Uncovering a Company's Impact on India's Digital Landscape

Introduction

Protean eGov Technologies Limited, formerly known as NSDL e-Governance Infrastructure Ltd, stands at the forefront of developing large-scale, citizen-centric e-governance solutions. As an information technology-enabled solutions company, Protean has built a reputation for conceptualizing, developing, and executing critical technology solutions that serve the needs of millions. This blog delves into the company’s recent performance, growth opportunities, and future prospects, offering insights from a senior analyst’s perspective.

A Legacy of Collaboration and Innovation

Protean eGov Technologies has a long history of collaboration with the Indian government, playing a pivotal role in creating and managing digital public infrastructure. With 19 projects across seven ministries and autonomous bodies, the company has been instrumental in providing e-governance services, including Tax Information Networks, PAN card issuance, Central Pension System record-keeping, Aadhaar authentication, and e-KYC services. Notably, Protean holds a dominant position in the market, issuing 7-8 Crore PAN cards every year with 49 Crore Cumulative PAN cards issued by Protean and enjoying 64% Market share in Cumulative PAN issuance.

Company is enjoying it's monopoly status with Market share of 97%+ in NPS (National Pension Scheme) and APY (Atal Pension Yojana)

Geographical Reach and Network Partnerships

The company’s extensive geographical presence further solidifies its leadership in the e-governance space. As of June 30, 2023, Protean boasts 79,374 service centers across India, covering over 12,000 PIN codes and 700 districts. Additionally, Protean has established partnerships with major distribution networks like Nearby Technologies, Fino Payments Bank, Vakrangee, and Payworld Digital Services to expand its reach, ensuring that its services are accessible even in the most remote areas.

Recent Performance: A Mixed Bag

Protean’s recent financial performance in Q1 FY25 has been a mix of challenges and opportunities. The company posted a 34% year-on-year decline in net profit, primarily due to subdued revenue and provisions for expected credit losses. Despite this, the stock has surged by over 40% in the past three months, now trading at a premium valuation of 52 times earnings estimated for FY26.

This raises the question: why should investors consider a stock that, despite its rich valuation, has shown earnings de-growth?

As per latest information, Following is the shareholding pattern in the company. There are no promoters in the company. FIIs holding 8.61%, DII 30.07%, NSE Investments Limited holding 20.36% of the company

Sectoral Insights: Tax Services and Pension Business

Protean’s tax services, which account for around 50% of its total revenue, experienced a 27% year-on-year decline in Q1 FY25. This dip was largely due to lower PAN card issuances, likely impacted by the election activity. However, the company’s market share in this segment improved from 50% in Q1 FY24 to 54% in Q1 FY25, indicating resilience and potential for recovery in the coming quarters.

In contrast, the pension business showed robust growth, with a 13% year-on-year increase in Q1 FY25. The company added 2.25 million new subscribers under the Atal Pension Yojana (APY) and 0.29 million under the National Pension System (NPS). Additionally, 760 new corporates were onboarded, reflecting the vast potential for growth in India’s underpenetrated pension market.

Growth in Identity Services

Protean’s identity services, which include e-Sign, e-KYC, online PAN verification, and Aadhaar authentication, saw a 27% year-on-year growth, driven by increasing digital penetration across the country. This growth underscores the company’s ability to leverage its existing infrastructure and expertise to capitalize on emerging opportunities in the digital identity space.

Few Stats to understand Scale possibility:

• In India, Only 6% Private sector workers are covered under pension vs 70% in US which shows the extreme potential in this sector.

• 1.2 Crore Youth that enters workforce every year

• 5 Crore Bank accounts were opened every year

• 133 Bn Digital Transactions happened in 2024 in India

• >80 Lakh PAN Verifications are done in a day

• 15 Crore DEMAT account holders in India

Strategic Initiatives and New Verticals

Protean’s strategic initiatives in FY25 reflect its commitment to innovation and expansion. The company delivered several ground-breaking projects, including the development of the Central Agristack, which aims to digitize land records and create crop registries. This project is expected to significantly impact the agriculture sector, with 13 state governments currently conducting proof of concept for the Agristack.

Moreover, Protean continues to explore opportunities in other sectors through its involvement in open digital ecosystems such as eCommerce and Transport (ONDC), Education and Skilling (ONEST), and healthcare. As the technology service provider for ONDC, Protean plays a crucial role in powering the network that could potentially become a major revenue stream, similar to the Unified Payments Interface (UPI) managed by NPCI.

International Expansion and Future Prospects

Looking ahead, Protean’s ambitions extend beyond the Indian market. The company plans to take its suite of services, including tax, pension, and identity solutions, to international markets, particularly in developing countries. Additionally, Protean holds an account aggregator license from the RBI and is poised to capitalize on the growing demand for public cloud services in India, a market expected to grow at a 27% CAGR from 2021-26.

Valuation and Investment Consideration

While Protean’s valuation appears rich at 52 times FY26 earnings, it is justified by the company’s dominant market position, unique business moats, and the tailwinds of growing digital penetration in India. However, investors should be mindful of the uncertainties associated with the company’s unproven products and markets. As such, Protean may be more suitable for long-term investors who are willing to accumulate the stock on dips and are comfortable with the inherent risks.

Conclusion

Protean eGov Technologies is at a critical juncture, balancing challenges with significant growth opportunities. Its strong market position, innovative projects, and strategic expansion plans position the company well for future success. However, the premium valuation and recent earnings performance suggest that potential investors should approach with caution, focusing on long-term gains and accumulating the stock strategically.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice. The information presented is based on data available as of the date of this publication and is subject to change. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions. The projections and estimates discussed are based on certain assumptions and market conditions, and there is no guarantee that they will be realized.

Reference:

1) https://www.screener.in/company/544021/consolidated/

2) https://www.proteantech.in/

3) Protean's Investor Presentation: https://www.bseindia.com/xml-data/corpfiling/AttachHis/20b35eb3-6e93-4a62-92f8-c0d9ad3e0db4.pdf

4) https://www.moneycontrol.com/news/business/moneycontrol-research/protean-remains-at-a-vantage-point-to-ride-indias-digital-journey-12789380.html

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