Disclaimer – Below Analysis is NOT a BUY/SELL/HOLD Recommendation. It is for educational purpose and it can be used for educational purposes further. There could be lot of things which might have been missed in my analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision

Stock — Emudhra Ltd

Business —

eMudhra Limited is India’s largest licenced Certifying Authority (“CA”). The company’s business is divided into two verticles Digital Trust Services and Enterprise Solutions. eMudhra Limited is engaged in the business of providing services like individual/organizational certificates, digital signature certificates, SSL/TLS certificates and device certificates, a portfolio of digital security and paperless transformation solutions, multi-factor authentication, mobile application security, website security testing, IT policy assessment, etc

Digital Trust Services –

Enterprise Solutions —Suite of products

emSigner – is an eSignature workflow platform with support for all types of eSign (India), eStamping and global eSignatures and powerful capabilities for complete workflow automation

emAS is a comprehensive Identity and Access Management platform with support for 15 modes of authentication, single sign on and centralized access management of users

The product has a number of features to support seamless user identity and access management including
• Multi Factor Authentication Engine – emAS provides capability to authenticate users using OTP, Digital Signature Certificates, Facial Recognition, Biometric, QR Code based and Adaptive Authentication.
• Single Sign On – emAS supports single sign on including Web, Desktop and Agentless SSO through open standard based protocols including SAML and OAUTH
• Integration with LDAP/AD – support for integrating user directories through LDAP or AD for easy user provisioning
• Role and Policy definition – support for configuring roles, policies and entitlements based access that allows fairly granular authentication options for end user trying to access sensitive resources

emCA is a core PKI solution (Public Key Infrastructure) consists of roles, policies, procedures, hardware, software, and a physically secure facility, for setup of Certifying Authorities and for managing user, website and device certificates

Region of operation, Channel partners, Employees—

Company has diverse profile in terms of Revenue Segments, customers, Geography.

Approximate 80:20 ratio in terms of Domestic vs Export markets

As of FY2022, it has 95870 channel partners for Digital Trust Services spread across various States and Union Territories in India and out of 539 system integrator partners, 267 are present in India and 272 are present internationally in the United States of America, Europe, Middle East and Africa and the Asia Pacific. As of CY2021, it had 664 full-time employees, including 240 employees in the R&D.

END USER INDUSTRY —

Retail users, HNI users
Enterprises — emSigner and emAS are used by eGovernment platforms, banks and financial institutions and other industries in India as well as internationally, emCA is used by the government agencies and for electric vehicle or smart city devices use cases among others. emCA is used for issuing digital signature certificates to individuals, organizations, websites and devices

All kind of subscribers who use digital signature certificates for income tax return filing, Ministry of Corporate Affair (Registrar of Companies) filings, tenders, foreign trade, banking, railways and many other needs.

Moats —

Biggest moat could be the industry which is expanding. Looks like a big fish in expanding pond

Strong R&D team – R&D Team which constitutes 36% of the total employees of our Company. The R&D team is focused on continuous functionality enrichment as well as ensuring our technology stack is compliant and compatible with new developments in cloud infrastructure and carry out DevOps based deployments using Docker and Kubernetes to support continuous integration/continuous delivery models.

Clients – Longstanding relationships with customers including, Infosys Limited, Hindalco Industries Limited, Mashreq Bank, Baud Telecom Company, Cholamandalam MS General Insurance Company Limited, Thales DIS CPL India Private Limited, Larsen & Toubro Infotech Limited, DB Schenker, JSW Steel Limited, Bharti AXA Life Insurance Company Limited, TATA Consultancy Services Limited, etc.,

Selling directly through online channels as well as Channel partners

Diversified product basket with full services as one stop solution

Certifications -Webtrust certification and certifications of compliance with the standards prescribed under CMMI Level 5 – Software Development Lifecycle Maturity, ISO 27001:2013, ISO 27018:2014, ISO 9000-2015, ISO 20000-1:2018, SOC2 Type 2 – Cloud Information Security, ISO 22031:2019 and our certification for EAL 4+ Common Criteria – Product Security for PKI Solution is under evaluation by the Cyber Security Agency of Singapore.

