4 Little-Known Indian Stocks with Critical Ties to NVIDIA's Supply Chain

Unless you're living under a rock or you're a total novice to the investing community, you would have heard about NVIDIA's dream run in recent months.

The blockbuster gains in the past couple of sessions have made NVIDIA the US stock market's third-most valuable company.

This puts it ahead of Amazon.com and Alphabet.

That is a mind-boggling feat that is about to get more exciting in the coming year if something doesn't change quickly.

NVIDIA defines itself as the world leader in artificial intelligence (AI) computing.

NVIDIA is not necessarily betting on any single AI application, but rather a macro bet on the technology becoming more pervasive and valuable.

And the results speak for themselves in that regard.

Nvidia's Dream Run

In India, the US-based chipmaker NVIDIA inked partnerships in September 2023 with the country's biggest conglomerates Reliance Industries and Tata Group.

Infosys joined hands with NVIDIA in the same month for generative AI solutions to boost productivity.

Meanwhile, L&T Technology has also partnered with NVIDIA to boost medical imaging via AI.

Several more companies are joining the bandwagon as the AI megatrend picks up pace.

For investors looking to ride the AI rally, here are four under-the-radar stocks that have some connect with NVIDIA, be it supplying components, licensing NVIDIA products, or forging an important partnership.

#1 Rashi Peripherals

Rashi Peripherals is one of the 5 largest IT distributors in India engaged in the business of product distribution and after sales services.

The company is engaged in various product categories, including personal computing, mobility, enterprise, embedded solutions, among others.

The company recently listed on the stock exchanges and raise money through the SME IPO route.

In its draft red herring prospectus, the company mentions NVIDIA as one of its clients.

Rashi Peripherals is the primary importer and distributor of NVIDIA's own branded RTX cards (and older GTX cards).

Apart from NVIDIA, Rashi Peripherals has maintained partnerships with renowned brands like Lenovo, Asus, Hewlett-Packard, Sandisk, and Western Digital. It also catered to Samsung and LG at one point.

Coming to its financials, the company has faced margin pressure in the past as established players capture a large part of the product distribution business.

The company is expecting to improve margins going forward and it has also reduced debt post raising money via an IPO.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	39,905	39,357	59,250	93,134	94,543
Growth (%)	-	-1%	51%	57%	2%
Operating Profit	644	958	2,169	3,097	2,708
OPM (%)	2%	2%	4%	3%	3%
Net Profit	287	411	1,304	1,821	1,233
Net Margin (%)	1%	1%	2%	2%	1%
ROE (%)	14.6	18.6	43.2	37.7	19.4
ROCE (%)	10.9	16.3	29.0	25.5	15.8
Dividend (Rs)	0.5	0.5	0.5	0.5	0.5
Debt to Equity (x)	1.9	1.4	1.2	1.5	1.5

Data Source: Ace Equity

It has paid consistent dividends to shareholders while the company also boasts of high double digit return ratios.

Going forward, the company's continuous efforts to expand its footprint and introduce new products will drive its revenue and net profit in the medium term.

To know more, check out Rashi Peripherals financial factsheet.

#2 Esconet Technologies

The second stock on this list is Esconet Technologies.

The company provides high-end supercomputing solutions and data center facilities that include storage servers, network security, virtualization, and data protection.

How is it related to NVIDIA you ask?

In collaboration with the US based chipmaker, Esconet introduced its own brand, HexaData, specializing in high-performance servers, workstations, and storage systems.

It has integrated the latest NVIDIA GPGPU technology to create supercomputers that handle the most technical, data-intensive tasks.

As you would expect, investors are latching on to any stocks even remotely related to NVIDIA. Which is why Esconet's public offer received a strong response from the investors, getting subscribed over 505 times!

As a result, the stock made a bumper debut, listing at Rs 290 on the NSE SME, a 245% premium over the issue price.

At present, the stock trades at Rs 249 per share.

To open data centers in various states, the Indian government is considering several projects. The UP-data center policy has laid out a target investment of Rs 200 bn for the deployment of data centres.

Since the company is involved into data centres solutions, it stands to benefit from this.

Moreover, Esconet is also involved in other high growth sectors including defence, manufacturing, etc.

Coming to its financials, the company has posted phenomenal growth in the past two years as can be seen from the table below.

Financial Snapshot

Rs m, consolidated	FY21	FY22	FY23
Net Sales	441	686	947
Growth (%)	-	55%	38%
Operating Profit	1	20	64
OPM (%)	0%	3%	7%
Net Profit	-10	7	30
Net Margin (%)	-2%	1%	3%
ROE (%)	-56.4	33.8	75.5
ROCE (%)	-4.0	15.0	41.8
Dividend (Rs)	0.0	0.0	0.0
Debt to Equity (x)	3.6	3.1	2.0

Data Source: Ace Equity

The company's revenue has shot up due to its competitive advantage and due to increase in government orders. At present, around 30% of its revenue comes from the government.

The Ministry of Defence, Engineers India, Bharat Electronics, ONGC, Siemens, MapMyIndia, among others are some of its clients.

From the net proceeds of the IPO, the company is looking to invest more in its wholly owned subsidiary Zeacloud Services.

Going forward, the company's long term relationship with clients and repeat order from them is expected to drive the growth.

#3 Netweb Technologies

Last on the list is Netweb Technologies.

It designs, manufactures, and deploys high-computing solutions (HCS) comprising proprietary middleware solutions, end-user utilities, and precompiled application stack.

Not so under the radar play, Netweb announced its collaboration with NVIDIA back in November 2023.

