NetWeb Technologies (Supercomputing?)

Stock Opportunities
1

Netweb Technologies India is one of India’s leading OEMs in the space of HCS (high-end computing solutions) providing supercomputing systems, private cloud and HCI (hyper-converged infrastructure), data centre servers, AI systems and enterprise workstations, and HPS solutions from its manufacturing facility in Faridabad, Haryana.

From the day company’s acquisition in August 2016 until May 2023 the company has undertaken the installation of over 300 Supercomputing systems, over 50 private cloud and HCI installations, over 4,000 accelerator/GPU-based AI systems and enterprise workstations; and HPS solutions with throughput storage of up to 450 GB/ sec.

Business Verticals:

The company offers their products and solutions under the brand name Tyrone. The different verticals are as follows:

  1. Supercomputing system: Our Supercomputing systems are bespoke, and tailored with specialised hardware designs and architecture and cater to varied customer specifications. Our Supercomputing systems use our ‘Tyrone’ cluster management suite which is an integrated set of software components that can be deployed in a variety of configurations. We have deployed diverse Supercomputing systems ranging from 10 nodes to 400 nodes, catering to different requirements of our Customers, and our Supercomputing systems are scalable up to 1,000 nodes.
  2. Private Cloud and HCI: This offering is under Skylus brand. We offer hyper-converged capabilities i.e., combining compute, storage, and network, thereby enabling us to provide a bespoke hardware and curated software stack. Our private cloud and HCI offerings comprise (i) private cloud; (ii) hybrid cloud; (iii) cloud tools; (iv) HCI; and (v) cloud native storage.
  3. AI systems and enterprise workstations: Our AI systems and enterprise workstations address requirements of Supercomputing, machine learning and deep learning, and are equipped with our proprietary containerised application solution (viz., Tyrone KUBYTS) to address standalone parallel compute intensive applications.
  4. HPS Solutions: We provide high throughput and high IOPs storage for enterprise computation users. Our HPS solutions comprise unified storage solution (viz., TYRONE VERTA an upgraded version of Opslag FS2), cloud native storage (viz., Tyrone COLLECTIVO), parallel file system storage (viz., Tyrone PARALLELSTOR) surveillance, archival and object storage (viz., Tyrone COLLECTIVO with Fluid Input Output).
  5. Data Centre Servers: We have designed and built an extensive range of over 200 dual processor server models under our brand ‘Tyrone Camarero’, catering to disparate customer needs from entry level servers to highend ‘mission-critical’ servers. Our ability to design the systems platform enables us to constantly improve and customise our offerings to address specific requirements such as low rack space consumption, high energy efficiency, wide accelerator/GPU support, high in-built storage capability (up to 1 petabyte, i.e. 1 million gigabytes (1015)) and ‘all flash storage servers’ (i.e., a storage infrastructure containing only flash memory drives instead of spinning-disk drives).
  6. Software and services for HCS offerings: We provide private (on-premises and off-premises) cloud software stack designed for managed Kubernetes, open stack services, AI-machine learning and deep learning as a service, containers as a service, and handle complex workloads (including 5G enterprise cloud, 5G edge compute, private 5G and enterprise IT).
  7. It recently forayed into developing new product lines - network switches and 5G ORAN appliances.

Revenue distribution across Business Verticals:

Pasted Graphic
Pasted Graphic1294×556 60.3 KB

Company Financials:

Period Ended Total Assets ROE Total Revenue Profit After Tax Net Worth Reserves and Surplus Total Borrowing
31-Mar-20 50.59 33.39% 157.23 3.91 13.65 7.99 15.23
31-Mar-21 110.20 46.41% 144.29 8.23 21.82 16.15 30.54
31-Mar-22 148.61 67.85% 247.94 22.45 44.37 38.71 34.48
31-Mar-23 265.95 68% 445.65 46.94 93.67 83.48 35.60

Important points:

  1. As at February 28, 2023, the R&D team comprised 35 members. The dedicated R&D teams are based in Faridabad, Hyderabad and Gurgaon, comprising 31, 1 and 3 members, respectively. The R&D team which has 21 engineers, 6 master’s in computer applications, 1 bachelor’s in computer application, 2 science graduates, 4 graduates in commerce/arts and 1 MBA constitutes 13.36% of our total workforce.
  2. As a result of our continuous R&D in data centre server development, we have the capabilities of manufacturing servers that are suitable for building private cloud solutions, Supercomputing systems clusters, and modern data centres.

