Protean well placed to benefit from growth in digital public infrastructure

Mumbai headquartered Protean eGov Technologies (earlier named as NSDL e-Governance Infrastructure) plans to raise upto Rs 490.3 crore through an offer for sale by some of the existing shareholders. The company does not have any promoters and is owned by institutions with NSE Investments holding the largest stake of 24.8%. Banks including State Bank of India, HDFC Bank, Axis Bank, and Deutsche Bank AG each hold 4.9% stake. The company has been at the forefront of building infrastructure for income tax, capital markets, and the National Pension Scheme (NPS). It has a long history of paying dividends. It is well positioned to take advantage of the government’s increasing focus on digital public ecosystem. Long term investors therefore may consider the IPO.

BusinessOriginally set up as a depository in 1995, the company has a an extensive experience in digital public infrastructure including creation of Tax Information Network (TIN), Permanent Account Number (PAN) issuance and verification, services related to Atal Pension Yojana (APY) and NPS, and e-KYC services. It has a market share of 45% in PAN issuance, 58% in TIN, 94% in NPS subscription, and 100% in APY subscription. In FY23, it carried out over 27.7 crore Aadhaar authentications and over 24.6 crore e-KYC transactions. In NPS, the number of subscribers grew to 1.6 crore in FY23 from 1.4 crore in FY21. The company earns revenue through annuity in the case of pension projects and on per transaction basis in the case of PAN issuance and authentication services.

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The company is keen on expanding services in the areas of healthcare, education and skilling, and agriculture. It plans to build offerings around data led businesses such as account aggregation to enable data collection for financial information users, digital verification and due diligence, private cloud services to enterprises, and cyber security. It has also started bidding for projects in its areas of competence in overseas markets including the African region, Philippines, and Malaysia. As of FY23, it earned entire revenue from the domestic market.

Financials

Revenue from operations grew by 10.9% annually between FY21 and FY23 to Rs 742.2 crore while net profit rose by 7.7% to Rs 107 crore. In the June 2023 quarter, revenue and net profit grew by 40.7% and 51.2% year-on-year to Rs 220.4 crore and Rs 32.2 crore in that order. The company maintains a 30-35% dividend payout ratio.

Valuation

Based on the annualised June 2023 quarter net profit, the company demands a price-earnings (P/E) multiple of upto 25. It does not have any direct listed peers. Computer Age Management Services, which offers technology infrastructure to mutual funds and financial institutions trades at 38.7 times the annualised June 2023 quarter net profit.

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