On 27 November 2023, Netweb Technologies informed the exchanges that it has collaborated with NVIDIA for AI and to unlock the potential of high-performance computing.

The company is now a manufacturing partner for the Nvidia Grace CPU Superchip and GH200 Grace Hopper Superchip MGX server designs.

Netweb will build and produce more than ten server variations under its Tyrone range of AI systems.

These are used in a wide range of AI and high-performance computing and supercomputing applications.

The commercial launch with NVIDIA partnership is expected by June 2024.

Commenting on the partnership, the company's MD said this partnership will give a major boost to the Make-in-India initiative.

It will bring locally manufactured cutting-edge technologies at par with global standards.

Earlier this year in July 2023, Netweb Technologies made a stellar debut listing at Rs 947 apiece, a massive premium of 89%. Its IPO offer price was Rs 500.

At present, the stock trades at Rs 1,675 per share.

At the time of its IPO, the company received an overall subscription of over 90 times. This was the first sign of optimism surrounding the company.

However, soon after listing, the company posted a marginal drop in its topline as well as bottomline which led to a decline in its share price.

But the company came back with stellar results in the second quarter of FY24.

Total revenues more than doubled to Rs 1.5 billion (bn) on a YoY basis while net profit spiked 66% to Rs 151 million (m).

This was followed by an even better quarter as the company posted its highest ever quarterly revenue and profits in the third quarter.

It reduced debt in the most recent quarter while also improved its cash conversion cycle to 77 days.

During the quarter, it also received a PLI claim of Rs 39 million.

In its earnings presentation, the company said it expects to finish FY24 on a strong footing and has a robust business pipeline of over Rs 32 bn.

In the past three years, the company's sales have more than tripled while net profit has risen over 4 times.

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23
Net Sales	1,560.10	1,427.90	2,470.30	4,449.70
Growth (%)	-	-8%	73%	80%
Operating Profit	92.9	158.9	355.1	706.9
OPM (%)	6%	11%	14%	16%
Net Profit	39.1	82.3	224.5	469.4
Net Margin (%)	3%	6%	9%	11%
ROE (%)	28.6	46.4	67.9	69.2
ROCE (%)	29.2	36.9	52.6	66.4
Dividend (Rs)	0	0	0	0
Debt to Equity (x)	1	1.3	0.8	0.3

Data Source: Ace Equity

Going forward, the company is optimistic of getting more orders in the generative AI and 5G space.

It has guided for a strong 30-40% CAGR in revenue for the next two to three years.

To know more, check out Netweb Technologies financial factsheet.

#4 Creative Newtech

Last on this list is Creative Newtech.

Creative Newtech is an IT consulting and services company that specialises in supply chain management.

The company has partnered with numerous renowned brands like Honeywell, Panasonic, Philips, Samsung, Zeiss, and many more.

So how is this company related to NVIDIA?

Well, back in 2019, the company tied up with PNY Technologies - an international supplier of high performance graphics cards and storage solutions.

Reportedly, Creative Newtech is the distributor of three categories of PNY products across India. The company distributes NVIDIA GeForce and NVIDIA Quadro professional graphics cards, as well as PNY solid state drives (SSD).

However, since then, there has been no mention about NVIDIA either in its earnings call or in its FY23 annual report.

Coming to its financials...

Supported by repeat orders and addition of products, Creative Newtech has almost multiplied its revenue by 4x in the past five years.

Profit has also shot up to similar extent during the same time period.

What has worked so well for the company is its diversified product offerings, which reduces the risk of relying on a single product.

For instance, Creative Newtech is the exclusive distributor across India for various products for brands like Cooler Master, Honeywell, Olympus, Philips, Samsung, Transcend and Viewsonic across information technology (IT), imaging, lifestyle and security segments.

The company also has a distribution agreement with Fujifilm, Cricut and Razor Inc.

Note that the company is moving away from low margin distribution biz and focusing on becoming a co-creator of brands + segments by acquiring brand licensees or tying up with powerful private label brands or exclusive tie-ups.

In the past one year, shares of the company have rallied 70%.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	3,677	4,577	5,201	9,470	13,928
Growth (%)	-	24%	14%	82%	47%
Operating Profit	133	168	187	326	451
OPM (%)	4%	4%	4%	3%	3%
Net Profit	58	79	96	160	246
Net Margin (%)	2%	2%	2%	2%	2%
ROE (%)	17.6	20.8	18.8	27.7	27.5
ROCE (%)	18.5	20.9	19.1	25.0	24.7
Dividend (Rs)	0.5	0.5	0.5	0.5	0.5
Debt to Equity (x)	1.1	0.8	0.7	0.8	0.8

Data Source: Ace Equity

In Conclusion

The artificial intelligence and semiconductor chip buzz has propelled NVIDIA's stock to record its best years since inception.

The underlying effect has even spilled over to companies that are even remotely associated with NVIDIA.

For instance, US based Super Micro Computers, the company that provides AI servers to NVIDIA, has already rallied over 200% in 2024 so far.

Will the four companies we mentioned above have the same effect?

We don't know for sure... but it's highly unlikely.

Our main aim was to provide readers with some under the radar companies that have association with NVIDIA and could see explosive growth in the years ahead.

As I often mention in my articles, to find outstanding winners and outperformers, the durability of the growth matters more than the sheer speed.

So keep tracking the fundamentals of these companies and what else they are doing with NVIDIA in the coming months.

Until next time and happy investing!

Also check the below video where we discuss more about NVIDIA like multibaggers in India.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...