ESDS Solutions shares: Brokerage assigns 'Sell' call after recent stellar run; check target

Shares of ESDS Software Solution Ltd extended their decline for the second straight session on Monday, falling as much as 5 per cent to Rs 1,669.80 on BSE. The stock, however, has delivered multibagger returns since its market debut earlier this month.

The recent market debutant has surged 289.23 per cent from its IPO issue price of Rs 429 apiece. With this gain, ESDS has emerged as India's second-best new listing in terms of returns over the first month, after Paras Defence and Space Technologies Ltd, which delivered a 430 per cent rise from its offer price over the same period.

ESDS, a data-centre and artificial intelligence (AI) infrastructure-focused company, was listed on September 4.

Amid the sharp run-up in the stock, Choice Institutional Equities has assigned a 'Sell' rating on ESDS, while retaining its target price at Rs 1,550. The brokerage said the near-term risk-reward had become less favourable despite its constructive view on the company's longer-term opportunity.

"ESDS reported in-line numbers, with the core standalone business remaining stable. However, the delayed Sharon AI deployment pushes the key AI-led revenue contribution from October to November and increases near-term execution risk," Choice said.

The brokerage remains positive on the longer-term opportunity from sovereign cloud, AI infrastructure and rising GPU demand. It noted that ESDS has a domestic order book of around Rs 3,000 crore and an international pipeline exceeding 50,000 GPUs.

However, Choice highlighted pipeline conversion, deployment timelines, and utilisation as key variables. It also noted that the sharp scale-up in GPU capacity could increase execution and funding requirements.

Q1 results

ESDS reported revenue of Rs 133.6 crore for the June quarter, down 20.2 per cent sequentially but up 7.2 per cent year-on-year (YoY). EBITDA stood at Rs 55.9 crore, down 45.5 per cent sequentially, while rising 6.6 per cent YoY.

EBITDA margin fell to 41.9 per cent from 61.3 per cent in the previous quarter, while profit after tax (PAT) stood at Rs 29.2 crore, down 56.8 per cent sequentially and up 13.8 per cent YoY.

Choice continues to value ESDS at 18 times its FY28 estimated EV/EBITDA. It retained its target price of Rs 1,550.