AAA Technologies coming with an IPO to raise up to Rs 10.23 crore

29 Sep 2020

AAA Technologies

  • AAA Technologies is coming out with an initial public offering (IPO) of 24,36,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 42 per equity share.
  • The issue will open on September 30, 2020 and will close on October 05, 2020.
  • The shares will be listed on the SME platform of NSE.
  • The share is priced 4.20 times higher to its face value of Rs 10.
  • Book running lead manager to the issue is Chartered Finance Management.
  • Compliance Officer for the issue is Sagar Shah. 

Profile of the company

The company was incorporated as ‘AAA Technologies Private Limited’ on October 3, 2000 under the Companies Act, 1956 in the state of Maharashtra vide Certificate of Incorporation issued by the Registrar of Companies, Maharashtra, Mumbai. The company obtained a further Certificate of Incorporation on August 3, 2020 issued by Registrar of Companies, Maharashtra, Mumbai consequent to conversion of the company to a Public Limited Company.

The company is an Information Technology and Information Security Auditing & Consulting Company offering a platform that enables organizations to identify the issues of corporate governance of the information system in computerized environment and execute security controls to safeguard information and information system. The company offers IT audit services like Information System Audit, Cyber Security, IT Assurance & Compliance, Information Security and IT Governance to BFSI, Government, Regulatory Agencies and Public and Private Sector Organizations. The company has kept its focus on Information Security Auditing & Consulting keeping in view the vast scope of work in the existing and the untapped areas. As a result, the company has been able to build its resources capable of auditing operating systems, networking, IDS, web application, ERP, ATM, core banking, forensic, websites, computer crime investigations etc.

To procure business from BFSI, Government, Regulatory Agencies and Public Sector Companies, the company bid for tenders available for CERT-In empaneled IT Security Organizations; and NICSI a company under National Informatics Centre, Ministry of Electronics and Information Technology, GOI for providing and procuring IT solutions for multiple E-governance projects undertaken by NIC, MeitY, Governments, Government Organization and PSU. The company is also empanelled with government bodies, PSUs and banks to directly procure business from them.

Proceed is being used for:

  • Expansion and development of business operations across various cities in India.
  • Working Capital Requirements and Security Deposit towards Bank Guarantees/LC.
  • Issue-related expenses.

Industry overview

The services sector is not only the dominant sector in India's GDP, but has also attracted significant foreign investment, has contributed significantly to export and has provided large-scale employment. India's services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. The Government of India recognizes the importance of promoting growth in services sector and provides several incentives across a wide variety of sectors like health care, tourism, education, engineering, communications, transportation, information technology, banking, finance and management among others.  The services sector is a key driver of India's economic growth. The sector contributed 55.39 per cent to India's Gross Value Added at current price in FY20. Services sector's GVA grew at a CAGR of 1.45 per cent to $ 1,064.8 billion in FY20 from $ 1,005 billion in FY16. Net export estimate in FY20 from services stood at $214.14 billion, while import was at $131.41 billion in FY20.

The Indian IT industry has been continually reinventing itself by stepping up focus on R&D, talent development, global partnerships and has crossed $190 plus Billion during FY 19-20. Cyber Security Services has emerged as a growth vertical for Indian IT Industry growing at a CAGR of 20% plus. The organizations are shifting focus to proactive and preventive measures, while augmenting their R&D reports to meet the rising scale and complexities of cyberattacks. AI/ML and Big Data/Analytics are highly preferred technologies for creating next-gen solutions, while IoT and cloud are acting as upcoming areas of focus. India’s Digital economy is on a fast-paced growth trajectory to realize $1 Trillion by 2025. Indian IT Services Industry has been a key growth pillar of the economy, and a preferred Digital Transformation partner for global enterprises across the world. The security testing services market includes penetration testing, web testing, application security, audits and reviews. It is estimated that the security testing services market in India would increase from $201 million in 2019 to $325 million by 2022, at a CAGR of 17.4%. Security testing services will comprise 23% of the services market share, as against 21% share in 2019.

Pros and strengths

Quality of Services: The company has been accredited with ‘ISO 9001:2015’ and ISO 27001:2013 certification for Quality Services by Pyramid Certifications LLP respectively for providing services for Consultancy in IT Governance, IS Audit, Information Security. Cyber Security, Compliance and Assurance including Management Systems. It adheres to quality standards as per industry standards: hence it gets repetitive work order from its clients, as it is capable of meeting their quality standards, which enables it to maintain its reputation in the industry.

