PROTEAN EGOV TECHNOLOGIES LIMITED IPO: ALL YOU NEED TO KNOW

The second IPO that opens for subscription this month is Protean eGov Technologies (PETL). Protean eGov Technologies opened for subscription on 6 November and closes on the 8th of November. In this article, we will look at the various aspects related to the company. It will help you decide whether to subscribe or invest in the IPO for the long term. 

Protean eGov Technologies IPO: Key Details

Below are the key details related to the PETL IPO:

• Issue Size: Rs 490.33 crore
• Price Band: Rs 752 - Rs 792
• Issue Details: Only Offer For Sale (OFS)
• Market Cap: At the upper price band, Rs 3,203.38 crore
• Minimum Investment: Rs 14,256

Protean eGov Technologies IPO: About the company

PETL is one of the key IT-enabled solutions companies in India engaged in conceptualizing, developing, and executing nationally critical and population-scale greenfield technology solutions. They collaborate with the government and have extensive experience in creating digital public infrastructure and developing innovative citizen-centric e-governance solutions. 

The company was originally set up as a depository in 1995 and created a systemically important national infrastructure for capital market development in India. They have been the chief architect and implementer for some of the most critical and large-scale technology infrastructure projects in India. They believe that solutions have led to the identification of bottlenecks in government services, increased transparency and efficiency, redefined delivery of public services, and led to a reduction in service delivery costs. 

PETL is among the leading Indian companies in the e-governance sector in terms of profitability, operating income, operating profit, and operating profit margin in FY23. 

Over the years, the company has successfully adapted to technology advancements through continuous investments in new technologies and capabilities and by developing sophisticated technology architecture. They have domain knowledge for various industries that allows them to develop functionalities that address specific requirements of end-users, businesses, and public entities. While executing large and complex projects, the company leverages its comprehensive program management expertise.

Protean eGov Technologies IPO: Key Intervention

Some of its key interventions include:

• Modernizing the direct tax infrastructure in India through projects like Permanent Account Number (PAN) issuance, the Tax Information Network (TIN), including Online Tax Accounting Systems (OLTAS).
• Strengthening the old-age security system in the country by building the core IT infrastructure as a Central Recordkeeping Agency (CRA) for the National Pension System (NPS).
• Enabling the universal social security system for all Indians by creating technology infrastructure as a CRA for the Atal Pension Yojana (APY).
• Contributing to the India Stack, a set of application programming interfaces (API) that allows governments, businesses, startups, and developers to utilize a unique digital infrastructure to prepare solutions that are presence-less, paperless, and enable cashless service delivery. 
• Improving accessibility to education and skill financing through the creation of efficient digital marketplaces enabling the discovery of financial resources through platforms such as Vidya Lakshmi, and Vidyasaarathi.
• Contributing to and supporting open digital building blocks such as Open Network for Digital Commerce (ONDC) for use-cases across sectors like e-commerce, mobility, healthcare, agriculture, and education.

Protean eGov Technologies IPO: Industry Overview

There has been a manifold increase in digital payments in the recent past. To further boost digital transactions, the finance minister in the Union Budget 2023-2024 earmarked Rs 115.4 billion to bolster the digital India initiative, of which Rs 1.5 billion are proposed to provide financial incentive to promote digital mode of payments. 

Further, various initiatives such as setting up 75 digital banking units in 75 districts across the country by scheduled banks and 100% inclusion of post-offices under the core banking systems, thus providing features such as net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts have been taken. 

Government spending on IT and telecom has increased continuously, with telecom comprising the bulk of the share, at approximately 86% in FY23.

Over FY23 - FY27, CRISIL Research expects domestic IT services’ revenue to log a compounded annual growth rate (CAGR) of 7-9%. The growth will be led by technology platform upgradation and e-governance initiatives of the central and state governments.

Protean eGov Technologies IPO: Listed Peers

The company does not have any listed peers, and hence the comparison is not possible.

Protean eGov Technologies IPO: Financials

Let us now look at the most crucial part that one needs to consider while evaluating a company (and also a new company). Below are the financial numbers of PETL over the last three financial years:

• The company has reported a revenue of Rs 603.13 crore, Rs 690.91 crore, and Rs 742.21 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a 10.93% CAGR in this period. 
• The adjusted EBITDA was Rs 84.84 crore, Rs 123.83 crore, and Rs 117.96 crore in FY21, FY22, and FY23, respectively. The Adjusted EBITDA margin was 14.07%, 17.92%, and 15.89%.
• PETL has been profitable since FY99 and has consistently declared and paid dividends since FY01. The company reported a profit of Rs 89.33 crore, 147.56 crore, and Rs 106.21 crore, respectively for FY21, FY22, and FY23. The profit margins for the same period are 15.28%, 20.83%, and 14.42%, respectively. 
• For FY21, FY22, and FY23, the company has reported Return on Equity (ROE) of 13.81%, 18.27%, and 12.49%, respectively. The ROCE in the same period is 16.93%, 22.91%, and 16.13%, respectively.
• For the last three financial years, the company reported an average EPS of Rs 28.99 and an average RoNW of 14.64%. 
• If we attribute annualized FY24 earnings to its post-IPO paid-up equity capital, then the asking price is at a P/E of around 24.86. 

What are the competitive strengths of Protean eGov Technologies Limited?

As per the company, their competitive strength is as below:

• They are among the few players in India, which are working towards the creation of open digital ecosystems.
• The company has made investments in technology platforms that have strengthened its competitive advantage, increased operating leverage, ensured scalability, and improved functionality while driving innovation. 
• PETL has developed a pan-India service delivery network across India for various public and other services provided by them.
• They have established a track record of strong and consistent financial performance.

Risks associated with Protean eGov Technologies business

Below are the risks associated with the PETL:

• The company is substantially dependent on projects awarded by government entities and agencies, and their relationship with GoI entities exposes us to risks inherent in doing business with them. 
• They may not be able to provide business solutions that meet their client’s requirements, which could lead to clients discontinuing their work with them, which in turn could harm the business.    
• The company relies on telecommunications and information technology systems, networks, and third-party infrastructure to do business, and any interruption or breakdown in such systems, networks, or infrastructure of the third parties could impair its ability to effectively deliver products and services.
• Their business will suffer if they fail to anticipate and develop new services and enhance existing services to keep pace with rapid changes in technology and in the industries on which they focus.