Orient Technologies coming with IPO to raise Rs 221.53 crore

Orient Technologies

• Orient Technologies is coming out with a 100% book building; initial public offering (IPO) of 1,07,53,846 shares of Rs 10 each in a price band Rs 195-206 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 August 21, 2024 and will close on August 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 19.50 times of its face value on the lower side and 20.60 times on the higher side.
• Book running lead manager to the issue is Elara Capital (India).
• Compliance Officer for the issue is Nayana Akhil Nair.  

Profile of the company

The company 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 specialised disciplines across its 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. 

The company’s business operations involve technologically advanced solutions for which it 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 its ability to tailor and customise its offerings to the specific needs of its customers. Its collaboration with its technology partners heightens its ability to design and innovate products and provide solutions tailored to specific customer requirements. Its range of customised offerings and its ability to specifically tailor solutions to the specific needs of customers have enabled it to garner prominent customers across industries and it 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 endeavour is to nurture every client relationship to ensure that it translates into a long-term association. It also continually engages with its 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. 

The company’s expertise, honed over the years, in conjunction with the strength of its collaborative efforts with its technology partners enables it to provide customised IT solutions to its customers. It also tracks the developments in the business segments in which it operates in to stay abreast of emerging trends and capitalise on new business opportunities. All these factors enable it to strengthen, and forge long-term and more successful, relationships with its existing customers.

Proceed is being used for:

• Acquisition of office premise at Navi Mumbai situated at unit no 1201, 1202, 1203, and 1204, respectively which are situated at Plutonium Business Park, Trans-Thana Creek Industrial Area, Turbhe MIDC, District Thane, Navi Mumbai.
• Funding capital expenditure requirements for purchase of equipment for setting up of Network Operating Centre (NOC) and Security Operation Centre (SOC) at Navi Mumbai Property; and Purchase of equipment and devices to offer Devise-as-a-Service (DaaS) offering.
• General corporate purposes.

Industry overview

The Indian IT industry came into existence around 1970s in the absence of a domestic market with high tariffs for software and hardware and no government support. In the period 1980-90, with government liberalizing the economy, opening the sector to foreign investment which created a demand for skilled software professional and engineers. During 1990s and 2000s, the Indian IT industry in India experienced rapid growth, expanding its services beyond software development and outsourcing. The industry ventured into Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), ERP (Enterprise Resource Planning) systems, Cloud Computing, Artificial Intelligence & Digital Transformation. Further, the industry also diversified into markets beyond US and Europe and started servicing Middle East, Africa and Latin America as well. Gradually, the Indian IT industry started growing and became a large part of India’s exports. The Indian IT Services forms around 53% of the total Indian IT revenue as of FY24. The IT Services industry is predominantly an export-oriented sector, with exports accounting for 84-86% of the total revenue with North America and Europe being key geographies. However, over the years, the Indian IT services has diversified its markets. The Indian IT Services market has been a catalyst for India’s economic growth, making significant contributions to sectors such as Banking, Finance, Telecom, Retail, Healthcare & Government. This has enabled these sectors to improve efficiency, productivity, quality and innovation. 

IT-enabled services (ITeS) encompass a broad spectrum of services that leverage information technology for providing services with the help of internet. The Indian ITeS Companies’ services lie under three different categories which are Customer Relationship Management (CRM), Transaction Services and Knowledge Services. ITeS refers to outsourcing of processes in which the provider utilises technologies to meet the business goals of global companies. It provides a gamut of services that exploit technology to improve organisations. Outsourcing saves client money and boosts the economic progress of the country providing the service by creating more jobs. Over the years, the Indian ITeS industry has undergone a transformation with emergence of new technological advancements in areas like process improvement, data analysis, and automation. The global IT companies have increased investments in cutting-edge technologies like robotics, 3D printing, the Internet of Things (IoT) and connected devices, and the integration of social, mobile, analytics, and cloud (SMAC) solutions & the Indian service providers are able to derive significant benefits of this owing to their ability to offer domain-specific services and leverage big data analytics to achieve meaningful business results.

Pros and strengths

Marquee customer base across diverse Customer Industries: The company commenced its business in 1997 and have since then built its reputation in India on the basis of the quality of its products and services. One of the singular factors that has enabled it to consistently grow its business is its ability to tailor and customise its product and services to suit the requirements of its customers. Over the years it has built deep expertise to develop products and solutions for specialised disciplines including HCI, End-User Computing and Robotic Process Automation. Its business operations involve technologically advanced solutions for which it collaborates with a wide range of technology partners including Dell, Fortinet and Nutanix. Its collaboration with its technology partners heightens its ability to design and innovate products and provide services tailored to specific customer requirements. It has demonstrated an ability to cater to entities across various Customer Industries. As of June 30, 2024, it had a diverse base of customers across public and private sector entities across diverse Customer Industries such as BFSI, IT, IteS, healthcare / pharmaceutical, as its customers.

