Ramesh Damani has bought shares of this multibagger IT stock. Should you?

But in today’s hyper-connected digital world, we have access to more data and insights than ever before. This has made ‘guru investing’ more popular than ever. Replicating the investments of renowned and successful investors or investment managers is one of the most commonly used investment strategies.

One such guru is Ramesh Damani, who recently added an IT stock to his portfolio.

Who is Ramesh Damani?

Damani is a member of the Bombay Stock Exchange and is a well-known face in India’s stock broking community. He holds a bachelor’s degree in commerce from HR College in Mumbai and a master’s degree in business administration from California State University, Northridge, US.

He’s famous for hosting the TV show ‘Wizards of Dalal Street’ on CNBC TV18 and is frequently invited by business channels to comment on financial issues.

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Damani follows theWarren Buffett model of investing, meaning he favours companies with strong management and sound processes.

Which stock did he buy and why?

The stock he bought recently is that of Protean eGov Technologies, which conceptualises, develops and executes technology solutions for individuals, companies and governments.

According to BSE data, Damani bought 422,069 shares of Protean eGov Technologies in the September quarter, representing 1.04% stake in the company. His investment was worth about ₹82.9 crore as of 21 October 2024.

Damani either had no prior stake in Protean eGov Technologies or a stake of less than 1% as his name was not on the list of shareholders before this.

While the reason he decided to buy the stock is unknown, here’s what we believe may have caused him to do so.

#1. PAN 2.0 project

On 2 September, Protean eGov Technologies announced its intention to bid for the income tax department’s PAN 2.0 project, which aims to develop and maintain a key aspect of India’s digital identity infrastructure.

With its proven expertise in taxation, pension and digital identity provisioning, Protean is uniquely positioned as the only company that offers comprehensive digital identity solutions.

In addition to its work in traditional sectors, Protean plays a critical role as a service provider to the Unique Identification Authority of India (UIDAI), supporting Aadhaar-related services such as e-signatures, e-KYC, and e-authentication.

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It also manages the PAN database and offers online PAN validation, which bolsters its role in identity authentication and digital onboarding across various sectors such as capital markets and real estate.

The company is expanding its digital footprint by venturing into new domains, including digital commerce through the Open Network for Digital Commerce (ONDC), education, health, and agriculture. This strategic expansion, along with its move toward vertical integration at the application level, underscores its ambition to diversify and grow.

These strengths and new initiatives could be why Damani decided to invest in Protean eGov Technologies, recognising its long-term growth potential.

#2. eSignPro launch

On 1 July, Protean eGov Technologies introduced eSignPro, a cutting-edge digital signature and stamping solution that aims to be the most comprehensive offering available.

Bundled with a smart documentation suite, eSignPro provides a digital, paperless, and legally accepted format for agreements, addressing a significant opportunity for digitising workflows.

Currently, financial institutions spend more than ₹200 on average to print, execute, and store a physical document while managing logistics across branches, central offices, and customers. With millions of such agreements executed every year, eSignPro offers a cost-effective and streamlined alternative that enhances productivity through automation, customised templates, and built-in maker-checker functionality. This innovative solution may have caught Damani’s attention.

#3. Digital push beneficiary

The rapid growth of India’s digital public infrastructure (DPI) has played a crucial role in formalising the economy, with the Union Budget 2024-25 further promoting DPI development in key sectors such as credit, e-commerce, education, health, law, logistics, MSMEs, and urban governance.

Protean, a leader in building DPI in collaboration with the government, stands to benefit from these initiatives. The company has already implemented a core agri stack that supports universal farmer IDs, land records, crop registries, and soil health records, positioning it to benefit from the government’s proposed digital crop survey in 400 districts and inclusion of six crore farmers in land registries.

Protean is also set to gain from the expansion of the National Pension Scheme (NPS), with the introduction of NPS Vatsalya for minors and the setting up of a review committee.

As a central record-keeping agency for NPS, Protean commands a 97% market share, which offers substantial growth potential given India’s current pension penetration is just 6% for private-sector employees, compared to 70% in the US.

This long runway for growth, the digital push from the Union Budget, leadership in the evolving DPI landscape, and its strong foothold in the NPS market may have caused Damani to invest in the company.

Financials

In June 2024, Protean eGov Technologies reported net sales of ₹1,96.54 crore, down 10.8% from June 2023. Quarterly net profit fell 34.5% to ₹21.09 crore from ₹32.21 crore in June 2023.

Operational revenue grew from ₹603.1 crore in FY21 to ₹882 crore in FY24, and 18.8% in the latest year.

Despite this, profitability has been inconsistent, with operating profit peaking at ₹203.1 crore in FY22 but falling to ₹1,57 crore in FY24. Net profit followed a similar trend, dropping from ₹143.9 crore in FY22 to ₹97.3 crore in FY24, with the net margin shrinking from 20.8% to 11%.

While revenue growth has been strong, managing margins remains a challenge for the company.

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What’s next for the company?

Protean eGov Technologies is poised for revenue growth in FY25, primarily fuelled by recent product launches.

New offerings such as the Protean RISE API marketplace, central know your customer (CKYC) solutions for the banking, financial services and insurance (BFSI) sector, and eSignPro are aimed at enhancing the company’s infrastructure and improving profit margins. This strategic focus is expected to bolster its financial performance in the upcoming quarters.

Additionally, internet penetration in rural areas is expected to touch 55-60% by the end of December 2026, with a projected compound annual growth rate (CAGR) of 9-11% from 2021 to 2026.

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As internet access grows and more services require a PAN card for identity verification, the demand for PAN card applications in rural India is likely to rise significantly.

The continued development of these programmes will drive the need for robust authentication infrastructure in India, further solidifying Protean’s market position and growth potential in the digital identity landscape.

How has the stock performed recently?

Shares of Protean eGov Technologies are seeing weak sentiment and are down about 5% over the past five days. However, the stock is up about 53% so far in 2024, and up 118% from its IPO price of ₹792 in November 2023. The stock hit a 52-week high of ₹2,225 on 30 August 2024 and a 52-week low of ₹775 on 13 November 2023.

About the company

Protean eGov Technologies Limited, previously known as NSDL e-Governance Infrastructure Limited, was incorporated in 1995. It is a key IT-enabled solutions company in India, engaged in conceptualising, developing and executing nationally critical and population-scale greenfield technology solutions.

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It was originally set up as a depository and created a systemically important national infrastructure for capital market development. It has been the chief architect and implementer of some of the most critical and large-scale technology infrastructure projects in India.

For more details, see the Protean eGov Technologies fact sheet.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com