Shares of ESDS Software Solutions Ltd. have delivered a stellar performance since their initial public offering (IPO), soaring more than 200% above their issue price. On Tuesday, the stock hit the 20% upper price band, reaching ₹1,289.55, marking a 200.60% gain from its IPO price of ₹429 per share.
The AI-enabled data centre infrastructure company launched its IPO between August 28 and September 1, offering shares in the ₹408-₹429 price band and successfully raising ₹720 crore. The offering garnered significant investor interest, being subscribed 135.88 times overall, with over 63.01 lakh applications worth approximately ₹72,000 crore.
ESDS Software made a strong market debut on the preceding Friday. It listed on the NSE at ₹757, a premium of 76.46% over the issue price, while on the BSE, it opened at ₹746.30, a 73.95% premium.
Brokerage Initiates 'BUY' Rating with High Target
Choice Institutional Equities has initiated coverage on ESDS Software, assigning a 'BUY' rating and a 12-month target price of ₹1,550. The brokerage values the company at 18 times its estimated FY28 EV/EBITDA.
India's Expanding Cloud Market Fuels Growth Outlook
According to Choice, the Indian cloud market is projected for substantial growth, expected to expand at a 23.6% Compound Annual Growth Rate (CAGR) from ₹65,100 crore in FY25 to ₹1.9 lakh crore in FY30. This expansion is anticipated to be driven by increasing enterprise digitisation, broader BFSI (Banking, Financial Services, and Insurance) sector adoption, and growing government workloads.
ESDS Software is strategically positioned within these key segments, with its business exposure distributed across Enterprise (55.1%), Government (27.4%), and BFSI (17.5%). The brokerage also highlighted the significant potential in India's cloud GPU market, which is forecast to grow at approximately 50% CAGR through FY30.
Choice Institutional Equities projects impressive financial growth for ESDS, with revenue, EBITDA, and profit after tax (PAT) expected to grow at CAGRs of 120.9%, 72.6%, and 81.3% respectively, over the FY26-FY29E period. This robust growth is expected to be supported by the company's core business, capacity expansion initiatives, customer monetisation strategies, and operational leverage.
A significant additional driver for ESDS's earnings trajectory is its substantial $1.25 billion AI contract. Successful execution and a rapid ramp-up of this AI contract could provide further upside to both earnings and valuation, the brokerage noted.
Key Risks Identified
Despite the optimistic outlook, Choice Institutional Equities also flagged several key risks. These include the execution challenges associated with the large AI deal, potential customer concentration issues, high capital expenditure intensity, and competitive pressures within the industry. These factors, if not managed effectively, could potentially delay earnings ramp-up and exert pressure on utilisation rates, margins, and overall returns.