Orient Technologies IPO: 10 key points to know before you subscribe to the issue

The initial public offering (IPO) of Orient Technologies will open for subscription on August 21 and will remain open for subscription until Friday, August 23. The company aims to raise ₹214 crore. The issue is a combination of a fresh issue of 0.58 crore shares aggregating to ₹120.00 crores and an offer for sale of 0.46 crore shares aggregating to ₹94.76 crores.

The price band for the offer has been fixed at ₹195–206 per equity share, with a face value of ₹10 each. The net offer will be reserved for qualified institutional buyers at 50% of the total offer size, non-institutional investors at 15%, and retail investors at 35%.

Retail investors have the opportunity to submit bids for up to 13 lots, with each lot containing 72 shares. At the upper end of the IPO price band, at ₹206, retail investors are required to make a minimum investment of ₹14,832 per lot.

Let us take a look at some of the key points mentioned in the Orient Technologies IPO DRHP.

Objectives of the issue

The company proposes to utilize the net proceeds towards the acquisition of office premises in Navi Mumbai. Additionally, the funds will be used to meet capital expenditure requirements, including the purchase of equipment for setting up a Network Operating Centre (NOC) and a Security Operation Centre (SOC) at the Navi Mumbai Property, as well as acquiring equipment and devices to offer a Device-as-a-Service (DaaS) offering (collectively referred to as capital expenditure).

The remaining proceeds will be allocated for general corporate purposes.

About Orient Technologies

Orient Technologies is an information technology (IT) solutions provider headquartered in Mumbai, Maharashtra, incorporated in 1997. It offers a wide-ranging and diversified bouquet of product and service offerings and classifies its business into three verticals: IT infrastructure, ITeS, and cloud and data management services.

Its products and services in IT infrastructure comprise data center solutions and end-user computing. While the IT Infrastructure segment is the business segment with the longest operational track record and, in Fiscal 2023, Fiscal 2022, and Fiscal 2021, its largest revenue-generating segment, it has broad-based its offerings significantly even within this segment and continually added new products.

Expanding and augmenting its product and services portfolio

The company 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 DaaS market in India is at a very nascent stage and is currently fragmented. The company expects to benefit from its experience of continually developing new products to develop the necessary scale in its DaaS segment.

The company proposes to utilize ₹695.71 million from the net proceeds for its DaaS segment through the purchase of equipment such as SD-WAN and switches, notebooks, servers, storage devices, and printers for operating lease

Expanding its geographic footprint

Its business operations are, currently concentrated in India, and its revenues are predominantly generated in India. While it caters to a large number of multinational companies and transnational corporations, and has a branch in Singapore, the company has yet to significantly expand its international operations.

The Indian IT services industry is predominantly an export-oriented sector, with exports accounting for 83–85% of the total revenue, with North America and Europe being key geographies.

According to NASSCOM, Indian software product companies offer products that are well-accepted by global companies and provide value for money. The Indian IT sector provides value propositions such as cloud-ready software, integrated ready-made solutions, and hassle-free implementation.

Client portfolio

As of December 31, 2023, the company had a diverse customer base spanning both public and private sector entities across various industries, including BFSI, information technology, IT-enabled services, healthcare, and pharmaceuticals. Among its public sector clients are Coal India, Mazagon Dock, and the Joint Commissioner of Sales Tax (GST Mahavikas) in Mumbai.

In the healthcare and pharmaceutical sectors, the company serves clients like ACG and Jyothy Labs. In the BFSI sector, its clients include Bluechip, Tradebulls, VJS Bank, and VKS Bank.

Competitive landscape and market position

The company operates in a highly competitive industry, facing challenges from a wide range of large, mid-sized, and small operators. It competes with Indian multinational companies, domestic Indian firms, and transnational corporations.

Some of its competitors, particularly the Indian multinational companies and transnational corporations, are significantly larger than Orient, benefiting from economies of scale due to the size of their operations.

Additionally, the company competes within India against numerous small and mid-sized companies, many of which have a strong presence in specific regions, whether or not they operate on a pan-India scale.

Key competitors across its various business verticals include Dynacons Systems & Solutions, Wipro Limited, HCL Technologies, LTIMindtree Limited, Allied Digital Services Limited, Dev Information Technology Limited, Tech Mahindra Limited, and Silicon Rental Solutions Limited.

Financial performance

The company's revenue from operations experienced robust growth, with a compound annual growth rate (CAGR) of 47.09% between fiscal 2021 and fiscal 2023. During the six-month period ended September 30, 2023, the revenue from operations stood at ₹263 crore, while for Fiscal 2023, Fiscal 2022, and Fiscal 2021, it was ₹535 crore, ₹467 crore, and ₹247 crore, respectively.

The profit after tax for the six-month period ended September 30, 2023, was ₹16.3 crore. For Fiscal 2023, Fiscal 2022, and Fiscal 2021, the profit after tax was ₹38 crore, ₹33.4 crore, and ₹1 crore, respectively.

Key risks

Here are some of the key risks highlighted by the company in its DRHP report:

The company is heavily reliant on its top 10 customers, and the loss of any of these customers or a significant reduction in their purchases would have a materially adverse impact on its business.

It has a large workforce, and employee benefit expenses represent a significant portion of its fixed operating costs. An increase in these expenses could reduce profitability. Additionally, any IT system failures or lapses on the part of employees may lead to operational interruptions, inefficiencies, or reputational harm.

The company operates in a competitive industry, and any inability to compete effectively may result in a lower market share or reduced operating margins.

Allotment and listing details

The allotment for the IPO is expected to be finalized on Monday, August 26, 2024. The shares are scheduled to be listed on both the NSE and BSE, with a tentative listing date of Wednesday, August 28, 2024. Elara Capital (India) Private Limited is the book-running lead manager of the Orient Technologies IPO, while Link Intime India Private Ltd. is the registrar for the issue.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.