A unique play on digital public infrastructure…
About the stock: Protean eGov Technologies Ltd. (Protean), erstwhile known as NSDL e-Governance focuses on developing / modernising digital public infrastructure (DPI) and e-governance initiatives for various governmental bodies in India. Protean is a professionally managed company backed by several large financial institutions. Recently, NSE has sold its 20.31% stake, making Protean eligible to list on NSE.
• The company has 3 core verticals including i) Tax services (PAN, TIN, eTDS), ii) social security & welfare (Central record keeping agency i.e. CRA for NPS & APY) and iii) identity authentication (PAN verification, Aadhaar authentication, e-KYC & e-Sign). Further, it has ventured in new age businesses including Open Digital Ecosystem (ODE): ONDC play, along with data-stacks for students, farmers and health department), Cloud & Infosec.
• Strong distribution network as it operates over 4.42 lakhs PAN/TIN facilitation centres and strategic network entities covering 18,000 locations across 36 states and Union territories in India.
Investment Rationale
• Dominant market share in its core verticals: Protean is the largest issuer of India’s digital tax identity i.e. Permanent Account Number (PAN) with cumulative market share of ~64% (74.7 cr total PAN cards as on FY24). It’s a 3 players market with UTI-Infrastructure Technology & Services Ltd. (UTIITSL), and Income Tax Department being the other two participants. Besides, Company is the CRA for National Pension scheme (NPS) and Atal Pension Yojana (APY) wherein it commands a combined market share of ~97%. Only 6% of private sector employees in India have pension coverage currently, presenting structural growth roadmap. In identity services segment, Protean is one of the forerunners of digital identity verification, being the only company that offers all 4 facets of digital identity verification.
• Exploration of New age businesses to aid growth: Protean has ventured into Open Digital Ecosystem and is one of the pioneering members of ONDC, an open market network for digital commerce solutions. With ecommerce rising at a brisk pace, it is well-positioned to capture the same. Besides, data stacks in field of agriculture, education, healthcare are select segments wherein protean aims to contribute to respective industry dynamics.
Rating and Target Price
• Legacy core businesses provide stability alongwith modest growth while the new age businesses open up plethora of opportunities. Majority of investments have been done while the benefits are yet to accrue.
• We estimate revenue CAGR of ~11.9% over FY24-27E while EBITDA & PAT CAGR of 31.0% & 26.2% respectively over the same period. We assign BUY rating on the stock with a target price at ₹ 2510 (valued at 52x P/E on FY27E)
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