Orient Technologies Ltd IPO Analysis – GMP, Subscription Status, Strengths & Risks

The IPO (Initial public offering) of Orient Technologies Ltd (OTL), an IT solutions provider, commences on August 21 and concludes on August 23, 2024. The offering, carrying a Grey Market Premium (GMP) of 15%, has received a strong subscription response. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Orient Technologies IPO Details

Issue Size: 214.76 crore
Fresh Issue: 120 crore
OFS: 94.76 crore
Price Range: Rs 195 – Rs 206
Lot size: 72 shares
Minimum Investment Value: Rs 14,832
Listing Date: August 28, 2024

Orient Technologies IPO Subscription Status

The IPO of Orient Technologies has had a stellar beginning, with the entire issue being fully subscribed within just an hour. On its first day of bidding, the IPO was oversubscribed by 6.88 times, with bids for 5,02,35,984 equity shares compared to an offering size of 72,97,670 crore shares. Retail investors led the surge in subscriptions, subscribing 11.02 times their allotted quota. Non-institutional investors also demonstrated significant interest, subscribing 6.40 times their reserved portion, whereas qualified institutional buyers subscribed just 0.02 times their reserved portion.

Overview of Orient Technologies Ltd

OTL is an IT solutions provider specializing in IT infrastructure, IT-enabled services (IteS), cloud and data management. It provides a comprehensive suite of services that include data center solutions, managed services, multi-vendor support, and cloud migration. The firm is currently broadening its offerings to encompass IT facility management, network operations centres (NOC), cybersecurity, data management, and DaaS services.

Orient Technologies Ltd Key Strengths

Consistent Growth: OTL has shown steady growth with a 14% CAGR in operating revenue and an 11% CAGR in both EBITDA and net profit from FY22 to FY24.
Impressive Return Metrics: OTL boasts impressive return ratios, with a Return on Equity of 27.26% and a Return on Capital Employed of 28.42% as of FY24.
Pro-Shareholder Initiatives: OTL has consistently distributed dividends over the past three years: 2.23% in FY22, 22.86% in FY23 and 17.14% in FY24.

Orient Technologies Ltd Risk Factors

Customer Concentration: OTL heavily depends on a few clients, with the top 10 contributing 38%, 32%, and 39% of total revenues in FY24, FY23, and FY22, respectively. Losing these clients could significantly impact financial health.
High Debt Levels: OTL has substantial debt, amounting to Rs 22 crore as of June 2024, posing various operational and financial risks.
Cash Flow Concerns: OTL has faced negative net cash flows from investing and financing activities in the past. Continued negative cash flows could negatively impact its operational capabilities and future growth.
Dependency on Government Contracts: Much of OTL’s business relies on competitive government contracts, with potential performance issues if it fails to secure or wins less valuable bids.

Conclusion

OTL has been in the business of IT solutions for over 25 years, yet its profits remain modest. Despite this, with the burgeoning data center market in India, there is a potential for substantial growth. The firm is now venturing into the Device-as-a-Service (DaaS) market, which is currently in its nascent stages and highly fragmented in India. It remains uncertain whether this new venture will be successful.

From a valuation standpoint, the IPO is attractively priced with a Price-to-Earnings (P/E) ratio of 21x based on FY24 earnings. Additionally, a grey market premium (GMP) of 15% indicates the possibility of a positive debut on the bourses.

Despite strong industry tailwinds, much hinges on the company’s ability to leverage these opportunities effectively. Therefore, investors should monitor the company's capital expenditure plans and financial outcomes over the next two quarters before making an investment commitment.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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