Muted Q3; But Growth & Margin set to trend higher
About the stock: Protean eGov Technologies Ltd. (Protean) is a play on digital public infrastructure (DPI) and e-governance initiatives taken by various governmental bodies in India.
• The company has 3 core verticals including i) Tax services, ii) social security & welfare and iii) identity authentication. Further, it has ventured in new age businesses including Open Digital Ecosystem (ODE), Cloud & Infosec.
Q3FY25 performance: Protean reported muted set of result with broadly flattish top line and bottom-line growth at ₹202 cr and ₹23 cr resp. Segmentally, Tax services was up 3% YoY at ₹99 cr. Total no. of PAN cards issued in Q3FY25 stood at 1.05 crore with market share improving from 52.1% to 59.2% on YoY basis. Pension service was up 12% YoY at ₹72 cr while Identity services de-grew 17% YoY on high base as last year was driven by events like Aadhaar-PAN linkage deadline and introduction of certain broad based government schemes.
Investment Rationale
Growth expected to pick pace: In Tax services i.e. PAN card business, Protean is steadily gaining market share. PAN 2.0 tender bidding expected during this month wherein Protean has high probability of winning the same. In social security, Pension services segment continue to deepen further aided by new schemes like NPS Vatsalya. In Identity space, benefits of upgraded products like eSign pro and RISE with Protean shall be seen in forthcoming quarters. Besides, Protean has recently secured a prestigious ₹161 crore mandate from CERSAI to develop CKYCRR 2.0—the upgraded Central KYC Records Registry.
Operating leverage expected as major investment expense behind: Margins are expected to improve as revenue growth picks pace and operating leverage is reflected. Besides, the increasing proportion of online PAN issuance which currently stands at 52% shall aid in margin improvement. In offline mode, the company has to pay commissions / service charge to franchise / facilitation centre. Overall, we expect EBITDA margin to improve from 11.3% in FY25 to 17.2% in FY27E.
Rating and Target Price
Legacy core businesses shall provide stability alongwith modest growth while the new age businesses are expected to contribute ~25% of revenue mix in next 3 years from current ~5%.
The company has strong balance sheet with net cash of ₹750 cr+. Asset light unique business model shall enable Protean to attract rich valuations. However, considering muted Q3 result and volatile market scenario, we cut our target multiple and earning estimate. We factor revenue/EBITDA/PAT CAGR of 9.4%/30.5%/22.8% resp. over FY24-27E. We maintain BUY rating on the stock with a revised target price of ₹ 2000 (valued at 45x P/E on FY27E)
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