ESDS Software Solution Ltd Unlisted Shares

Are you looking to invest in a homegrown technology company that competes with global giants like AWS and Microsoft Azure? ESDS Software Solution Limited , founded in 2005 by first-generation entrepreneur Piyush Somani, is a leader in Managed Data Center Services, Cloud Solutions, and Disaster Recovery Hosting. With patented technology, a presence in 19 countries, and a mission to connect 1 billion devices by 2024, ESDS represents a high-growth, high-risk opportunity in India’s digital infrastructure story.

Company Overview:

• Founded: 2005, initially as an outsourced hosting support company, later transforming into a web hosting business in the US and UK.

• Expertise: Managed Data Center Services, Cloud Solutions, Disaster Recovery Hosting.

• Global Footprint: Present in 19 nations across APAC, Europe, Middle East, the Americas, and Africa.

• Clientele: Serves almost every industry vertical – BFSI, Healthcare, Education, Energy, Agriculture, Manufacturing, IT, Media, Telecom, Government, and eCommerce.

• Competitors: Competes with global and domestic players like AWS, Microsoft Azure, CtrlS, Sify, Alibaba, Netmagic, NextGen, and Rackspace.

Special Achievements:

• 1st Indian Cloud Company to have a Vertical Auto-Scaling Patent.

• 1st Commercial Datacenter to have an active Uptime Tier III Certificate.

• 1st Indian Cloud Company to have a Patent in Cloud & Infrastructure Hosting Space.

• India’s Only Cloud & Data Center Company to have 50+ R&D engineers.

Business Model & Products:

ESDS operates through two primary segments:

1. Managed Cloud Hosting

2. Managed Data Centre

Flagship Product: eNlight Cloud

• India’s first and only cloud computing platform patented by USPTO (Patent no. 9176788) and UK (Patent No.: GB2493812) .

• Features a built-in ability to automatically scale CPU and RAM on-demand without human intervention or downtime.

• Eliminates downtime caused by volatile internet traffic.

• Ideal for Disaster Recovery hosting with cost savings of up to 70% .

Other Offerings:

• eNlight 360°

• Data Centre Services: Dedicated hosting, colocation services, Static VM/VP hosting, disaster recovery hosting.

• eMagic DCIM: A highly integrated Data Center Infrastructure Management solution used by clients like Reliance Capital, ABB Group, CDSL, and DCB Bank.

Data Centers:

• Nashik Data Center: Phase 1 (100% occupied), Phase 2 (3% occupied)

• Mumbai Data Center: Phase 1 (100% occupied)

• Bangalore Data Center: 10% occupied

• Upcoming: New data centers in Bahrain and other locations in India.

Prestigious Clientele:

• Banking: Hosts more than 220 co-operative Banks on eNlight Cloud and over 350 websites of nationalized PSUs . Provides managed hosting for CBS, ATM Card Solutions, Mobile Banking, UPI Payments, etc.

• SAP HANA: Winner of more than 50% of SAP HANA hosting on Cloud deals in India in the last year, serving large enterprises and well-known brands.

• Government: Major PMO initiatives like MUDRA Bank, Startup India, and Standup India were designed, developed, and hosted on the eNlight Cloud platform. Under the Mudra Scheme, ₹200 Crore was disbursed from the ESDS platform.

• Other: Largest matrimonial portals, eCommerce platforms, and clients like L&T, EDF, and Tech Mahindra.

Mission for 2024:

• Connect 1 Billion devices across India.

• Connect 380+ banking customers.

• Connect 150,000 POS devices and 25,000 ATM machines.

• Complete 900,000 Card Transactions.

• Connect 2 million devices across 30+ Smart Cities & IoT projects.

Financial Performance Review:

FY22 Performance (Challenging Year):

• Revenue: Grew 14% (vs 25% CAGR from 2017-21), indicating muted growth.

• Profitability: Operating profit declined 5%, resulting in a net loss of ₹2.60 Crore (vs profit of ₹5.40 Cr in FY21).

• Cash Flow: Positive cash flow from operations (₹26 Cr) due to high depreciation (₹42 Cr).

• Free Cash Flow: Negative, as heavy capex (₹60 Cr) outpaced operational cash flow.

• Funding: Raised ~₹75 Cr via preference shares, NCDs, and increased borrowings to fund capex.

• Trade Receivables: Increased from ₹46 Cr to ₹63 Cr, a concerning trend.

FY23 Performance (Mixed Picture):

• Revenue: Moderate increase to ₹205 Crore (from ₹195 Cr in FY22).

• Operational Costs: Surged significantly – employee expenses up by ₹7 Cr, other expenses up by ₹18 Cr.

• EBITDA Margins: Dipped by 7% , a major pressure point.

• Debt: Increased to ₹136 Crore (from ₹110 Cr in FY22).

• Interest Cost: Rose to ₹25 Cr (from ₹17 Cr).

• Silver Lining: Cash from operations improved to ₹54 Crore (from ₹31 Cr), driven by high non-cash depreciation.

• New Orders: Mohali Data Centre secured an order worth ₹25.40 Crore , indicating strong future revenue.

Valuation:

• Total Outstanding Shares (as on 31.03.2023): ~9.28 Crore

• Current Unlisted Market Price: ~₹250 per share

• Market Capitalization: ~₹2,200 Crore

Analyst View: The valuation of ₹2,200 Crore is considered on the higher side, especially given the recent financial performance with losses, margin pressure, and rising debt. However, this valuation reflects the company’s growth potential, patented technology, and large addressable market.

Key Investment Highlights:

1. Patented Technology: India’s first cloud company with international patents for auto-scaling.

2. Market Position: Trusted partner for Government of India projects and 220+ banks.

3. High-Value Clients: Serves SAP HANA workloads for large enterprises.

4. Massive Vision: Ambitious 2024 mission to connect 1 billion devices.

5. Growing Infrastructure: Expanding data center footprint in India and abroad.

6. Recurring Revenue Model: Cloud and hosting services provide stable, recurring income.

Risks to Consider:

1. High Valuation: At ₹2,200 Cr Mcap, the stock is priced for perfection despite recent losses.

2. Rising Debt: Debt increased to ₹136 Cr, with interest costs putting pressure on profitability.

3. Margin Compression: EBITDA margins dipped by 7% in FY23 due to rising costs.

4. Negative Free Cash Flow: Heavy capex requirements mean the company is reliant on external funding.

5. Intense Competition: Faces fierce competition from deep-pocketed global giants like AWS, Azure, and Google.

6. Execution Risk: The ambitious 2024 mission requires flawless execution and significant capital.

The Opportunity:

ESDS represents a high-risk, high-reward opportunity in India’s growing cloud and data center market. With patented technology, government credentials, and an ambitious vision, it has the potential to be a multi-bagger if it can execute its plans and improve financial metrics.

Ready to Invest in India’s Cloud Computing Pioneer?

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