Strengths

Largest licensed Certifying Authority in India with 37.9% market share in the digital signature certificates segment

‘One stop shop’ solution provider in secure digital transformation

Partnerships with Global Channel and Enterprise Solution Partners with a high customer retention track-record

Leader with Technology certifications, accreditations and membership in international bodies

Experienced promoter, board of directors and senior management team

Strong underlying recurring revenue business model and track record of delivering consistent profitable financial performance with high ROCE

Only Indian Company to be Webtrust accredited Public CA recognized by Adobe, Microsoft, Mozilla & Google, Apple

Marquee customers : 10 out of Top 10 Banks, 6 out of Top 10 Automotive, 19 out of Top 20 companies in ET 500

Shareholding

Promoter has sufficient skin in game with holding ~60% and other prominent players in DII/FII holding 14% more leaving approx ~26% to general public. No pledge of shares

Some triggers and updates from recent Q1Fy23 Confcall, presentation and Company updates

Expansion in users and channel partners

Company is working towards expanding and diversify customer base to cater to diverse industries through expansion of channel partner and enterprise solution partner network, enabling more customers to buy directly through online channels and continuous innovation in
solutions related to our industry.

Geographical expansion to other countries with new data centres

Customers use data centers and digital solutions to access business systems and store data concerning, among other things, their employees, contractors, partners and customers. With the growing need of digital signature services in the Indian and international markets, company is planning to invest in leveraging existing data centre infrastructure and setting up new data centres. As part of our strategic initiatives, Company is setting up additional data centers in India and various overseas locations to support technological infrastructure and plan of venturing into foreign jurisdictions for future growth.

New areas of application

Blockchain, IoT secuirty and Quantum Cryptography in enterprise solutions.

eMudhra has a history of developing high-end cybersecurity and paperless transformation products catering to global markets and will
continue to invest into R&D on allied areas such as Certificate Discovery, IoT security and Remote Signing. Further, Blockchain, IoT and Quantum Cryptography all have significant dependency on digital certificates and present huge market opportunity

Expanding Global digital security and paperless transformation market

Key project wins recently

Summary of growth triggers

Long term trend towards digital security, Cyber security, Certificates

Geographical expansion to capture big markets

Selling directly to high margin clients and selling through direct online channels

The Digital Trust Services market which includes SSL/TLS certificates, Digital Signature Certificates and IoT device certificates has strong growth potential

Strong Key financial ratios

Debt to Equity ratio less than 1 and Good Cash flow from operations

PAT , Net profit margin , ROE and ROCE improving over years

Risks (tried to see major risks, please do due diligence to understand more on this part)

Highly competitive industry with retention of existing clients being the key thing to watch out

Company needs to keep pace with ever evolving technologies and security challenges.

Any fraud can lead to significant lose of trust in company business potential

High dependency on one specific channel partner Bluesky infotech ~10% revenue, this can turn detrimental

Expansion in new geographies if don’t turn out well, then it may stagnate growth

Promoters selling in last two months –which is strange ( as it is happening after recent IPO launch)

Valuations —

Current valuation look bit higher after the recent rally in stock price. If we keep our horizon long and vision as shared by company along with growth outlook in segments company operate in, then one can start accumulating on dips (expected range to trade is 200-600) in next 2 years. Rerating can happen if company grows with same or higher pace as shown in last two quarters.

Disclosure — Personally, I am holding the stock from lower levels ~250 and added further till 290. I can add more or exit as per business performance. So build your conviction before entering into the stock

Your strategy can be different than mine. Your selection of company might be different than mine. So lets not be a BLIND FOLLOWER

Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It is for educational purpose and it can be used for educational purposes further. There could be lot of things which might have been missed in my analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

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