Multibagger! Netweb Technologies soars 430% from IPO price in just 11 months; should you buy?

Netweb Technologies, listed in July 2023, has been a standout performer in the stock market. In just 11 months since listing, the stock has zoomed 430 percent from its IPO price of ₹500 to currently trade around ₹2,649.70.

Moreover, the stock hit its record high of ₹2,712 in intra-day deals in the previous session, June 26, 2024. It has now soared almost 260 percent from its 52-week lows of ₹739.70 hit in October 2023. It has gained about 121 percent just in 2024 YTD, giving positive returns in 5 of the 6 months so far this calendar year. It has risen 12 percent in June so far, extending gains for the 3rd straight month. It jumped 39.4 percent in May and 4.5 percent in April. However, the stock lost 5.4 percent in March. Prior to that, it was positive in the first 2 months of this year, up 21.66 percent in February and 17.6 percent in January.

Netweb Technologies India IPO was a book built issue of ₹631.00 crore. The issue was a combination of a fresh issue of 0.41 crore shares aggregating to ₹206.00 crore and an offer for sale of 0.85 crore shares aggregating to ₹425.00 crore. The IPO bidding started from July 17, 2023 and ended on July 19, 2023. The shares got listed on BSE, NSE on July 27, 2023.

Netweb Technologies is an India-based provider of high-end computing solutions (HCS) with fully integrated design and manufacturing capabilities. The company's HCS offering comprises HPC, private cloud and (HCI), artificial intelligence (Al) systems and enterprise workstations, high-performance storage (HPS) and data center servers.

Recently, Netweb Technologies announced the launch of its Make-in-India range of servers for data centers and AI systems. These servers utilise the latest 4th Gen AMD EPYC processors and are available in various configurations including 1U, 2U, 4U, workstations, and others. They are designed to cater to high-performance computing environments and diverse workloads, offering flexibility in terms of I/O expansion and storage support. This move underscores the company's commitment to leveraging advanced technology and meeting the evolving demands of the market.

“This range of servers represents our commitment to the Make in India mission and highlights capabilities to produce world-class technology indigenously,” said Sanjay Lodha, CEO of Netweb Technologies.

On the back of such a strong performance since listing, brokerage house IIFL Securities has initiated coverage on Netweb with an 'add' recommendation and a target price of ₹2,680.

"Netweb Technologies is one of the leading domestic providers of end-to-end high-end computing solutions (HCS), employing a customer-centric approach to compete with global MNCs. The company has emerged as a proxy to AI and data centre-related investments in India with a TAM of $13 billion, expected to grow at 14 percent CAGR over the next 5 years. It has witnessed a robust 5x/9x growth in sales/PAT over FY21-24. Substantial headroom for growth in the existing portfolio and expansion of offerings through R&D should drive sales/PAT CAGR of 45 percent/50 percent over FY24-27. However, post the recent run-up, the stock trades richly at 1.7x PEG, leaving little room for upside," said the brokerage.

According to brokerage, there is a rapid shift towards private cloud adoption and increased investment in data centers, which is boosting demand for servers. Additionally, there is a significant surge in spending on generative AI and supercomputing systems, driving historic growth for high-performance computing solutions (HCS). The Indian government's initiatives to promote local manufacturing also create a favorable environment for domestic players.

Netweb Technologies, with over 20 years of experience in deploying HCS and strategic partnerships with NVIDIA and ARM, is positioned as one of the leading domestic players. This positions the company well to capitalise on these opportunities in the market, it highlighted.

Furthermore, IIFL pointed out that Netweb Technologies allocates approximately 3.5-4 percent of its sales towards research and development (R&D). The company has a track record of identifying gaps in end-consumer needs and market opportunities, as evidenced by its entry into the private cloud sector in 2021 and its recent ventures into manufacturing network switches and 5G Open RAN (ORAN) technology.

IIFL expects that Netweb's ongoing R&D efforts will support further expansion of its product portfolio and contribute to the growth of its total addressable market (TAM). This strategic focus on innovation positions Netweb Technologies to capitalise on emerging trends and customer demands in the technology sector.

IIFL also noted that robust demand is expected to drive significant execution improvements and operating leverage, potentially leading to a 3.5x increase in Profit After Tax (PAT) from FY24 to FY27. Despite the high working capital intensity, IIFL anticipates a strong net margin profile supporting approximately 30 percent Return on Equity (RoE) and healthy Free Cash Flow (FCF) conversion. However, key risks identified include high customer concentration and potential technology disruptions in the market.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.