IPO Size: Rs. 490 cr, Entirely Offer For Sale (OFS)
Protean is a professionally managed company, having 14 banks/financial institutions as shareholders. Some larger ones are looking to partly exit:
- 360 One Fund’s 30% stake to drop to 26% post IPO
- NSE Investments 25% to reduce to 20%
- HDFC, Axis and Deutsche Bank 5% each bank to drop to 3%
- SUUTI 7% to reduce to 6% and Union Bank of India’s 3% to 2%.
Price band: Rs. 752- Rs. 792 per share
M cap: Rs. 3,200 cr, implying 15% dilution
IPO Date: Mon 6th Nov to Wed 8th Nov 2023, Listing Fri 17th Nov 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Digital Services Company
Protean eGov Technologies, formerly NSDL e-Governance Infrastructure Limited, provides e-governance services such as management of TIN, PAN processing, central record keeping agency (CRA) for National Pension Scheme (NPS) and Atal Pension Yojana. With 25 years of experience, company has developed 19 digital public infrastructure projects for seven Government of India ministries, such as education, finance, communications, IT, commerce, skill development, information and broadcasting. It is a market leader in universal citizen-centric population scale e-governance solutions, has account aggregation (AA) license and is actively contributing towards ONDC for e-commerce, mobility and open finance use-cases (also invested Rs. 10 cr in ONDC).
FY23 revenue stood at Rs. 742 cr revenue - 80% earned through transaction fees (hence granular in nature) and 20% from maintenance (annuity). Since FY23, company has been made accelerated investment to upgrade technology. Excluding Rs. 44 cr other income on profit on sale of asset in FY22, FY23 net profit remained flat YoY at Rs. 107 cr, despite 7% YoY growth in revenue. But Q1FY24 posted both topline and bottomline growth, with revenue up 41% YoY to Rs. 220 cr and PAT jumping 51% YoY to Rs. 32 cr, as new business clocked higher margin. Company generates nearly 30% of PBT from interest income, leading to 14.5% net margin. Q1FY24 EPS rose to Rs. 8, from Rs. 26 in FY23.
High Margins in Core Business
Of Rs. 888 cr net worth as of 30.6.23, cash and equivalents comprise Rs. 680 cr. Since treasury earns 7.5-8% yield, company’s overall RoE is pulled down to 12.5-13%. This also implies core business operations yield over 40% RoE, which is excellent, highlighting the company’s technology prowess. With 58% market share in TIN, 45% in Pan card issuance and 94% in NPS, Protean is a niche and unique story.
Attractively Priced in Relation to Comparable Peers
M cap of Rs. 3,200 cr at the upper end of the price band, leads to an enterprise value (net of cash) of Rs. 2,520 cr. Excluding estimated Rs. 50 cr treasury income in FY24E, expected core PAT is about Rs. 95-100 cr, leading to a profit multiple (equivalent to PE) of 25x, for current year, which is seen attractive, given core business clocks 10% net margin, 40% RoE and is growing. While Protean is not depository (NSDL is a different company), given the nature of revenue generation, it can be compared to Kfin, Cams and CDSL, all three of which are ruling at core profit multiples of over 45x. Thus, IPO pricing has left money on the table.