My recent summary about the company

Key points

• Cloud computing industry has strong tailwinds, growing at 20-30% per year.
• E2E targets SME companies and startups as customers.
• E2E Networks offers much lower cost offerings (2.5-3 times cheaper, the company claims) versus the ‘hyperscalers’ AWS, GCP, Digital Ocean and Azure.
• Revenue has been increasing every quarter since March 2020 from Rs 2.2 cr to Rs 4.9 crores now.

Details

• Investor Presentation (May 2022) is the main source of information about the company.
• 2021 Annual Report
• Screener page
• Began in 2009 before cloud computing had taken off. Developed its service for start-ups.
• SME IPO in 2018, which was oversubscribed by almost 70 times. Transitioned to the NSE main board in April 2022.
• Shareholding Pattern (June 2022):
  • Promoters: ~59%
    • Tarun Dua (Promoter and Managing Director): ~55%
  • Blume Ventures Fund: ~11.8%
  • Airavat Capital: ~4.8%
  • Holding of major shareholders has not changed much since the IPO.
• Focus has moved to SMEs as opposed to the startup ecosystem.
• One of the big customers transitioned out in 2020, resulting in big loss of revenue. The client concentration since then has reduced. No customer contributes more than 3-4% of the revenue. There are nearly 2000 active customers now.
• R&D costs are lower since they target customers who pay less, and enjoy simpler user experience UI and UX. R&D costs are a major component of expenses in such companies.
• Depreciation is high because computer systems have a low lifecycle of around 3 years.

Pros and Cons

• Pros
  • Strong tailwinds in the industry. India is traditionally a price-sensitive market and E2E’s offering is among the lowest.
  • Track record of working with a number of startups while they were small.
  • Minimal customer concentration risk now.
• Cons
  • Less trusted player compared to the hyperscalers. Will be severely affected if the hyperscalers reduce prices.
  • Change in technology may render E2E’s current technology obsolete and require them to make substantial investments which could affect the Company finance and operation.
  • Competitive industry. Company may be severely affected in an industry downturn.
  • Key person risk—may result in strategy bias.

Disclosure: Invested from lower levels.

This is because as gold prices increases, obviously the amount of loan they can disburse also increases.

I think this is negative for HFCL as it imports core of optical fiber.

Directors of Hughes Precision Manufacturing Private Limited are Sanjay Soni, Jay Prakash Susheel Kumar Saraff, Ved Prakash Soni and Susheel Kumar Govindram Saraff.

Promoters of Izmo, Sanjay Soni & family.