Can ESDS Software Solutions IPO deliver long-term growth for high-risk investors?

ESDS Software Solutions, a data center and managed services provider, is set to raise ₹720 crore through an equity issue to fund expansion. The promoter group will see its stake drop to 39.5% from 46% post-IPO. The company offers infrastructure-as-a-service (IaaS), managed services, and software-as-a-service (SaaS) to domestic and overseas customers in BFSI, government, and enterprise sectors.

Strong revenue and net profit growth over the past three years are expected to continue with planned capacity additions. However, growth will also rely on government policies and funding options. Top five customers account for one-third of revenue, while top 10 comprise nearly half, indicating revenue concentration. Exposure to input cost inflation, particularly for GPU, memory, and cooling agents, exists.

The IPO appears more suitable for long-term, high-risk investors. EDSS operates five data centers across India, totaling over 75,266 square feet. In FY24-FY26, managed services revenue share grew to 41% from 27%, while IaaS fell to 44% from nearly 50%. The government's share of revenue declined to 27% from 34%, with enterprises now representing 55% of revenue from 48%.

Financials show a 28% annual revenue increase and nearly nine times profit growth between FY24 and FY26. Operating margin before depreciation and amortisation expanded to 49.6% from 35.6%, and return on equity rose to 25% from 6%. Valuation suggests a P/E of 41.6 and P/S of 10.7, based on FY26 financials and post-IPO equity, reflecting high growth expectations.

Cloud GPU provider E2E Networks, now listed on the NSE, trades at a P/S of 45, with an operating revenue of ₹245.6 crore and a net loss of ₹15.6 crore for FY26.