Orient Technologies - Next IT Multibagger or Hyped story? Orient Technologies Fundamental Analysis
Summary
TLDRThe video discusses the IPO of Orian Technologies, an IT solutions provider with a market cap of 850 CR during its IPO. Despite its oversubscription, the video advises caution due to the company's commoditized business model and low margins. It highlights the company's three key business segments: IT infrastructure, IT-enabled services, and cloud and data management services. The video emphasizes the importance of understanding a company's business model and valuation before investing, suggesting that Orian's current P/E ratio of 32 is a premium valuation given its growth rate and business nature.
Takeaways
- 🌟 Orian Technologies had an IPO with a market cap of 850 CR and was listed at 302 rupees, a 47% jump from its IPO price of 206 rupees.
- 📈 The company's IPO was heavily oversubscribed, reflecting a strong market response but also indicating a low probability of retail investors getting IPO allocations.
- 🏢 Orian Technologies is categorized as a micro-cap company with a primary focus on IT infrastructure, IT-enabled services, and cloud and data management services.
- 💼 The company operates in a highly competitive market with a significant portion of its business being commoditized, leading to lower margins.
- 🌐 Geographically, Orian Technologies is almost entirely dependent on the Indian market, with 99% of its revenue coming from domestic sources.
- 🔑 The company's future growth potential is tied to its ability to transition from low-margin IT infrastructure services to higher-margin new-age tech solutions like cloud and data management.
- 📊 Despite having a PE of 32 after the listing, the speaker suggests that this might be a premium valuation considering the company's growth rate and business model.
- 🚀 The video emphasizes the importance of understanding a company's business model and valuation before investing, rather than relying solely on market hype.
- ⚖️ Key risks for Orian Technologies include extreme competition, client concentration, high attrition rates, and the risk of technology obsolescence.
- 📚 The speaker, with an IT background, aims to educate viewers on the company's business model and financials to empower them to make informed investment decisions.
Q & A
What was the market cap of Orian Technologies during its IPO?
-The market cap of Orian Technologies during its IPO was around 850 CR.
How many times was Orian Technologies' IPO oversubscribed?
-Oran Technology's IPO was oversubscribed by 155 times.
What was the listing price of Orian Technologies compared to its IPO price?
-Oran Technology was listed at 302 rupees versus the IPO price of 206 rupees, reflecting a 47% jump on the listing day.
What is the primary reason for not discussing Oran Technology before its IPO?
-The primary reason for not discussing Oran Technology before its IPO was the anticipation of a crazy response and low probability of IPO allocation, along with the belief that it wouldn't significantly change one's life with just one lot.
What is the current PE ratio of Oran Technology after its listing?
-Even after the high gains, Oran Technology commands a PE ratio of 32.
What are the three key verticals of Oran Technology's business model?
-The three key verticals of Oran Technology's business model are IT Infrastructure, IT Enabled Services, and Cloud and Data Management Services.
What is the contribution of IT Infrastructure to Oran Technology's revenue?
-IT Infrastructure is the largest revenue-generating segment for Oran Technology, contributing 52% to the company's revenue.
What is the growth potential of the data center segment in India according to the script?
-The data center segment has immense growth potential in India due to the large amount of data being generated and the need for local data storage and processing.
What are the key risks associated with investing in Oran Technology as per the video script?
-The key risks associated with investing in Oran Technology include extreme competition, client concentration risk, attrition risk, high trade receivable, and technology obsolescence risk.
What is the author's opinion on Oran Technology's current valuation after its IPO?
-The author believes that Oran Technology's current valuation of 32 PE is already a premium and not comfortable considering the nature of its commoditized business and the 12-15% growth in the last 2 years.
What is the author's advice for investors considering Oran Technology's stock after its IPO?
-The author advises investors to understand the business model and valuation thoroughly and to be cautious about investing at higher levels, suggesting that the fair valuation should be in the range of 20-30 PE.
Outlines
📈 Orian Technologies IPO Analysis
The video discusses the IPO of Orian Technologies, an IT company that went public with a market cap of 850 CR at an upper price band of 206 rupees. The IPO was highly subscribed, and the stock listed at 302 rupees, a 47% increase from the IPO price. The speaker did not discuss the IPO beforehand due to the high likelihood of a strong response and low allocation chances. The video aims to evaluate whether the company is worth investing in at its current valuation, which stands at a PE of 32 after the listing day surge. The speaker emphasizes the importance of understanding the business model, which includes IT infrastructure, IT-enabled services, and cloud and data management services, before making investment decisions.
