face value of Rs 2 each in a price band Rs 29-31 per equity share.
- The issue will open on September 27, 2023 and will close on October 3, 2023.
- The shares will be listed on SME platform of NSE.
- The share is priced 14.50 times of its face value on the lower side and 15.50 times on the higher side.
- Book running lead manager to the issue is Indorient Financial Services.
- Compliance Officer for the issue is Nagashree Hegde.
Profile of the company
Started in 1991, Canarys Automations is a leading IT solutions provider with over 30 years of existence in the industry. Its expertise lies in enabling digital transformation for businesses through its comprehensive range of software solutions in the space of Digitalization, Modernization, Automation and Intelligence. The company’s business operates across two verticals. (i) Technology solutions: Its technology solution offerings include multiple array of consulting solutions in Digitalization, Modernization, Cloudification, Automation, Transformation and Intelligence. Technology expertise includes DevOps Consulting (Azure, GitHub, Atlassian, GitLab, etc.), Cloud Consulting (Azure, AWS, GCP), Digital Enterprise Solutions using SAP, MS Dynamics 365, RPA, Digital Applications and Mobility Solutions. (ii) Water Resource Management Solution: It offers automation solutions to modernize irrigation water conservation, and improve water use efficiency, Turnkey flood risk assessment and mitigation, cloud based water utilisation process automation for water sharing in rivers and canals and SCADA gate control systems.
The company understands the evolving demands of the digital landscape, and it is dedicated to helping organizations harness the power of technology to drive growth and success. Its solutions span across various industry sectors, BFSI, Retail, Healthcare, Pharmaceutical, Manufacturing, Insurance and more. With a strong focus on digital transformation, it empowers businesses to optimize their operations, enhance customer experiences, and stay ahead of the competition. The company’s commitment to excellence has been recognized and rewarded by various customers, alliance partners and OEM’s.
Proceed is being used for:
- Funding of expenditure relating to solutions development for digital transformation and water resources management solutions
- Creation of new delivery centre including infrastructure thereof and upgrading existing facilities
- Funding working capital requirements of the company
- General corporate purposes
Industry Overview
While FY 2022 was a year of milestone and resurgence-an outlier for the Indian Technology Industry, FY 2023 has been the year of continued revenue growth with a focus on strengthening industry fundamentals and building trust and competencies. The volatile global economic and impending recession continues to support the demand for technology adoption and digital acceleration. Consequently, technology has become a strategic imperative that is a critical component of business innovation and transformation, as well as a source of improving operational and cost efficiencies. In FY2023, India’s technology industry revenue including hardware is estimated to cross $245 billion (8.4% y-o-y growth), an addition of $19 billion over last year. Exports at $194 billion, are expected to grow at 9.4% in reported currency terms and 11.4% in constant currency terms. Domestic technology sector is expected to reach $51 billion, growing at 4.9% y-o-y. In rupee terms, domestic tech revenues is expecting a 13% y-o-y growth on the back of continued investments by enterprise and government. The Industry continues to be a net hirer, adding 2,90,000 employees, taking the total employee base to 5.4 million (5.7% y-o-y growth), strengthening its position as the “Digital Talent Nation” for the world.
Meanwhile, Water Resource Management (WRM) is key component in water use efficiency improvement initiatives in the irrigation sector. Existing process lack real-time data collection / storage and retrieval / processing / analysis / reporting, collaboration and decision support systems. Maximizing the efficiency and productivity per unit of water diverted from a river becomes particularly important when there are other uses or users of the river water. Water saved or conserved in an irrigation scheme can be used to expand the irrigated area in that scheme or can be diverted for use on another scheme.
The Major and Medium irrigation Potential Created (up to 2012) are 47 M.Hectares and due to shortcomings in water reaching to the potential area, the Utilized is 35 M.Hectares. The percentage of potential utilised to potential created through Major & Medium Irrigation projects up to the end of XI Plan was 72.98%. Going forward, significant investment in modernisation of water bodies by the government, will provide an opportunity for automations and software companies to provide water use efficiency improvement and equitable distribution solutions, and other solution such as early flood warning, water accounting, water dispute management, etc. These investments are from government, and backed by World Bank, Asian Development Bank, AIIB, JICA, etc.
Pros and strengths
High quality standards: The company is complying with the strictest and highest standards of hydrology, meteorology and IT Consulting space. It has sharp focus on efficiency, quality, safety, statutory compliance and training/Up-skilling. Also, the company is engaged in continuous innovation at intersection to meet quality standards.
Skilled and experience team: The company has more than 350 numbers of employees with a collective experience of 735+ years. Fostering collaboration between IT experts and hydrology professionals creating solutions that address complex challenges.
