Multibagger ESDS Software shares zoom 201% from IPO price; check target price

Shares of ESDS Software Solutions Ltd hit the 20 per cent upper price band at Rs 1,289.55 in Tuesday's trade, taking the stock's gains to 200.60 per cent over its IPO issue price of Rs 429 apiece.

The AI-enabled data centre infrastructure company had offered its shares in the Rs 408-429 price band and raised Rs 720 crore through its initial public offering (IPO).

ESDS Software made a strong debut last Friday, with its shares listing at Rs 757 on NSE, a 76.46 per cent premium over the issue price. On BSE, the stock debuted at Rs 746.30, representing a 73.95 per cent premium.

The IPO was open for subscription from August 28 to September 1 and was subscribed 135.88 times overall. The issue received more than 63.01 lakh applications, with bids worth around Rs 72,000 crore.

Brokerage view

Choice Institutional Equities has initiated coverage on ESDS Software with a 'BUY' rating and a 12-month target price of Rs 1,550. The brokerage has valued the company at 18 times FY28E EV/EBITDA.

According to Choice, India's cloud market is expected to grow at a 23.6 per cent CAGR from Rs 65,100 crore in FY25 to Rs 1.9 lakh crore in FY30. It said enterprise digitisation, BFSI adoption and increasing government workloads are expected to support this growth.

The brokerage noted that ESDS has exposure across Enterprise, Government and BFSI segments, which account for 55.1 per cent, 27.4 per cent and 17.5 per cent of its business, respectively. It also highlighted the growth potential in India's cloud GPU market, which is projected to expand at around 50 per cent CAGR through FY30.

Choice expects ESDS's revenue, EBITDA and profit after tax (PAT) to grow at CAGRs of 120.9 per cent, 72.6 per cent and 81.3 per cent, respectively, over FY26-FY29E.

The brokerage said the company's growth is expected to be supported by its core business, capacity expansion, customer monetisation and operating leverage. It also highlighted ESDS's $1.25 billion AI contract as an additional potential driver of its earnings trajectory.

Choice said successful execution and a faster ramp-up of the AI contract could provide further upside to earnings and valuation.

That said, the brokerage flagged AI deal execution, customer concentration, high capex intensity and competition as key risks, noting that these factors could delay the earnings ramp-up and put pressure on utilisation, margins and returns.