🏭 Understanding Orian Technologies' Business Model
The second paragraph delves into the business model of Orian Technologies, which is divided into three key verticals: IT infrastructure, IT-enabled services, and cloud and data management services. The IT infrastructure segment, contributing 52% to the company's revenue, is characterized as a commoditized business with low margins and high competition. The IT-enabled services segment, contributing 22% to the revenue, includes managed services and device-as-a-service (DaaS). The cloud and data management services segment, contributing 26% to the revenue, is seen as a growth area with higher margins. The speaker highlights the company's reliance on the Indian market and the lack of a significant export-oriented business, which contrasts with traditional IT companies.
🌟 Future Growth and Risks in Orian Technologies' Business
The third paragraph addresses the future growth potential and risks associated with Orian Technologies. The company's business is primarily in the IT infrastructure sector, which is commoditized and faces extreme competition. The speaker points out the risks of client concentration, high attrition rates, and the need for innovation to avoid technology obsolescence. The company's future growth is expected to come from the demand for IT-enabled services and the emerging data center sector in India. However, the speaker cautions that the company's ability to benefit from these trends will depend on its move from low-margin IT infrastructure to higher-margin new-age tech businesses.
💹 Financial Performance and Valuation of Orian Technologies
The final paragraph focuses on the financial performance and valuation of Orian Technologies. The company has shown average growth rates of 12-15% in the past two years, with an average margin of 9-10%. Despite having a strong order book and good financial ratios, the speaker argues that the current P/E ratio of 32 is a premium valuation given the nature of the company's business and its growth trajectory. The speaker suggests that a fair valuation for the company should be in the range of 20-30 P/E, and cautions investors about the risks of buying at high valuations, which could lead to wealth destruction.
Mindmap
Keywords
💡IPO
💡Market Cap
💡Oversubscribed
💡Gray Market Premium
💡Commoditized
💡Data Center
💡Cloud and Data Management Services
💡Valuation
💡Attrition Rate
💡Trade Receivables
Highlights
Orian Technologies' IPO was highly successful, being oversubscribed by 155 times, indicating strong market interest.
The company's market cap during the IPO was approximately 850 CR, categorized as a micro-cap company.
Orian Technology's listing price was 302 rupees, a 47% increase from the IPO price of 206 rupees.
The video aims to provide insight into whether Orian Technology is worth investing in at its current valuation.
The company operates in a commoditized IT infrastructure market with low margins and high competition.
Orian Technology's business is divided into three key verticals: IT infrastructure, IT-enabled services, and cloud and data management services.
The company's IT infrastructure segment, which includes data center solutions, is its largest revenue generator but has low margins.
Orian Technology's IT-enabled services include managed services and device-as-a-service, which have higher margins.
The cloud and data management services segment, which uses new tech solutions, has the highest margins and is growing.
The company's revenue is predominantly from the Indian market, with a significant portion from the government sector.
Leadership at Orian Technology includes experienced professionals with backgrounds in the IT industry.
The future growth potential for Orian Technology lies in its ability to transition from commoditized services to new-age tech solutions.
Key risks for the company include extreme competition, client concentration, high attrition rates, and technology obsolescence.
Financially, Orian Technology has shown average growth rates and has a current P/E ratio of 32, which is considered premium.
The video concludes that Orian Technology's current valuation may be rich, and investors should consider the company's future growth and margin expansion.