Diversified services across several industries: The company provides one- stop solutions to its clients with respect to diverse services through a team of well competent practiced professionals who responsibly handle the process right from its inception to its conclusion. It is well equipped with the experience and knowledge for implementation to complex situations, allowing it to target clients in the industry. Its team of professionals comprehend the complication of the industries it serve. Its diversified service portfolio and its ability to handle the complete diverse requirements of its clients, supported by its qualified and experienced team, will significantly contribute to its growth in this IT audit space.

Low dependency on Debt and Controlled Overheads: Since the company’s incorporation, it has always been well capitalized through equity from its Promoters and now through this issue it further propose to improve its equity capitalizations. This would help it raise debt as and when required in the future as well as ensure its long-term sustainability.

Risks and concerns

Revenue depends on large number of clients: Hence the company’s revenues have been and shall continue to be dependent on large number of clients across all industry and business sectors. For the financial year ended March 31, 2020, March 31, 2019 and March 31, 2018 its top ten clients accounted for approximately 83.22%, 82.59% and 92.51% respectively of its revenue from operations. Further, it currently do not have long-term contractual arrangements with clients and conduct business with them on the basis of tender that are placed from time to time. The loss of any significant client would have a material effect on its financial results. It cannot assure you that it can maintain the historical levels of business from these clients or that it will be able to replace these clients in case it lose any of them.

High dependency of third-party tools and applications: Delays or outages in company’s information technology (IT) systems and computer networks could have a material adverse effect on its business, financial condition and results of operations. In addition, it is dependent on various external vendors for license of specific software / tools and also place reliance on these tools to efficient conduct of its operations and if it fail to fulfill their contractual obligations, it could have a material adverse effect on its business, financial condition and results of operations.

Rely on information technology systems, networks and infrastructure: The company has implemented various IT solutions and tools to cover key areas of its operations. Its business is also technology driven, and it relies heavily on IT software and networks and related infrastructure. As a result, its business operations and the quality of its services depend significantly on the efficient and uninterrupted operation and reliability of its information technology systems, tools, networks and related infrastructure both internal and external. For instance, a failure in technology including technical error/glitches, server breakdown can lead to interrupted bidding, and could even lead to cancellation of bids which may result into initiation of litigation proceedings, other adverse results and could adversely affect its financial condition.

Outlook

Incorporated in 2000, AAA Technologies is an IT and Information Security Auditing & Consulting Company. The company offers a wide range of IT auditing services such as Information System Audit, Cyber Security, IT Assurance & Compliance, Information Security, and IT governance services. Its product and service portfolio covers IT services and auditing operating systems, networking, IDS, web application, ERP, core banking, ATM, forensic, websites, computer crime investigations, etc. AAA Technologies offer its services across industries such as banking, financial institutions, insurance, NBFCs, government, Panchayats, municipalities, stockbrokers, education, Travel & Transport, Hospitality, Manufacturing, Healthcare, Power, etc. The company helps its clients in identifying potential threats and mitigate the risks from potential IT frauds. It works on creating long-term relationship with its clients and its team works closely with them to understand their short-term and long-term goals. On the concern side, the company’s clients include governmental entities such as ministries of the Central Government and national as well as state level public sector undertakings. Its government work carries various risks inherent in the government contracting process, which may affect its operating profitability. Besides, its insurance coverage may not adequately protect it against all material hazards and the policies do not cover all risks, specifically risks like liability risk, loss of profits and workmen’s compensation.

The company is coming out with a maiden IPO of 24,36,000 equity shares of Rs 10 each at a fixed price of Rs 42 per equity share to mobilize Rs 10.23 crore. On the performance front, the company’s revenue from operations had increased by 36.91%, from Rs 1033.91 lakh in Fiscal 2019 to Rs 1415.53 lakh in Fiscal 2020. The company’s profit after tax had increased by 79.50%, from Rs 206.02 lakh in Fiscal 2019 to Rs 369.80 lakh in Fiscal 2020. The company intends to further increase the brand recognition through improved quality of services, communication and various initiatives, like bidding for various tenders, timely delivery of audit reports, empaneling with different organizations etc. The same would enhance the visibility of its brand name and enhance its position and image in the industry. It also intends to further improve the diversity of its service portfolio to cater to the various needs of its clients and increase the income derived from IT Audit services.

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