Orient Technologies - Next IT Multibagger or Hyped story? Orient Technologies Fundamental Analysis

Summary

The 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

00:00

📈 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.

05:01

🏭 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.

10:01

🌟 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.

15:05

💹 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.

Keywords

💡IPO

An Initial Public Offering (IPO) is the process by which a private company goes public by offering its shares to the general public for the first time. In the video, Orian Technologies' IPO is discussed, highlighting its significance as a financial event that marks the company's transition from private to public ownership and allows it to raise capital by issuing new shares.

💡Market Cap

Market capitalization, or market cap, is the total dollar market value of a company's outstanding shares of stock. It is calculated by multiplying the number of shares outstanding by the market price per share. In the video, Orian Technologies' market cap during its IPO is mentioned as 'around 850 CR,' indicating the company's size in terms of market value.

💡Oversubscribed

When an IPO is oversubscribed, it means that the demand for the shares offered is greater than the supply. In the script, Orian Technology's IPO is noted to have been 'oversubscribed by 155 times,' suggesting an extremely high demand from investors, which often leads to a successful listing and potential for a strong initial performance on the stock market.

💡Gray Market Premium

The gray market premium refers to the price at which shares of an IPO are traded in the unofficial market before they are listed on the stock exchange. It is an indicator of investor sentiment and can influence the IPO's success. The video mentions that retail investors often use gray market premiums as a 'filtration criteria,' suggesting that a high premium can attract more investors.

💡Commoditized

Commoditized products or services are those that are similar across producers, with little to no differentiation, leading to price competition. In the video, the IT infrastructure segment of Orian Technologies is described as 'commoditized,' with low margins and high competition, indicating that the company operates in a challenging market where differentiation is difficult.

💡Data Center

A data center is a facility used to house computer systems and associated components, such as telecommunications and storage systems. The video discusses Orian Technologies' involvement in data center solutions, which is a part of their IT infrastructure services. The script highlights the potential of data centers but also emphasizes the importance of understanding the company's specific role within the data center value chain.

💡Cloud and Data Management Services

Cloud and data management services involve the use of cloud computing to manage, store, and process data. The video mentions this as one of Orian Technologies' business verticals, indicating that the company is involved in the deployment of cloud solutions and services like data analytics and robotic process automation (RPA), which are considered high-margin and growth-oriented segments.

💡Valuation

Valuation refers to the process of determining the current worth of a company or an asset. The video discusses Orian Technologies' valuation in terms of its price-to-earnings (P/E) ratio, which is '32' after the IPO listing. The script suggests that the company's current valuation may be considered a 'premium valuation' due to the nature of its business and its growth rate.

💡Attrition Rate

The attrition rate in a company refers to the percentage of employees who leave the organization over a certain period. The video points out that Orian Technologies has a high attrition rate, which was '21.8%' in the financial year 2024. High attrition can be a risk for IT companies as it may lead to loss of knowledge and expertise, affecting the company's performance and growth.

💡Trade Receivables

Trade receivables are amounts owed to a company by its customers for goods or services provided on credit. The video mentions that Orian Technologies has '158 CR of trade receivable' in the financial year 2024, indicating the company's reliance on credit sales. High levels of trade receivables can affect cash flow and profitability if payments are delayed or not collected.

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