eMudhra IPO Opens Today; Here’s What You Need To Know

  • Stock Market Analysis

The IPO season this year is somewhat subdued as compared to the last year. Nonetheless, many IPOs have recently marked their debut on the Indian bourse, including Life Insurance Corporation Of India (NS: LIFI ), Rainbow Children's Medicare Ltd (NS: RAIB ), Campus Activewear Ltd (NS: CAMU ), etc.

Today, eMudhra Limited will be opening for a public subscription with a price band of INR 243 - INR 256 and would conclude on 24 May 2022. Currently, eMudhra shares are trading at a grey market premium (GMP) of INR 8 - INR 10 in the grey market, which does not seem too lucrative for investors. However, should you invest in this IPO for the long term? 

eMudhra is the largest licensed certifying authority in India and provides digital trust services and enterprise solutions, catering to both organizations and individual entities. These services include web security testing, multi-factor authentication, digital signature certificates, etc. By now, it has signed more than 50 million digital signature certificates via 88,457 channel partners. The company’s strong presence makes it the only Indian company with digital signature expertise to be recognized by tech giants such as Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), Adobe (NASDAQ: ADBE ), etc.

Some of the proceeds from the public issue would be used towards expansion in the US market via its subsidiary eMudhra INC, in which INR 152.6 million is proposed to be invested. The management also intends to use INR 464.64 million towards purchasing equipment and funding data centers which are to be set up in India and overseas locations including Germany, the Netherlands, Indonesia, and Chennai and Bengaluru in India.

Being the largest player in this business in India and planning to expand overseas seems all good but there are some inherent risks in this industry that investors also need to account for before investing in eMudhra.  

There are some key risks to the business that may affect the revenues and even credibility of the business. The company is highly dependent on technology to carry out its operations and is an integral part of the business. Any technology-related failure might prove to be a huge dent for the end customer as the company’s main business is to provide IT security solutions to clients. For eg. any security breach into the company’s data servers that stores clients’ proprietary information and personal data could be troublesome for the company. Any compromise in the security might lead to financial claims against the company and in the worst-case scenario, eMudhra’s insurance policy might not be sufficient to settle claims. 

Coming to financials, total revenue has been on an increasing trend for the last three years  - with INR 1,016.8 million in FY19, INR 1,167.99 in FY20, and INR 1,324.54 million in FY21. The company has also been able to consistently grow profit after tax (PAT) with an FY21 PAT of INR 253.59 million, compared to INR 184.16 million in FY20. As per the fiscal year ended 31 March 2021, the basic earnings per share (EPS) stood at INR 2.49.

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