Transcripts
hey everyone recently there was an IPO
of an IT company orian Technologies and
I received a lot of requests to discuss
it company's market cap during IPO was
around 850 CR at an upper price band of
206 rupe so it's a micro cap company and
it IPO received a stealer response that
got over subscribed by 155 times what a
crazy time we are living in IPO getting
over subscribed by 100 200 times
although majority of Reta investors only
invest to make quick money from the IPO
and their filteration criteria is also
very simple gray Market premium so if a
company fetches High gray Market premium
it gets crazy response and as expected
because of Steeler response orian
technology got listed at 302 rupe versus
the IPO price of 206 reflecting 47% jump
on listing day itself the reason I did
not discuss it before the IPO is because
I knew that it would fetch a crazy
response and probability of IPO
allocation would be very low plus those
who would get the IPO it would be one
lot in general so I iton change your
life that's where the key question is
now that Oran technology is listed and
you can invest a higher amount is it
really worth investing in the company at
current valuation because even after
such high gains company command a PE of
32 so is it worth paying this PE to the
company can there be more scope for PE
expansion now before we directly jump on
to the conclusion it's very important to
understand the business model of the
company because I'm sure majority of
retail investors would not have any
proper idea on orian technology business
model the catch is that in it sector
just names like your Cloud artificial
intelligence machine learning Advanced
analytics are enough to create buzz and
off late there's a lot of Buzz around
data center as well but many people fail
to understand the real business of ID
company trust me it's not that easy you
need to Deep dive into the documents and
also need a decent experience in the
sector to get a fair understanding of
the business if you don't have a proper
knowledge
and if you end up investing at higher
valuation it companies can also destroy
wealth those of you following this
channel would know that I have an IT
background I was an ex data analytics
consultant so I have a fair idea of it
business model and that is what I have
tried to share in this video as well I
still remember the IPO of happiest mind
in 2020 when the it sector was on Boom
happiest mind IPO was at 167 rupee and
within a year stock does levels of 1,500
unfortunately a lot of R investors ended
up buying happiest mind at very high
levels and it's been more than 3 years
since the stock is down 40% so the point
is it's not just about the fundamentals
but also about the valuation because at
the peak happiest mind P was 144 which
was certainly not sustainable so in this
video I'll help you understand the
business model of Orient technology so
that you can get a fair picture about
the company and then we'll look at the
financials future potential and
valuation part but before we discuss
further the idea behind this video is
purely to share my knowledge with you
all it's not Buy sell call if you're
looking for Buy sell call unfortunately
this is not the right channel but if
you're a knowledge Seeker I'm sure my
videos would be very helpful and in case
you are a long-term investor looking for
close association with me you can
explore my weekly video series that
include One exclusive video where I
discuss my own investment strategies
I've recently shared my latest portfolio
that include my top conviction bets and
thought process behind building the
portfolio but it is strictly for
long-term investors and more for
knowledge purpose not to give Buy sell
call my intention is to empower you all
with right knowledge so that you can
take your own investment decision I've
shared the link for the weekly series in
the pin comment all right let's get
started with Oran technology business
model so orian Technologies was
established in 1997 as an IT solution
provider its offerings are divided into
three key vertical first is it
infrastructure within this segment
company offers data center Solutions
like server then networking components
like router switches uh then cyber
Security Solutions like firewall
antivirus as well as hyper Converse
infrastructure that integrate your
server storage and network component and
provide backup and disaster recovery
software please note that Orient
technology is not the manufacturer of
these it products like servers
networking component it collaborate with
companies like Dell newtonx for the
products and services it infra is the
largest revenue generating segment of
the company with 52% contribution in fi
24 Revenue but this is a commoditized
business today there are hundreds of it
companies in India that offer it
infrastructure Solutions this segment
has a margin of Just Around 8 to 12% now
this is one piece of information I could
not find on any document but this is the
most important information that tells
whether company has a sustainable mode
or not that's where I I watched the
management interviews to understand the
margin breakup of various vertical
so this is a low margin business that
Clearly say that it is a commoditized
work with extreme competition it sounds
very fancy to hear words like Data
Center and there's certainly a huge
potential in data center but you should
ask what is the work that company does
in the data center value chain because
the most important aspect of data center
is data processing and for that you need
gpus that is graphic cards but Indian
companies don't manufacture these
graphic cards the leader in this space
is NVIDIA likewise there are various
important components used in data center
but Indian companies hardly manufacture
these components they're mainly involved
in the solution part of the data center
which is more of a commoditized world
