This Indian Tech Player is Partnering with Nvidia to Lead the AI Revolution

Ever wonder what makes those crazy realistic video games tick? Or how do self-driving cars "see" the world?

The answer's hidden inside tiny chips called graphics processing units (GPUs).

Among the industry leaders is Nvidia, whose powerful GPUs are in high demand due to the booming artificial intelligence (AI) revolution.

Everyone wants a piece of the AI pie, and Nvidia's chips are the muscle behind the brains of these amazing technologies.

But the story doesn't end there. Here's where the Indian connection comes in.

Have you heard of Netweb Technologies? This rising Indian tech star is one of the leading players in the HCS (High-Performance Computing Solutions) market, with a unique advantage. The company is collaborating with Nvidia.

The company manufactures the Nvidia Grace CPU Superchip and GH200 Grace Hopper Superchip MGX server designs. It has been tasked with building and producing 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.

Netweb Technologies has been making waves after reporting a stellar performance in the first quarter of 2024. Its revenue skyrocketed by 115% and net profit nearly tripled to Rs 296 million (m) compared to the same period last year.

The surge in business was attributable to the exploding demand for artificial intelligence (AI) solutions.

Powering the AI Revolution

Netweb specialises in building high-performance computing (HPC) solutions. These are essentially superpowered computer systems designed for businesses with demanding processing needs, particularly in AI, data centres, and big data analysis.

But the company goes beyond just building hardware. It designs, manufactures, and deploys HPC systems along with its custom software solutions.

It's also branching out with new products, developing network switches, and 5G Open Radio Access Network (ORAN) appliances.

These are key components for data centres and telecom companies, especially as 5G takes off. The company aims to fill the gap in the Indian network switch market, as there aren't many Indian companies making them, and reduce India's reliance on foreign companies for this tech.

With the explosion of high-speed networks, the need for reliable, secure, and efficient switches is growing rapidly. Netweb's new products address this demand.

The company's R&D team's in-depth understanding of high-end computing solutions, its ability to meet advanced technological challenges, and its constant efforts at innovation, give the company an enviable competitive edge.

Two of its supercomputers have cracked the prestigious top 10 list within the world's top 500 supercomputers ranking.

Diverse Customer Base

Apart from international fame, the company has also garnered the trust of the Indian government.

It has been tasked with providing HPC solutions for a space research organisation. It has an R&D department focused on information technology, electronics, and supercomputing advancements.

Netweb boasts a diverse clientele spanning various industries like technology, entertainment, finance, government, and national data centers.

It has divided the key sectors it services into various subheads. Higher education and research institutions are their largest customer segment, contributing nearly half (46.7%) of their revenue in the financial year 2023. Other key sectors include space and defence (6.2%), IT and IT-enabled services (24.8%), and a mix of other clients representing the remaining 22.3%.

Currently, a significant portion of the revenue from operations is derived from our top 10 customers. In 2023, the top 10 customers contributed 57.8% of total revenues.

The business has performed phenomenally in the past few years. Between 2020-23, the sales have nearly tripled, whereas the net profit has jumped a whopping 12 times.

Netweb Technologies Financial Snapshot (2019-23)

	2019-2020	2020-2021	2021-2022	2022-2023
Net Sales	1,560	1,428	2,470	4,450
Growth (%)	-	-8.00%	73.00%	80.00%
Operating Profit	93	159	355	707
Operating Profit Margin (%)	6.00%	11.00%	14.00%	16.00%
Net Profit	39.1	82.3	224.5	469.4
Net Margin (%)	3.00%	6.00%	9.00%	11.00%
Return on Equity (%)	28.60%	46.40%	67.90%	69.20%
Return on Capital Employed (%)	29.20%	36.90%	52.60%	66.40%
Debt to Equity (x)	1	1.3	0.8	0.3

Data Source: Ace Equity
Figures in Rs million

Consequently, the returns have propelled over the years, with the Return on Equity and Return on Capital Employed reaching 69.2% and 66.4%, respectively.

The company has paid off a sizeable chunk of its debt with the money is raised from the IPO. At present, the company has negligible debt on its books.

The Way Forward

The company's orderbook in the financial year 2024 was at Rs 4,112 m, from Rs 711 m in the financial year 2023.

The 3-fold increase in the order book value, indicates a dramatic surge in business, suggesting strong customer confidence, and potential for future revenue growth.

While the company is launching a new vertical (network switches), it also aims to expand its wings internationally. To fuel this expansion, Netweb has set its sights on the lucrative Europe, Middle East, and Africa (EMEA) market.

The company's strategy leverages existing strengths by offering a comprehensive suite of HCS - private cloud and hyperconverged infrastructure (HCI), HPC solutions, AI systems, enterprise workstations, and even 5G products and solutions.

This aligns perfectly with the explosive growth of the EMEA 5G market, projected for a compound annual growth rate (CAGR) of 45.7% between 2023 and 2029. Netweb plans to capitalise on this trend by focusing on specialised solutions for 5G IT infrastructure rollouts.

Furthermore, to expedite its global reach, the company will leverage existing relationships with Indian multinational companies that have overseas operations.

HPC systems are in high demand due to their ability to handle massive datasets and complex problems at breakneck speeds, millions of times faster than regular computers!

Fuelled by the growth of AI, the Industrial Internet of Things (IIoT) and sectors like drug discovery, the global HPC market is projected to reach US$ 58.2 bn by 2029, with a healthy compound annual growth rate (CAGR) of 4.4%.

This surge in HPC adoption, particularly in areas like automotive design and healthcare, presents a significant growth engine for Netweb.

Valuation

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

At the time of its IPO, the company received an overall subscription of over 90 times.

Valutions - Peer Comparison (2022-23)

Company	Revenue (Rs m)	Net Profit (Rs in m)	EPS (Basic) (Rs)	Return on Net Worth (%)	PE (x)
Netweb Technologies	4,456	469	9.2	68	152
Syrma SGS Technology	20,921	1,230	7.6	11.6	64.6
Kaynes Technology India	11,375	952	19.8	16.4	110
Dixon Technologies	1,21,976	2,550	42.9	22.4	141

Source: Ace Equity

Since then, the stock has more than doubled, trading at Rs 2,000. At the current price, the stock is trading at a PE of 152 times, a huge premium to some of its peers in the EMS space.

However, it should be noted that while Syrma SGS Technology Limited, Kaynes Technology India Limited, and Dixon Technologies (India) Limited have been listed as the company's peers, Netweb's HCS offerings do not align with those of these companies. The company doesn't have a direct competitor in the listed space.

In Conclusion

Netweb Technologies stands out with its unique product and service offerings, giving it a competitive edge.

The financials have shown good growth over the past three years, with a positive trend in reducing debt during financial year 2023. Operating in the dynamic high-growth tech sector presents exciting opportunities for Netweb.

However, recent performance by some new-age IT companies like Zomato, Paytm, and Nykaa has made investors cautious.

Like any investment, Netweb comes with its own set of advantages and disadvantages. As investors, it's crucial to consider both the pros and the cons.

Furthermore, the recent surge in Netweb's stock price might indicate that investors have already factored in the company's growth prospects.

Investors must conduct their own research before investing in any stock and ensure it matches their long-term goals and investment temperament.

That is what successful investing is all about.

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...