Management:

  1. Sanjay Lodha: is the Promoter and the Chairman and Managing Director of our Company. He has been associated with our Company as a director since September 22, 1999. He holds a bachelors’ of arts (honours degree) in economics from the University of Delhi and a post-graduate diploma in business management from Apeejay School of Marketing, New Delhi. He has been leading the Strategy and Business Development department of our Company from the year 2016. He was the sole proprietor of the proprietorship, M/s Netweb Technologies since 1996 which was acquired by our Company in August 2016. He has been a part of the Governing Council of Manufacturers Association of Information Technology from 2016 to 2022 and currently serves as a Vice President with effect from June 30, 2022. He has also served on the Board of Advisors for Intel for the year 2020 and 2022.
  2. Navin Lodha: is the Promoter and the Whole Time Director of our Company. He has been associated with our Company as a director since September 22, 1999. He holds a bachelors’ degree in commerce from Shaheed Bhagat Singh College, University of Delhi. He leads the west zone of our Company’s sales and marketing department and has over 15 years of experience in sales and marketing. Prior to joining our Company, he was associated with the erstwhile proprietorship of our Chairman and Managing Director, M/s Netweb Technologies since 2008 until its acquisition by our Company in August 2016.
  3. Vivek Lodha: is the Promoter and the Whole Time Director of our Company. He has been associated with our Company as a director since April 13, 2015. He holds a bachelors’ degree in commerce from Shaheed Bhagat Singh College, University of Delhi. He leads the east zone of our Company’s sales and marketing department and has over 15 years of experience in sales and marketing.
  4. Niraj Lodha: is the Promoter and the Whole Time Director of our Company. He has been associated with our Company as a director since April 13, 2015. He holds a bachelors’ degree in commerce from Deshbandhu College (evening), University of Delhi (now Ramanujan College). He leads the south zone of our Company’s sales and marketing department and has over 15 years of experience in sales and marketing.

Sanjay Lodha is the brother of Vivek Lodha, Navin Lodha is the brother of Niraj Lodha.

Unanswered Questions:

  1. Why does their R&D team have people from MCA, BCA and commerce/arts? Why not BTech, M.Tech and PHDs?
  2. Promoters have a non-technical background. Does this business have any technical edge?
  3. What is the meaning of “we have the capability to manufacture servers”? Will they be designing their own servers like Intel, Nvidia or AMD?
  4. Are they competitors of Cloud service providers like Azure, AWS, Digital Ocean, etc.?
  5. What is the growth scope for private cloud?
  6. Do they have any plans to venture into the public cloud? Do they have the technical capability to run public clouds?
  7. What is the value addition they perform on hardware after buying the servers from Intel, Nvidia and AMD?
  8. Unable to find any user reviews for Tyrone cluster management suite.

IPO details:

The IPO size is ₹631 crore, consisting of a fresh issue of ₹206 crore and an offer for sale of ₹425 crore. Netweb market cap at the upper end of the price band of ₹475-500 will be ₹2,800 crore.

The fresh issue proceeds will be utilised for capital expenditure towards surface mount technology (SMT) line development, long-term working capital requirements, repaying debts, and remaining for general corporate purposes.

Technical Terms:

HPS - High performance storage

IOPs - Input/ output operations per second

HCI - Hyperconverged infrastructure.

HCS - High-end computing solutions.

Risk on Investment:

  1. Sandeep Lodha is running an identical company named Netweb Pte. They have made a non-compete agreement for certain geographies. Consequently, Netweb Technologies will be unable to sell its products and solutions and conduct its business operations in Indonesia, Vietnam, Malaysia, Thailand, Singapore and the United States of America (USA). The non-compete obligation is only to the extent of providing infrastructure technology solutions to oil and gas industries in the USA.
  2. Netweb Pte is also using identical trademarks for its operations. Trademark use is also covered under a non-compete agreement.
  3. As of 2022, 61% of revenue is coming from government customers.
  4. Management is making an offer for sale in the IPO
  5. There are no long-term renewal contracts. Most of the projects are one-time activities.
  6. R&D team look extremely weak with a non-engineering background of promoters.

Overall summary:
As of now, I could not understand if this business has any technical edge. Their NPM has never crossed beyond 10% in the last 4 years. They have used a lot of buzzwords like supercomputing, R&D, cloud, etc. but other findings are not matching what they are trying to portray. Please let me know if I have understood something wrong. I am a newbie in the tech sector.

Disclosure: Not invested, as the company is going to list on 27 July, 2023

15 Likes
4

your evaluation and concerns are to the point & correct. Need to be wary.

