Brief Summary
The video discusses Indian companies that are enabling the AI revolution by providing cloud infrastructure, compute power, and enterprise solutions. It highlights two companies, Emphasys Limited and Net Web Technologies India, analyzing their AI strategies, financial performance, growth outlook, and associated risks. The video emphasizes the importance of identifying businesses that can sustainably create value in the AI-driven future.
- Emphasys Limited: Focuses on cloud and AI-based services, with a significant portion of revenue from North America and the banking/financial sector. The company is transitioning to AI-led deals and improving profitability through cost management.
- Net Web Technologies India: A leading provider of high-end computing solutions, specializing in HPC (High Performance Computing) and AI systems. The company is experiencing rapid growth, driven by private cloud and HPC verticals, but faces challenges related to working capital management and revenue concentration.
Introduction
The AI revolution is underway, and India is positioned to be a global leader. India's AI market is projected to reach $17 billion by 2027, growing at an annual rate of 25-35%. A significant 92% of knowledge workers in India are already using AI, surpassing the global average of 75%. India's data center capacity has reached 1 gigawatt in 2024 and is expected to hit 17 gigawatts by 2030. The video aims to identify companies that can drive business growth through AI.
Stock 1
Emphasis Limited is a global IT services provider specializing in cloud and AI-based services. The company focuses on helping businesses transform with next-generation technology. Application services contribute the most to revenue (72%), followed by BPO services (16%) and infrastructure services (12%). Geographically, North America is the largest market, accounting for 81% of revenue, while India contributes only 5%. Banking and financial services are the primary client sectors, making up 50% of revenue. The company's AI-led deal pipeline increased from 25% in FY24 to 65% by the end of FY25, with 59% of total contract value being AI-driven. In FY25, revenue increased by 7.2% to ₹14,230 crore, driven by AI-led deals and large multi-year contracts. Employee costs grew by only 2.7%, reducing their contribution to total sales from 59.7% to 57.2%. Operating profit increased by 9.3% to ₹2,647 crore, with an improved OPM of 18.6%. Net profit increased by 9.5% to ₹1,702 crore. The company projects an EBIT margin of up to 15.75% for FY26 and a TCV (Total Contract Value) reaching around ₹11,000 crore for FY25. The total deal pipeline grew by 86% year-on-year, with a 154% increase in the large deal pipeline. Client expansion has also been observed. Through platforms like mfas.ai and Deep Insights, the company helps clients reduce costs and improve decision-making. The company's cash to assets ratio increased from 5.8% to 10.9% in FY25, with cash reserves doubling. However, unbilled receivables grew by 40% to ₹1,806 crore, now comprising 64% of total trade receivables, which could affect cash flow. The company is trading at a PE of 31, compared to its median PE of 29. Risks include high revenue concentration in the US (82%) and reliance on the top 10 clients (54%). Verticals like logistics and manufacturing are declining, and a sharp increase in receivables could impact cash generation.
Stock 2
Net Web Technologies India, founded in 1999, is a leading high-end computing solution provider. The company offers end-to-end HPC (High Performance Computing) solutions, including homegrown compute storage and supercomputing infrastructure. Net Web works with customers from the solution design stage, resulting in a win rate of up to 60%. The business is divided into six verticals: Private Cloud and Hyper Converged Infrastructure (HCI) (37% share), HPC (36%), AI systems and enterprise workstations (15%), High Performance Storage (HPS), Data Center Services, and Software and Services. The client mix is 50-50 between government and private sectors, including higher education institutes, research centers, and defense and space organizations. Net Web is one of the few global OEM partners of NVIDIA, designing and developing custom products for them. In FY25, revenue jumped 58%, driven by Private Cloud & HCI and HPC verticals, which grew by around 52% and 54%, respectively. The company has an 81.4% repeat order base. Expenses also increased by 59.3%, with the cost of materials jumping 61.8%. Operating profit grew by 55.3%, but OPM contracted slightly from 14.2% to 13.9%. Depreciation spiked by 83% to ₹11 crore. Net profit increased by 50% to ₹114 crore. The company's margins are better than its MLC competitors due to strong repeat clients and full-stack in-house integration. Management is confident in sustaining a 35-40% top-line CAGR in the next few years, supported by a strong order pipeline and overall momentum. Net Web currently has no direct competitor as an integrated full-stack player. India's AI market is growing at a CAGR of 25-35% and is estimated to reach $17 billion by 2027. Data center capacity in India may double in the next 3 years. For FY26, management has guided a 13-14% EBITDA margin and a 10% PAT margin. The revenue contribution of the AI segment is expected to increase from 15% to around 20%. The order book has reached ₹350 crore by Quarter Four of FY25, with an execution cycle of 8-12 weeks, and the order pipeline is around ₹4,000 crore. The India AI Mission project is not yet included in the pipeline. The company has allocated Skylus, a unified session that can be set up with GPU-based AI infrastructure. International expansion is underway, with a service network being set up in Europe and the Middle East. Segments like Private Cloud and Cloud Management are forecast at 19% and 23% CAGR by 2029. AI spending in India is expected to grow at a CAGR of 31.5% over the next four years. Investments, inventories, and trade receivables have grown rapidly. The inventory cycle has become stretched, with inventory days increasing from 77 to 92, and receivable days increasing from 93 to 155. Cash flow from operations fell from ₹18 crore to negative ₹13 crore. The CFO by net profit ratio has fallen to negative 11%. Overall cash flow remained positive due to investment sell-offs. Revenue concentration is a risk, with the top 10 clients contributing 66% of revenue in FY25. Working capital intensity is also a major risk, with gross current assets increasing to 210 days in FY25.
Conclusion
The video concludes by emphasizing that the key question is not whether AI is the future, but which businesses will be able to create sustainable value in this future. Viewers are encouraged to share their thoughts on which company's approach they find more grounded and scalable.