Wide ranging and diversified IT solutions and offerings: The company offers a wide ranging and diversified bouquet of product and service offerings and classify its business into 3 verticals viz., IT Infrastructure, ITeS and Cloud and Data Management Services. Its products and services offering in IT Infrastructure comprises Data Centre Solutions and End-User Computing. While the IT Infrastructure segment is the business segment with the longest operational track record and, in the Fiscal 2024, Fiscal 2023 and Fiscal 2022, its largest revenue generating segment, it has broad-based its offerings significantly even within this segment, and continually, add new products. For instance, in Fiscal 2024, Fiscal 2023 and Fiscal 2022, it added various new products under its cyber-security solutions. Its ITeS include Managed Services, Multi-Vendor Support Services, IT Facility Management Services, Network Operations Centre Services, Security Services, and Renewals. Its large pool of skilled and technically competent resources ably supports its ITeS operations, and this segment grew at CAGR of 29.51% between Fiscal 2022 and Fiscal 2024. The company’s Cloud and Data Management Services include migration of workload from data centres to cloud. Its products and services in this vertical comprise data analytics, business analytics, RPA, IOT, DevOps, and containerisation and microservices (i.e., use of containers, which are a way to package applications, libraries, and configurations and run them as a self-contained and isolated environment agnostic of the software installed on the host system, to build deploy and manage applications) on a subscription basis.

Strong Promoters and Board of Directors supported by an experienced senior management team: The company is led by experienced and technically qualified Promoters i.e. Ajay Baliram Sawant, Jayesh Manharlal Shah, Ujwal Arvind Mhatre and Umesh Navnitlal Shah who have co-founded, conceptualised, incubated and nurtured its business and continue to be actively engaged in its business operations. Each of them brings a different set of operational strengths to company and is backed by experienced senior level of management team whose varied background guides and provides direction to its business operations. In addition, it is able to provide its services across India. Its headquarter located in Mumbai and 6 offices located in Navi Mumbai and Pune in Maharashtra, Ahmedabad, Gujarat, New Delhi, Bengaluru, Karnataka and Chennai, Tamil Nadu enables it to broad base its geographical coverage in India. Further, it has also established operations in Singapore through its branch.

Track record of financial performance: The company has demonstrated a consistent growth in its financial performance commensurate with the broadening of its product range and increase in its customer base. Its revenue from operations grew at a CAGR of 13.57% between Fiscal 2022 and Fiscal 2024. Its revenue from operations during Fiscal 2024, Fiscal 2023 and Fiscal 2022, was Rs 6,028.93 million, Rs 5,351.02 million, and Rs 4,674.43 million, respectively. Its profit after tax for Fiscal 2024, Fiscal 2023 and Fiscal 2022, was Rs 414.48 million, Rs 382.98 million and Rs 334.93 million, respectively.

Risks and concerns

Heavily reliant on top 10 customers: The company is an information technology (IT) solutions provider operating from Mumbai in India. Its IT solutions are broadly categorised as IT product and IT services. Its IT product and service offerings span a wide range of application areas and comprise IT Infrastructure, Cloud and Data Management Services, and ITeS. While the customer may vary annually, it is heavily dependent on the contribution of its top 10 customers every year. Consequently, its business and financial condition in any given financial year is reliant on its top 10 customers. Its business, results from operations, and financial condition are heavily dependent on maintaining relationship with its customers, and failure or inability to maintain of all or any of its top 10 customers, for any reason (including, due to failure to negotiate acceptable terms, adverse change in the financial condition of such customers for various factors such as possible bankruptcy or liquidation or other financial hardship, merger or decline in sales from such customers, reduced or delayed customer requirements, facility shutdowns, labour strikes, geopolitical reasons and, or, other work stoppages affecting production by such customers) could have a material adverse impact on its business, results of operations, financial condition and cash flows. 

