IPO: Protean eGov Technologies Limited

Protean eGov Technologies, an IT-enabled solutions company, has come out with its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality : The three-year average ROE and ROCE (FY21-FY23) of Protean eGov Technologies are 14.9 and 11.7 per cent, respectively. For the trailing 12 months ended June 2023, the company's ROE and ROCE were 13.3 and 12.4 per cent, respectively.
  
• Growth : Its topline and PAT have grown 11 and 8 per cent per annum, respectively, during FY21-FY23.
  
• Valuation : The stock will be priced at a P/E and P/B of 27.2 and 3.6 times.
  
• Overview : The company is poised to benefit from the government's increasing thrust for digital penetration across the population.

About Protean eGov Technologies

Protean eGov Technologies is one of the key IT solutions providers for the government. It creates digital public infrastructure for various ministries like finance, information & broadcasting, education, skill development, and more.

Protean was initially set up as a depository in 1995 and created a systemically important national infrastructure for capital market development in India. It has been the chief architect and implementer for some of the most critical and large-scale technology infrastructure projects in India.

Since its inception, and as of June 30, 2023, it has implemented and managed 19 projects spread across seven ministries and autonomous bodies, ushering change in the public delivery of services.

Strengths of Protean eGov Technologies

• Market leader in universal, citizen-centric and population-scale e-governance solutions: It continues to be a market leader in the provision of e-governance services such as management of the TIN (58 per cent), PAN processing (45 per cent), NPS (94 per cent) and Atal Pension Yojana (100 per cent).
  
• Diversified, granular and annuity-based service offerings: Its diversified service offerings are spread across sectors such as tax administration, pension record-keeping solutions, national identity and identity authentication solutions, education and skill financing solutions. A significant portion of its revenue generated from its offerings is based on a per-transaction basis, leading to substantial granularity and consequent revenue stability.

Weaknesses of Protean eGov Technologies

• Dependent on projects awarded by government entities and agencies: The company solely relies on the government for its operations. In case the company is not able to get projects or if there are delays in payments, then it would be a huge issue for the company.

Risk report

Company and business

• Are earnings before tax of Protean eGov Technologies more than Rs 50 crore in the last 12 months?
  Yes. The company's profit before tax was Rs 155 crore in the 12 months ending June 2023.
• Will Protean eGov Technologies be able to scale up its business?
  Yes. The government's increasing digital thrust and large under-penetration of digital services across the country provide an opportunity for the firm to scale up its business.
• Does Protean eGov Technologies have recognisable brands with client stickiness?
  Yes. Being a market leader in the provision of e-governance services such as management of the TIN (58 per cent), PAN processing (45 per cent), NPS (94 per cent), and Atal Pension Yojana (100 per cent) proves that the company has a recognisable brand with clients.
• Does the company have a credible moat?
  No. The market for e-governance and digital transformation services is rapidly evolving and is highly competitive. Besides, the company does not have any pricing power either, as the government regulates prices.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  No. It is a professionally managed company.
• Do the top three managers have more than 15 years of combined leadership at Protean eGov Technologies?
  No. The top three managers have less than 15 years of combined leadership at Protean eGov Technologies.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There's no information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. There's no information to suggest otherwise.
• Is Protean eGov Technologies free of promoter pledging of its shares?
  Yes. The company doesn't have any promoters.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. The company's three-year average ROE and ROCE are 14.9 per cent and 11.7 per cent, respectively. Its ROE and ROCE for FY23 are 12.5 per cent and 11.5 per cent.
• Was the company's operating cash flow positive during the last three years?
  Yes. The company reported positive cash flows from operations during the last three years.
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity ratio stood at -0.17 times as of June 2023.
• Is Protean eGov Technologies free from reliance on huge working capital for day-to-day affairs?
  Yes. The company does not require high working capital for its day-to-day operations.
• Can the company run its business without relying on external funding in the next three years?
  Yes. The company can run its business without relying on external funding as it is asset-light and generates positive cash flow.
• Is Protean eGov Technologies free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity stood at around 3 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer a 3.6 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  Not applicable. The company will trade at a price-to-earnings ratio of 27.2 times. There are no listed companies in India that are comparable in all aspects of business and services that the Company provides.
• Is the stock's price-to-book value less than its peers' average level?
  Not applicable. The company will trade at a price-to-book ratio of 3.6 times. There are no listed companies in India that are comparable in all aspects of business and services that the Company provides.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

Suggested read: Learning from IPOs