and remember that the market always
gives a valuation of to the company
based on its competitive strength and
sustainability of the business so you
can't expect an IT infrastructure
company with commoditized work to
command a premium valuation with P of
say 60 70 or Beyond yes in the short
term if there is a boom in it sector
then even it infrastructure companies
can command a high p p ratio due to
bullish sentiments but they won't be
sustainable that's why it's important to
understand what you are buying and more
important is to know what price you are
buying now moving on company's second
vertical is it that is it enabled
Services it basically include managed
services that involve your monitoring
maintenance and support of it system and
your backup and Disaster Recovery
Services it also involves hardware and
software support through various AMC and
including your troubleshooting repair
and maintenance service for devices
basically a backend it work for any
organization in f24 it has contributed
22% in company's Revenue although it's a
higher Marin business with 25 to 30%
range but this is again a commoditized
business where there are hundreds of it
companies in India providing these IT
services then within this segment
interesting work is that company has
also fed into device as a service which
is
Das where they provide your desktop
laptop then tablet printer scanner
smartphone and servers bundled with
software along with manage service on a
pay per use model which is a
subscription basis so this is an
interesting space to watch out for and
then third vertical of the company is
cloud and data Management Services now
this is an interesting business vertical
that uses new tech solution like your
Cloud deployment which is migration of
data from on premise to Cloud along with
services like data analytics business
analytics then RPA that is robotic
process Automation in simple words RP is
a process to automate back office
function such as extracting file filling
forms then file transfer Etc this
segment has a good margin of 15 to 20%
and currently operates uh contribute
around 26% in company's overall business
now one thing I failed to understand is
on one side Orient technology has around
52% business from it infrastructure
which is 8 to 10% margin and 48%
business from it enabled service and
cloud and data management which is more
of 15 to 30% margin range then ideally
company should have at least 15 to 16%
kind of Blended margin isn't it but
their overall margin in fi 24 is just
around 9 to 10% and this is same for
last 2 three years of data that we have
so clearly the majority of business at
the moment is commoditized with lower
margin and higher comp competition
although one good thing is in F22 70% of
business was from it infras side and
that is now reduced 52% cloud and data
management which is more of new age ID
work was just 12% in 2022 which is now
26% so going forward it would be
interesting to see the business mix of
the company and growth of the third
segment which is cloud and data
management but today Orient Tech majorly
has a commoditized business and that is
clearly visible from the margins another
important aspect of the business is
revenue contribution by geography so
unlike the traditional it business which
is export oriented orian technology has
99% Revenue coming from Indian market so
it mainly operates in the Indian market
it also has around 15% business coming
from Indian government now if you look
at company's leadership Mr aay Savant J
sha then ual matre and UMES sha are the
co-founder and promoter of the company
Mr aay saand is the chairman and MD of
the company and rest are whole directors
he completed his Bachelor of Engineering
in electronics from Ram ra adik College
of Engineering University of Bombay 1988
he has more than 25 years of experience
in IT industry but I did not find
anything exciting in promoter's
background next very important respect
is to understand the future
growth friends as far as future is
concerned I always say that future is
digital but you should ask what are the
sunrise Technologies in digital sector
that have bright future and that's why
Technologies like artificial
intelligence machine learning cloud
computing big data analytics are growing
at much faster rate so companies that
would work on these Sunrise sectors
would grow big time unfortunately
majority of companies with core
competencies in this Sunrise sector are
not from India they are the likes of
Amazon Microsoft Apple Google Nvidia
that rules the future Technologies of
the world India is more of an IT service
provider that has the biggest strength
of providing lowcost IT services so for
instance if Microsoft roft offer azzure
Cloud solution you need it companies to
deploy these solution at large scale and
that also require a very good skill set
and that's where it companies add value
at lower cost plus since North America
is a key Market of it sector it
companies earn in dollar and majority of
expenses are in rupee so that model has
worked out very well but today there are
hundreds of it companies in India so
it's a highly competitive space and it's
very important to understand the
business model of the company before
investing so so that you get a clear
idea of company's mod and its future
potential now coming to orient
technology specifically there's
certainly a high demand for it enabled
services and as more and more companies
would adopt technology in India this
segment would continue to grow but the
growth of the segment is not exponential
in the past this industry has grown at
around 6 to 8% and would continue to
grow at a similar rate however the
bigger opportunities in the newest
Technologies like Cloud deployment data
analytics robotic process automation
that are growing at much faster rate of
20 25%
plus they also command a better margin
profile then data center has immense
