Netweb benefits from India's data center boom
India's booming data center sector has made Netweb Technologies a rising star, but valuations may have stretched too much. Can stock run more?
Netweb Technologies India Ltd (NTIL) has emerged as a standout performer in India's high-end computing solutions (HCS) and data center market. The stock has been on a tear, while financial results continue to impress, and the company is garnering attention from investors and industry watchers alike.
Incredible growth: In the most recent quarter (June 2024), the company reported sales of ₹149 crore, marking a staggering 150% year-over-year increase. This exceptional quarterly performance is part of a broader trend – Netweb has see a CAGR of 72% in sales over the past three years.
- The company's profitability has kept pace with its revenue growth. Net profit for the June 2024 quarter stood at ₹15 crore, representing a 203% increase YoY.
What's driving this growth?
NTIL's success can be attributed to its strong position in the high-performance computing market. The company has developed homegrown compute and storage technologies and has deployed supercomputing infrastructure. Notably, three of NTIL's supercomputers have been listed 11 times in the world's top 500 supercomputers, underscoring the company's technological prowess.
Government tailwinds: Netweb is one of the few original equipment manufacturers (OEMs) in India eligible for incentives under both the IT Hardware PLI and Telecom and Networking PLI schemes.
What matters: The market has taken notice of NTIL's performance. The stock has delivered a 163% return over the past year, significantly outperforming the broader market. However, this has led to a high valuation, with the stock trading at a price-to-earnings (P/E) ratio of 148 and a price-to-sales ratio of 15.7.
The caveat: the company's operating profit margin (OPM) has remained relatively stable at around 14-15% despite the rapid growth, indicating that scaling hasn't yet led to significant margin expansion. Additionally, the high valuation multiples suggest that a lot of future growth is already priced in.
Bottomline: with billions of internet users and a rapidly scaling digital economy, Netweb Technologies presents an intriguing case of a fast-growing player in India's high-tech sector, anchored by strong financial performance and strategic positioning in the HCS market.