1 Like
5

Looking at the cash flow of Netweb, it seems the net cash flow last year was just 5 crore. The profit was 72 crore and receivables was 74 crore. The company needed to collect the entire profit worth of cash from the market. That is insane. how is the PE of the company at 105? What am I missing?

2 Likes
6

  1. Why does their R&D team have people from MCA, BCA and commerce/arts? Why not BTech, M.Tech and PHDs?. → they don’t do research they assemble computing devices from the its not nvidia or any semi conductor

  2. Promoters have a non-technical background. Does this business have any technical edge? None, except customer know how

  3. What is the meaning of “we have the capability to manufacture servers”? Will they be designing their own servers like Intel, Nvidia or AMD? → These companies you mentioned makes chips and servers companies like netweb assemble them, barrier to entry none, will have an edge in the due to early state and probably long term partnerships with government HPC and private HPC- i.e. good growth 2-4 years or until market gets saturated or competition emerges, provided valuation etc check out

  4. Are they competitors of Cloud service providers like Azure, AWS, Digital Ocean, etc.? No

  5. What is the growth scope for private cloud?. Limited scale compared to hyperscale due to cost of operations e.g. energy, upgrades etc, but will have 20%+ growth near time in a probably a niche market.

  6. Do they have any plans to venture into the public cloud? Do they have the technical capability to run public clouds? They can provide equipment, basically if you look for example ABB who provide power units for data centre, and netweb provide that compute based on client needs, however, unlike ABB they don’t make power equipment, they use state of art chips etc, depending on client budget to assemble as solution both hardware and some software

  7. What is the value addition they perform on hardware after buying the servers from Intel, Nvidia and AMD? Know-how to provide a turn-key solution and possibly -software side to provide solution based on open-source technologies e.g. Kubernetes e.g. Tryone, for data centre operations and interactions.

  8. Unable to find any user reviews for Tyrone cluster management suite.. Niche client based currently.

7 Likes
7

Netweb’s quarterly results are announced with 66% growth in YoY profit & 97% YoY growth in Sales.

8

Management profile did not inspire confidence as the business seems to be high tech

4 Likes
9

evaluation and concerns mentioned are correct, but few points to be noted

  1. They have cracked the deal with NVIDIA to manufacture the NVIDIA Grace CPU Superchip and GH200 Grace Hopper Superchip MGX server designs.
    What a Trilion doller company has seen in Netweb that cant see…??
  2. NetWeb is the part of PLI scheme that govt has praposed manufacturing of IT hardware under the second phase of the production linked incentive scheme.
10

If an IT expert compare Netweb with E2E Network, then we shall understand company better to invest.

11

sir, you mentioned other findings not showing super computing, cloud as their business.
what is that other source ?. please write in detail about your other finding .

12

Netweb and E2E are totally different.

Netweb would be a supplier to E2E.
I don’t like either.

Netweb - for the reasons already mentioned here.
R&D team is small and not that qualified.
Server design and manufacturing is a very complex process and in this regard Netweb is competing with the likes of Dell, Supermicro, Lenovo, HP, etc.
I suspect they choose a design and get the parts shipped from abroad and assemble them here. This can be done easily. Or they purchase servers from white label server manufacturers and assemble the components as per customer specifications.

E2E would purchase servers and servers with GPUs from providers like Dell, HP, Netweb and host them in their colocation or on premise data centers. Install their cloud software with all the bells and whistles. Integrate the resources with a UI such that virtual machines, instances can be carved out of the underlying hardware and be rented - on demand or for a longer duration.

There may be few companies in India that do these but these solutions are very common globally. E2E is competing with the likes of GCP, Azure, AWS, etc.

None of the stuff these 2 companies are doing warrants any premium and too much extrapolation is being done.

8 Likes
13

Quarterly results for the company are out: 44% YoY growth in revenue and 20% YoY growth in PAT. Seems decent but not great as the company is trading at very high valuations. I am expecting a little correction basis the results. One interesting update provided by the Management on the orderbook is related to ISRO order amounting Rs 1477m i.e. equivalent to Q223 revenue. Hoping for Management to provide some additional details on the same in tomorrow’s call.

image
image1090×450 83.2 KB

Disc. Invested from IPO levels

14

The QoQ figs are encouraging
Net sales improve by 73%, Ebit and PAT by 75%,73% respectively
Ebit and PAT margins steady at 13.6% and 10% (down from 16% and 12% YoY, respectively)