growth potential in India mainly because
India is generating humongous amount of
data and that data needs to be stored
for processing and analytics because
data is the new of 21st century now
today a major chunk of that data is
stored outside the country and even
Indian government wants that data to be
stored within the country on top of this
with rise of startups and digital
ecosystem in India there's going to be
massive need for data centers within the
country so that is is a great
opportunity for it infrastructure
companies to benefit from this trend but
going forward everything will boil down
to orent technology ability to benefit
from this trend like data center more
importantly it would be crucial to see
how it moves from commoditized and
highly competitive low margin it infra
business to a higher margin New Age Tech
business of cloud and data management
now let us look at the key risk in
companies growth
thesis so first key risk is Extreme
competition as discussed the biggest
risk for the company is extremely
competitive market majority of their
work is commoditized and there are
hundreds of ID companies in India doing
similar work so this competition risk
would always exist second risk is client
concentration risk companies top 10
customer contribute around 38% in the
overall business so any loss of business
from top 10 customer can have
significant impact on Company's top line
and bottom line growth then third risk
is attrition risk in ID sector Talent
attrition is one of the biggest risk and
Orient Tech has quite High attration
rate in F22 it was
45.4% in f23 it fell down to 31% and fi
24 it is
21.8% now this has been a trend of fall
in netrition in overall IT industry but
if you look at the average attrition
rate in IT industry which is around 12
to 15% in f24 so obviously this company
Orient Tech has higher attrition rate as
compared to the industry average also I
checked the glasso rate rating for the
company which is 3.4 which is again
lower than the average rating for IT
company then fourth risk for the company
is high trade receivable company has a
credit of sale between 60 to 120 days
hence it has high level of outstanding
trade receivable and f 24 it is showing
158 CR of trade receivable as a result
company's cash from operation is on the
lower side so any delay or default in
payment and receivable can impact comp's
cash flow and profits and then fifth
risk is technology obsolesence risk as
an IT company Orient Tech future
performance would mainly depend upon its
ability to innovate and offer new AG
Tech solution any failure to innovate
can pour significant risk to the company
I hope you got a fair idea of risk in
the company's business now let us look
at the final part of this video that is
financials and
valuation since it's a recently listed
company we don't have a lot of
historical data but if you look at last
3 years of pnl Revenue was 467 CR in
2022 that has increased to 603 CR in
2024 we are ignoring 2021 as it was
covid period company has an average
margin of 9 to 10% its operating profit
was 46 CR in 2022 that has grown to 57
CR in 2024 and net profit is up from 33
CR to 41 CR so the top line and bottom
line growth in last two year is very
average at 12 to 15% and remember that
company's ability to command a premium
valuation largely depend upon the growth
rate although other ratio show are good
with Roe of 27% Roc of 34% debt to
equity of 0.06 which is negligible but
cash conversion is on the lower side so
going forward it's important to keep an
eye on the growth rate as of today
company has an order book of around 100
CR for the next 2 3 month so there's not
much visibility in the in terms of order
book finally on valuation orian
technology launched its IPO at 206 rupe
uh which is a p of 20
uh now considering the nature of their
work which is mainly commoditized it was
a fair valuation and now after 50% jump
in Share Price p ratio is 32 in my
opinion this is already a premium
valuation you can't expect this company
to trade at 60 70p because of its
commoditize business offering and 12 to
15% growth it in the last 2 years so I
don't see a lot of valuation Comfort
after 50% jump on IPO price in my
opinion considering the nature of their
business and earning growth in the past
the fair valuation of the company should
be in the range of 20 to 30p but if the
share price jumps from current levels in
the near term to say levels of 400 500
rupe it would become very expensive and
remember that if there is there are
strong positive sentiment stock can
actually jump multiple times we have
seen that crazy growth of ID stocks
during uh covid bull rally so that can
happen now also as we are in a bull
rally but if you end up buying at higher
levels it can even destroy wealth so in
this video we discuss the business model
of Orient Technologies these days every
other IPO is on hype and getting listed
at premium valuation so it's very
important to understand if it is worth
investing after the IPO or should you
wait for correction overall it's just
another it solution provider with mostly
commoditized work yes their third
business offering of cloud and data
analytics is exciting and has higher
margin but it is a small part of their
business as of today so going forward
everything will boil down to company's
focus on newest technology solution and
how it leverage the demand and emerging
sector like data center if company can
expand its margin in the future and able
to grow at faster rate it can see
valuation reating but for now current P
of 32 is already a good premium to its
Fair valuation but this is my personal
opinion I might be wrong the idea is to
just share my knowledge with you all I
hope you'll find it useful now tell me
what do you think about Oran technology
is it worth investing at current levels
or not I'll see you next video till then
take care
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