E2E Networks IPO Review (NSE SME)

E2E Networks

Delhi bases E2E Networks IPO comprises fresh issue of 2.75 million shares worth Rs 15.67 crore besides an offer for sale of 1.10 million shares. Tech-focused early stage investment firm Blume Venture Advisors is selling about one third of its stake i.e. 743,000 shares in the c ompamny through the E2E Networks IPO. 

E2E Networks IPO: Details
Issue Period May 3, 2018 – May 7, 2018 
Fresh Offer 2750000 shares
OFS 1108000  Shares
Issue Size 3,858,000 Shares( INR 21.99 Cr )
Issue Price INR 57 per share
Face Value Rs. 10 per Share
Minimum  Lot 2,000 shares
BRLM Holani Consultants Private Limited
Listing NSE SME platform
Registrar LINK INTIME 

About E2E Networks 
  • E2E Networks provides Cloud Computing Infrastructure and Managed Services. It has built its own Cloud Infrastructure and developed its own Technology Stacks,  which it claims makes its Cloud Infra offering among the most affordable in the market. Its CloudOps Platform supports 2,000+ public clouds across the world. 
  • The company is in the business of, providing Cloud Infrastructure in India from 2009 and has been providing Cloud migration and Deployment for its clients.  It has also launched its hourly billed pure SSD (Solid-State-Drive) public cloud and private cloud.
  • The company provides its services through Third Party Data Centers situated at Noida, Mumbai and Vellore. It doesnlot own these data centres.
  • The promoters of the Company are Tarun Dua and Srishti Baweja. They hold, in aggregate 77, 60,695 Equity Shares representing 67.51% of the pre issue Paid-up Capital of the Company.
  • In 2011, E2E Networks raised a first round of angel investment from angel investors Blume Ventures and Freeman Murray.
E2E Networks : Financials
Rs. In Lacs
Particulars HY Fy18 2017 2016 2015 2014
Revenue from operations  2700.03 2931.69 2138.77 989.61 515.78
Purchases of Services 733.87 800.86 555.87 297.68 217.44
Employee benefits  429.28 351.02 220.31 152.31 93.47
Finance costs 33.78 66 74.6 12.23 1.17
Depreciation  683.07 986.89 898.74 333.9 110.18
Other expenses 123.85 116.88 65.19 61.17 56.33
Total expenses (B) 2003.85 2322.34 1814.71 865.59 478.59
Profit before tax 717.55 630.21 332.44 127.13 40.83
Total Tax  191.24 208.84 110.16 42.81 12.64
Net Profit 526.31 421.37 222.28 84.32 28.19
Net Profit Margin % 19.49% 14.37% 10.39% 8.52% 5.47%
Share Capital 37.08 37.08 37.08 36.95 31.57
 Reserves & Surplus 1585.95 1059.68 638.34 416.1 137.25
Net Worth   1,096.76 675.42 453.05 168.82
RONW %   38.42% 32.91% 18.61% 16.70%
NAV (post Issue) 17.87      
Face Value 10
Post Issue Equity 1425
IPO Price 57
Price/Book Value 3.19
EPS Fy 17 2.96
EPS Post Issue ( annullized HY18) 4.92
PE (FY17) 19.28
PE  (annuallized HY 18) 11.57
CAGR Sales 3 Yrs 78.46%
CAGR Net Profit 3 Yrs 146.33%
Market Cap 8122.50 Lacs
Market cap / Sales 2.77
E2E Networks IPO: Issue Objectives
  • Repayment/ prepayment of certain indebtedness. 
  • To Meet Working Capital requirements.
  • General Corporate Expenses.
  • Issue Expenses.
E2E Networks IPO: Pros
  • The Delhi-based E2E Networks  has been offering Low latency Dedicated and VPS Servers in India since 2009. It delivers solutions for hosting web and enterprise applications.
  • Company’s Cloud Operations Platform helps clients to focus on services that drive their business, by outsourcing total responsibility for infrastructure operation and maintenance.
  • E2E Networks  clocked a  total revenue of Rs 27.2 crore during the 9 months of Fy17-18 and profit after tax stood at healthy 5.26 crore.
  • E2E Networks  revenue and net profit have shown healthy CAGR in last  few Financial Years with revenues CAGR standing at 78% and Net profit CAGR standing at 146%.
  • E2E Networks Cloud Infrastructure is being used by many well-known companies across industries like E-Commerce, Digital Classified, BFSI and other digital businesses.  E2E Networks  has a good clientele base and the names include CarDekho, Jabong, Medianama, Vccircle.com, Maharashtra Tourism etc.
E2E Networks IPO: Cons
  • E2E Networks  depends on certain third-party service providers including for providing the cloud computing services and payment gateways 
  •  Changes in government regulations or their implementation could disrupt  the company’s operations  adversely affect its business.
  • E2E Networks derives almost 50% of our revenue from the Top 5 clients
  • E2E Networks has used most of its reserves to issue bonus shares.
E2E Networks IPO: Assessment
  • The public cloud services market in India is projected to grow 38 percent in 2017 to total $1.81 billion, according to Gartner, Inc.
  • As claimed by E2E Networks , the company specializes in servicing  Indian Internet start-ups and start-ups have migrated to its hosting and cloud computing platform from global providers such as Amazon, Rackspace and Media temple etc. 
  • After the E2E Networks IPO, Promoters stake in the company  shall stand at 69.94 %.
  • On the fully diluted post IPO equity shares capital of Rs. 14.25 crore, the stock is being offered at a PE of  around 12 based on annualized 9 month  FY 17-18 earnings. This looks reasonable.
  • E2E Networks is backed by  Blume Ventures along with angel investor Freeman Murray and few others who while selling shares are noiot making a total exit. 
  • I intend to apply in E2E Networks IPO as the issue is in a sector that could see a good uptick, reasonably  priced , company has good profitability metrics and has shown good compounded growth rate in Revenues and Profits. My decision to apply is subject to company getting good response to the IPO. On Day 1, the E2E Networks IPO was subscribed 0.38 times.
  • This is  an SME issue that shall be listed on NSE Emerge  SME platform and compared to issues that list on BSE/NSE, such issues carry more risk.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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