Despite macro led challenges globally, we believe that Netweb’s growth prospects in medium to long term is likely to remain healthy given healthy pipeline/order book (with reported order pipeline excl L1 of INR 39.71bn with order book plus L1 order pipeline worth INR 6.88bn despite strong sales growth in FY25).
We believe that order pipeline/book likely to remain robust ahead as well considering i) Netweb’s unique tie up with NVIDIA (after successfully launching Grace CPU Superchip & GH200 Grace Hopper Superchip MGX server design, Netweb now established a roadmap to design and develop AI GPU systems based on advanced NVIDIA Blackwell platform) and increasing AI adoption post cost effective DeepSeek architecture launch in China and Netweb’s launch of Skylus.ai – a AI native appliance with built-in GPU resource abstraction which is gaining traction as per Netweb, ii) Netweb is expected to benefit from GOI’s recently announced India AI mission with a budget of Rs. 103.7bn (for 5-years) to create a ‘Sovereign AI’ computing infrastructure as a service (with services related RFPs out while hardware related RFPs to be floated in near term as per Netweb and not forming part of its pipeline yet) and Netweb to be in the pole position given its successful delivery of AIRAWAT-AI led SPC earlier, iii) existing catalysts from increasing adoption of Private Cloud, HPC and AI Servers across many industries besides make in India push and data security norms of GOI and iv) Netweb expansion plans for exports.
Considering above, its consistent high growth, return ratios and recent material stock price correction, we maintain LONG rating with Jun’26 TP of Rs.2,175 (Mar’26; Rs.2,655 earlier) set at a fwd. PE of 50x EPS of Rs.43.5 (vs. EPS CAGR of 39% over FY25-FY28E) vs. earlier at 67x EPS of Rs.39.6.
Strong beat on Sales continues: Netweb reported 56% yoy growth in Sales in 4Q (EE: +31% yoy). High Performance Computing (HPC), Pvt Cloud & HCI, AI Workstation, High Performance Storage, Data Center Server, Software & Services, Other Spares Sales and Network Switches in 4QFY25/FY25 grew +57%/+55%, +46%/+52%, +80%/+112%, -8%/-19%, +19%/+11%, +298%/+159%, 24%/+49%, +114%/+273% YoY, respectively. It reported 59% growth in FY25 Sales on base +63%/+80% in FY24/FY23).
EBITDAM lower than expectations: Netweb reported 22.4%/14.4%/13.6% GM/EBITDAM/EBITM in 4Q (vs. EE of EBITDAM/EBITM of 15.4%/14.3%) after reporting PLI incentive worth INR59mn (1.4% of 4Q Sales). In FY25, it reported EBITDAM/EBITM of 13.9%/12.9% (vs. 14.2%/13.3% in FY24). For FY26E Netweb guided EBITDAM in the range of 13-14% and PAT margin of c.10% and not ruling out operating leverage worth 30-40bps p.a. given its target of Sales CAGR of 35-40% in the next couple of years.
Healthy order intake/pipeline: Despite strong show in sales on yoy basis in FY25, order book stood at INR 3.25bn (INR 3.60bn qoq) with order pipeline (ex. L1) worth INR 39.71bn (INR 38.15bn qoq) and L1 pipeline worth INR 3.63bn (INR 3.48bn qoq) at end of FY25.
Valuations: Our 1-yr target PE is now 35-40% discount to Netweb’s mean since listing to factor increasing macro led headwinds globally post tariff related concerns. In our view Netweb needs to tighten its margin execution, working capital and FCF generation.
