Netweb Technologies Ltd – Steady Q2; AI Systems Drive Growth & OCF Improves | MNCL Research Update

We revise our target price on Netweb to Rs 4,000 though lower our rating to HOLD as the stock has more than doubled since our IC. Netweb delivered steady numbers in Q2FY26, led by stellar demand seen in AI systems (161% YoY). The co. added 61 logos in H1 as enterprise dominated with 60% revenue contribution. Margins were at the upper end of the management’s guidance of 14-15% on the back of higher revenue from AI Systems (25% in Q2, vs 14% in FY25). We expect margins to in the range of 13.5-14% for FY26E on the back AI mission deals in H2FY26. Cash conversion cycle was a tad stretched on the back of lower payable days. We expect Netweb to deliver 76.3% revenue CAGR over FY25E–28E, on the back of strong deal pipeline (Rs 42.0 Bn), consistent execution, and healthy balance sheet (Rs 2.5 Bn cash).

AI Systems continues to drive growth:

We expected AI systems to contribute 40%+ in FY26e (14% in FY25) and it has delivered 161% YoY growth in Q2. This is on the back of large deal wins from enterprises for high grade AI systems. Private cloud contributed 34% in H1FY26 while HPC’s contributed 30%. We continue to remain positive on both these segments and expect it to grow 35%+ in H2.

Margins to normalize over FY26-27E:

Margins for Q2 were at the upper end of management’s guidance of 14-15%. Margins were higher on the back of higher contribution from AI systems in Q2. We expect margins to normalize to 13.5-14% in FY26 as the AI mission deal comes at 150-200 bps lower. Cash conversion cycle days were high at 120 days in Q2 vs 111 days in Q1 on the back of pre-payment made to vendors in anticipation of the large deals in H2. We expect cash conversion cycle to be at 108 days for FY26 (84 days in FY25) on the back of the large deal wins from AI mission.

Strong Outlook:

Netweb continues to be on a firm strategic footing, backed by strong execution, a healthy deal pipeline (Rs 42.04 Bn) and L1+Orderbook (Rs 8.41 Bn) (excluding AI mission) which will executed over the 3-4 months, and a future-ready product portfolio. We believe the company will continue to grow at 35%+ organically over the next 2 years on the back of strong demand for HPC’s, private cloud and rising adoption of AI systems.

Valuation, view & risks:

We are factoring in 49.5%/51.4%/53.3% Revenue/EBITDA/PAT over FY25-FY28E, and value the company at 55x Q2 FY28 PE, resulting in a TP of Rs 4,000. We have revised our estimates factoring in the recent Rs 22 bn of AI deal wins to be executed over FY26-27E. Our bull case estimates which include another Rs 10Bn of deal wins from AI mission in FY27 (we are positive the company should win more deals from the present and next year’s AI mission) give us an EPS of Rs 87 and a TP of 4,790 (26% upside to CMP). Our base case estimates do not factor any possible deal wins from AI mission or NSM 2.0. Key risks: Slowdown in execution of AI mission deals, cancellation of any orders won from AI mission, slowdown in organic growth from cloud and HPC’s.

Company website: https://www.netwebindia.com/

Click to download the full Netweb Technologies Ltd 2QFY26 Company Update

Analyst:

• Vinay Menon - Senior Research Analyst, Institutional Equities (NISM-201600112117)
• Miloni Mehta - Research Associate, Institutional Equities (NISM-201800127664)

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