Heavily reliant on a few vendors/ suppliers: The company’s business model entails the purchase of significant quantities of IT related hardware, software, and cloud space. It is heavily reliant on few vendors/suppliers for purchase of inter alia IT hardware, software licenses, and cloud space in order to cater the needs of its customers and provide its tailored IT solutions across various Customer Industries. Further, it typically places purchase orders with its vendors for the purchase of the aforementioned products and do not enter into long term of contracts or arrangements with its vendors. It cannot assure that it will be retain any of its top 10 vendors or be able to place purchase orders on favourable terms with its existing top 10 vendors. Further, it may not be able to find a suitable replacement for any of its existing top 10 vendors. Its inability to maintain its relationship with its existing top 10 vendors and/or failure to procure equipment from vendors/suppliers on favourable terms may have an adverse effect on its revenue, results of operation and would have an impact on its financial condition. 

Heavily reliant on highly skilled professionals: The company operates in the IT sector and a major portion of its revenue is generated from its IT Infrastructures Products and Services. Its ability to execute existing projects and undertake or expand to new projects depends heavily on its ability to hire, train and retain highly skilled IT professionals, in particular project managers and IT engineers. As on June 30, 2024, the company had 1,327 permanent technical support and quality assurance professionals out of which 9 were project managers and 1,318 were IT engineers and support staff. If the company is unable to retain its highly skilled IT professionals, its ability to deliver quality solutions in a timely manner to its existing customers will have a severe impact. Further, hiring new IT professionals may have an impact on its financial condition. It cannot assure that it will be able to retain its existing IT professionals or will be able to hire new IT professionals to replace its previous IT professionals in a timely manner or at all. 

Operate in a competitive industry: The company operates in a competitive industry with a number of other entities that offer competing solutions, both in India and internationally. Some of its competitors may have certain advantages, including greater financial technical and, or, marketing resources, which could enhance their ability to finance acquisitions, fund international growth, respond more quickly to technological changes and, or, operate in more diversified geographies and solutions portfolios. As a result, to remain competitive in the market it must, in addition, continuing to meet exacting quality standards, continuously strive to reduce its costs and improve its operating efficiencies, continue to provide technologically advanced services and solutions offering. If it fails to do so, it may have an adverse effect on its market share and results of operations. It cannot assure that it can continue to effectively compete with such competitors in the future, and failure to compete effectively may have an adverse effect on its business, financial condition, and results of operations. Moreover, the competitive nature of the industry that it operate in may result in lower prices for its products and decreased profit margins, which may materially adversely affect its revenue and profitability. 

Outlook

Orient Technologies is a fast-growing information technology (IT) solutions provider headquartered in Mumbai, Maharashtra. It offers a wide ranging and diversified bouquet of product and service offerings and classify its business into 3 verticals viz., IT Infrastructure, ITeS and Cloud and Data Management Services. It has recently ventured into ‘Device as a service (DaaS)’. Under DaaS it provides desktops, laptops, tablets, printers, scanners, smartphones, and servers, bundled with software, along with managed services on a ‘pay-per-use’ model i.e. on a subscription basis. The company has developed extensive knowledge to create products and solutions for specific areas within its business verticals. The company's wide range of customized offerings and its ability to tailor solutions to meet customers' specific needs have enabled it to attract prominent clients across various industries. It serves leading public and private sector entities in diverse customer industries, such as banking, financial services, insurance (BFSI), IT, ITeS, and healthcare/pharmaceutical. On the concern side, the company’s business operations have long lead times between the company pitching for an order from new customers, and such new customer placing the purchase order for its solution offerings. It expends significant time and effort of its management for these pitches. Even after expending significant time and effort of its management, its pitch may not materialise into a purchase order, and may consequently impact its business operations. 

The company is coming out with a maiden IPO of 1,07,53,846 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 195-206 per equity share. The aggregate size of the offer is around Rs 209.70 crore to Rs 221.53 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 11.97% from Rs 5,420.09 million in Fiscal 2023 to Rs 6,068.64 million in Fiscal 2024. The company’s profit after tax increased by 8.22% from Rs 382.98 million in Fiscal 2023 to Rs 414.48 million in Fiscal 2024. Meanwhile, the company also intends to fund its capital expenditure requirements from the Offer and propose to utilise Rs 100.81 million from the Net Proceeds for setting up of its network operating centre and security operating centre. The company intends to set up Network Operating Centre (NOC) and Security Operation Centre (SOC) to provide remote network management services to its customers. Its NOC will allow its customers to have high-value services at fixed monthly costs. With its SOC, it aims to provide proactive protection and risk management for enterprise security round the clock to the customers. It will be providing Managed Security Service inter alia highly specialized 24X7 information security surveillance service, which is powered by advanced event correlation engine and incident handling technology from its SOC.