1 Like
15

The concerns raised in the post are very much valid. But what intrigues me are the following

  1. How did they develop all the Super Computers listed in their deck with that team. Few of them are listed in the top 100s of the world and in top 10 of the nation as well. Recently they won ISRO Super Computer award as well.
  2. How did they collaborate with the top of the top enterprise? In the Gujarat Summit, the Nvidia head took company’s name as well and they are elite partner as per the Nvidia site too.
  3. The retention metrics of the clients is too good. And the duration of these relationship extends for years as well if not decades. Even though in one of the interview, CMD said they have most of the relationship for decades
  4. As per the CMD, they listed the company for the sole purpose of attracting talent.
  5. They were bootstrapped before becoming public.
  6. Got down their debt completely.
    7.If there is no entry barrier as per the few comments, why don’t we see any other player in the domain?
    8.Few commented they aren’t doing any specialization, then how come their margins are twice or thrice that of their competitor.
  7. Point to worry is on the cash conversion which doesn’t go well with the sales growth. In growth companies, its difficult too see until they become stabilize.
  8. Have asked one of the guy who was an ex qualcomm to go through them. lets see.
  9. CMDs numbers match with his words.
  10. He says no defaults till date.
  11. Qualification for the PLI and upgrading themselves from PLI#1 to PLI#2 stamps their talk.
  12. They say conversion rate of 60% when it comes to government and their payment cycle is good compared to private.
  13. Have shared partnership mail with a startup(funded by https://www.specialeinvest.com/) based out IISc. Yet to hear back.
  14. I hunch that they might have some solid technical guy who is heading the team, which they are underplaying so that he might not get poached. Their attrition is in single digit.
  15. Receivables are in line with the Sales growth

I’m still making my mind whether to go big as i took small exposure recently with all these doubts. The current price doesn’t leave much of Margin of Safety .Everything comes with a price.

6 Likes
16
17

Growth comanies are always costly to buy

18

Did u find any new info about it?

  • Their ppt are not clear, they can easily explain details about their work if they want to. Red flag
  • Doesn’t even have a CTO. Red flag
  • having said so, their margins are decent. What are they doing so good. Green flag.
  • Nomura, tata, goldman have stakes in it. Green flag
1 Like
19

10 year old video about netweb

3 Likes
20

31Jan24 Concall Highlights:

  • Sales YOY - 42%, Profit - 20%.
  • Order book from ISRO (14 Cr).
  • Pipeline - 3232 Cr, L1 bids - 302 Cr.
  • Current Order Book - 339 Cr.
  • Manufacturing partner with Nvidia for Grace Superchip, GS200 grace Copper superchip mgx server designs. (link)
  • Develop 10 variations under AI systems.
  • Good demand in AI computing system.
  • Airawaat success good for company in long run.
  • Adoption of private cloud in public sector banks. Won orders from PSU banks & many other in bids.
  • net debt decreased, ROCE increased.
  • CCC decreased to 77 from 108 days.
  • PLI claim received of 3.9 Cr.
  • Moved to PLI 2.0. 7 yrs scheme, 1st yr 7% incentive & 1% less subsequent yrs.
  • Supercomputing is 35-36% of business.
  • Private cloud n HCI 35-36% of business.
  • Both of the above growing fast.
  • AI systems 6-7% . Expected to touch 15-16% going forward.
  • We are working of GPU for 15 yrs. Our hardware design made to give optimal performance & software stacks tuned to it.
  • AI workstations used in security & surveillance. In smart city projects and video analytics.
  • We design our products, servers based on chipset.
  • We have a software stack as well.
  • On design of GPU, confidential, cant say.
  • Customers: 50% govt n 50% enterprise.
  • Grace Hopper based systems worldwide adoption less as of now, but we are ready.
  • 40% cagr order book expectation growth.
  • Next 3 yrs, split will be 40-60% , govt - enterprise.
  • L1 bids get converted to order book in 3-4 months.
  • Nvidia mentions Netweb as only elite OEM partner for AI system.
  • We take reference design from Nvidia, design our product & manufacture.
  • Govt is creating sobering cloud, wherein govt will provide infra to all AI startups in India.
  • Revenue guidance 600 Cr 2024.
  • Oil n Gas working with ONGC.
  • estimate guidance growth of 30-40% in next 3-5 yrs.
  • Our govt are education inst, airforce, cdac, etc.
  • Govt payments faster than enterprise.
  • Working on Make In India 5G-O-RAN.
2 Likes