ESDS Summary:
This report, dated August 29th, 2024, provides an overview of ESDS, highlighting its industry position, strategic advantages, and financial performance. ESDS, founded in 2005, is a "Made in India" provider of Data Center and Digitization solutions. It offers end-to-end services with a focus on MSME clients.
**Industry Overview:** The cloud infrastructure and services industry in India is valued at USD 40 billion and is projected to grow at a CAGR of over 20% from FY25 to FY29. Key drivers include the Digital Personal Data Protection Act, RBI mandates for local data storage for BFSI (Banking, Financial Services, and Insurance) organizations, the shift to virtual working environments, and government initiatives promoting digital processes. There's a trend towards lean internal employee structures, a preference for hiring experts providing customized 24x7 support, stronger security requirements, and improved governance controls. Indian software products have high acceptance in the US and EU, contributing to 70% of the industry's revenue from these regions.
**About the Company:** ESDS has established long-term relationships with prominent clients like L&T, EDF, Tech Mahindra, STPI, CERT-IN, and PFC. The company is estimated to grow at a 50%+ CAGR due to high client retention (over 90%) and effective cross-selling strategies. ESDS offers a wide range of data center and cloud-managed services, including customizable solutions. Its product suite comprises 28 products and dozens of services, with significant growth potential. ESDS operates four data centers in Nashik, Mumbai, Bengaluru, and Mohali, with partnerships with STPI for two of these centers.
**Data Center and Digitization Solutions:** ESDS's core competencies include an asset-light model and patented cloud technology. It has a strategic partnership with STPI and is expanding its presence through edge data centers. The data center industry is experiencing rapid growth, with a CAGR exceeding 40%. ESDS offers Cloud Managed Services, including security, database management, sector-specific cloud system design, end-to-end cloud managed services, and cloud migration services. It also offers SaaS solutions, including patented cloud orchestration products, low-code/no-code offerings, and public sector database management products.
**The Patent:** ESDS was the first Indian cloud company to secure a patent for vertical auto-scaling technology and also holds a patent for diagonal scaling. The patent, titled "Method and System for Real-Time Detection of Resource Requirement and Automatic Adjustments," was effective from August 2011 and has a term of 20 years. ESDS's patented solution uses AI to automatically allocate resources in real-time, providing a key differentiator.
**STPI Partnership:** ESDS's partnership with STPI enables an asset-light growth model and a post-tax Return on Capital Employed (ROCE) of over 20%. Under the agreement, ESDS shares 18% of its revenue with STPI, while STPI covers 20% of the non-IT capital expenditure. The partnership grants ESDS access to STPI's existing customer base.
**Go-To-Market Strategy:** ESDS addresses industry-level gaps overlooked by hyperscalers by reaching out directly to government and SMBs, educating potential clients, and offering innovative pricing models. It works closely with clients to understand their specific requirements and suggests customized solutions. ESDS provides a comprehensive range of services, and clients interact directly with ESDS executives.
**Key Insights:** ESDS serves over 200 enterprise clients and more than 470 banks. It plans to significantly expand its GPU capacity through partnerships. The majority of ESDS's revenue is expected to come from government and BFSI sectors. Despite L&T's own data centers, ESDS is engaged in hosting software for L&T's smart city project. 60% of SaaS revenue is derived from ESDS's proprietary software and solutions.
**Financials:** As of March 31st, 2024, the Market Cap of ESDS is Rs 1450 Cr. The shareholding pattern is: Promoters (55.1%), GEF Capital Partners (40.8%), and ESOP (4.2%). Revenue is expected to grow from Rs 285 Cr in 2024 to Rs 649 Cr in 2026. EBITDA margins are projected to be 39.57% in 2026. A significant portion of the projected revenue will come from Government and BFSI sectors. ESDS plans to add 145-150 more GPUs through partnerships.