Customer centric approach: Relentless pursuit of delivery excellence and customer satisfaction. The company is also committed to accomplish the group’s objectives. Moreover, the organization effectively retains its customers with the client retention ratio of 80%.
Risks and concerns
Top-line highly dependent on customers located in the USA: In Fiscals 2023, 2022 and 2021, the company’s customers located in the US contributed 23.52%, 17.39% and 24.82% of its revenue from contracts with customers, respectively. A single customer located in the United States contributed 6.00%, 3.72%, and 7.27% of its total revenues from contracts with customers in Fiscals 2023, 2022 and 2021. Existing and potential competitors to its businesses may increase their focus on the US market, which could reduce its market share. The concentration of its revenues from operations in the US increases risk to adverse developments related to competition, as well as economic, political, regulatory and other changes. Adoption of anti-sourcing laws in many countries, including the United States, may also limit the ability of its customers to engage it. Any adverse development that affects the overall economy of the United States or sectors or industries in which its customers operate, could have a material adverse effect on the business, financial condition and results of operations.
Maximum revenue comes from few customers: The company’s top 10 clients contributed approximately 50.54% of its revenue from operations based on Restated Consolidated Financial Statements for the year ended March 31, 2023. It has derived that in the foreseeable future it will continue to derive, a significant portion of its revenues from a small number of customers which may not be the same every year. The company’s ability to maintain close relationships with these customers is essential to the growth and profitability of its business. However, the volume and nature of work performed for a specific customer is likely to vary from year to year, especially since it is generally not exclusive IT services provider for its clients and it does not have long-term commitments with most of its customers. A major customer in one year may not provide the same level of revenues for it in any subsequent year. The IT services it provides to its customers, and the revenues and net income from those services, may decline or vary as the type and quantity of IT services the customers require changes over time. Furthermore, its reliance on any individual customer for a significant portion of its revenues may give that customer a certain degree of pricing leverage against it when negotiating contracts and terms of service.
Revenues highly dependent on limited number of industry verticals: A significant portion of the company’s customers are concentrated in a few specific industry verticals: BFSI, healthcare, manufacturing, pharmaceuticals and insurance. In Fiscals 2023, 2022 and 2021, over 22% of its revenue from contract with customers came from its customers in these verticals alone. The company’s business growth largely depends on continued demand for its services from customers in these industry verticals. A downturn in any of its targeted industry verticals, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing could result in a decrease in the demand for its services and adversely affect its business, financial condition and results of operations. Any decision to downsize in investment by entities engaged in these verticals or adverse regulatory environment may materially adversely affect the business, financial condition and results of operations.
Outlook
Canarys Automations Limited provides IT solutions in the space of Digitalization, Modernization, Automation, and Intelligence. The company’s solutions span across various industry sectors, including BFSI, Retail, Healthcare, Pharmaceutical, Manufacturing, Insurance, and more. The company has provided business applications to over 1000 customers. Besides India, the company has serviced customers from more than 10 countries. These include USA, UK, Canada, Germany, Singapore, Malaysia, Brunei, Australia, Srilanka and Indonesia. These customers come from diverse industries. On the concern side, the company’s revenues from operations are highly dependent on customers located in the United States of America (USA/US). Adverse economic conditions or factors that negatively affect the economic situation of that country could materially adversely affect its business, financial condition and results of operations. Moreover, the company generates a significant portion of revenues from a small number of customers, and any loss or reduction of business from these customers could reduce its revenues and materially adversely affect the business, financial condition, and results of operations.
The issue has been offered in a price band of Rs 29-31 per equity share. The aggregate size of the offer is Rs 44.00 crore to Rs 47.03 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations had increased by 44.67% from Rs 51.51 crore in Fiscal 2022 to Rs 74.52 crore in Fiscal 2023. This growth is mainly attributed to several pivotal drivers, including an expanded customer base of 132 clients in Fiscal 2023, up from 93 in the previous fiscal year. Moreover, the company’s profit after tax increased from Rs 4.56 crore in Fiscal 2022 to Rs 8.53 crore in Fiscal 2023. Meanwhile, currently 50.54% of the company’s service revenue is currently from international customers. Besides working on strengthening the Sales & Marketing in US and APAC, the company is also working on developing business in the geographies of Europe. Going forward, the company has successfully developed technologies such as flood early warning system, irrigation water distribution management automation system, transit time Volumetric flow measurement system for open channel flow etc. which helps it to win trust of existing and new customers and will continue to augment its capabilities in this segment to stay ahead of the competition.
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