IT infrastructure services provider ESDS Software Solution’s ₹720-crore initial public offering (IPO) will open on August 28 and close on September 1. The price band is ₹408-429 a share. The IPO is entirely a fresh issue. ESDS is returning to the public market after an earlier filing in 2021.At ₹429 a share, ESDS will issue about 1.68 crore new shares, implying a post-issue dilution of about 14.3 per cent. The implied market cap is around ₹5,000 crore. Post-issue, the stake of promoter group (Somani family) will fall from about 46 per cent to 39 per cent. External investors include Mukul Agrawal, Ashish Kacholia, Anchorage Capital Fund and Capri Global Ventures. None of them are selling shares in the IPO.Of the IPO proceeds, ₹576 crore will be spent on cloud-computing equipment and other equipment and infrastructure at ESDS’ Airoli, Bengaluru, Mohali and Nashik data centres. The balance will largely be available for general corporate purposes.The IPO values ESDS at about 41.6 times FY26 earnings (post-issue). That is not cheap, but RHP-listed peer E2E Networks (market cap over ₹12,700 crore) is valued far more aggressively despite having roughly half ESDS’ FY26 revenue and reporting a net loss in FY26.On an EV/EBITDA basis, E2E is valued at over 98 times, against about 13.2 times for ESDS (post-issue). This does not make ESDS intrinsically cheap, but it gives the issue considerable relative valuation comfort in the Indian market that may be assigning scarcity premiums to AI infrastructure businesses. Though not strictly comparable, listed global cloud and IT-infrastructure companies trade at roughly 10-40 times trailing EV/EBITDA, with Ionos at the lower end and DigitalOcean at the upper end.ESDS’ valuation also appears reasonable considering its 28 per cent revenue CAGR/52 per cent EBITDA CAGR over FY24-26, sharp improvement in annual profitability (PAT 9x since FY24), good return ratios and low leverage.Importantly, this does not require investors to assign value to two recently announced AI-computing projects, whose economics are not yet clear enough to include in our valuation case. In the first, ESDS has signed a five-year agreement with an Australian AI-computing provider for access to over 8,200 high-end Nvidia B300 processors used to run AI applications. ESDS will pay monthly for this computing capacity and expects to earn more by using it to provide AI-computing services to customers (not reselling). Separately, its material subsidiary SPOCHUB has secured an overseas customer for a new GPU-as-a-service project and has already received over ₹1,100 crore upfront. This amount will start being recognised as revenue only after the project goes live.We therefore base our investment case solely on the existing business, treating these two projects as potential upside not factored into earnings.Given the above and the evolving nature of the industry, high-risk investors can subscribe to the ESDS IPO.BusinessTwenty-one-year-old ESDS Software Solution provides the computing infrastructure that companies, banks and government bodies need to run their IT systems. Customers can rent computing power and storage from ESDS instead of buying their own servers. They can also keep their own servers at ESDS data centres and pay for space, power and connectivity. ESDS can manage customers’ IT systems and also sells software through the internet.ESDS also operates Swaraj Cloud, its patented India-based platform for businesses and government organisations seeking locally hosted computing and storage, with data hosted within India.Competition to ESDS principally include companies of Indian origin, such as CtrlS, Nxtra, Yotta, WebWerks, Cyfuture, E2E Networks and Sify Infinit Spaces.In FY26, roughly ₹44 of every ₹100 of ESDS’ revenue came from infrastructure and cloud services, ₹41 from managing customers’ IT systems and ₹15 from software. This mix is important. ESDS owns software and technology, but investors should not value the entire company like a software-as-a-service business.The company operates five data centres in Nashik, Navi Mumbai, Bengaluru, Mohali and Noida, covering over 75,000 sq ft. It served 2,501 customers in FY26 across banking and financial services, government and other businesses.ESDS also gives investors an unusually long financial trail through its September 2021 DRHP, April 2025 DRHP and August 2026 RHP. When it first filed for an IPO in 2021, FY21 revenue from operations was around ₹172 crore and net profit of ₹5.5 crore. The company subsequently slipped into losses in FY22 and FY23, before profitability began recovering in FY24. Revenue grew 26 per cent in FY25 and another 31 per cent in FY26, while PAT more than doubled from ₹55.6 crore to ₹120.8 crore in FY26.The improvement in operating profitability has been even sharper. EBITDA margin, which had fallen to around 23 per cent in FY23, recovered to around 36 per cent in FY24, 43 per cent in FY25 and nearly 50 per cent in FY26.There is some operating logic to this. Data centres, servers and skilled employees cost money even when capacity is not fully used. As revenue increases, these costs can be spread over a larger business, allowing profits to rise faster than sales. The sharp rise in managed-services revenue has helped as well.ProspectsESDS is now trying to build on this base through a combination of capacity expansion, new data centres and AI-related services.The company plans to open two new data centres in Kolkata by Q3 FY27 and Sahibabad by Q1 FY28. It is also using IPO proceeds to expand computing capacity at existing centres, including cloud servers, storage, networking equipment and high-end processors used for AI workloads. The proposed ₹576-crore investment is large relative to ESDS’ current scale, making utilisation of the new capacity an important driver of future returns.AI computing is another opportunity. Instead of buying very expensive processors themselves, customers can rent computing capacity needed to build and run AI applications. ESDS launched its managed AI-computing service in November 2025. The two large overseas projects announced subsequently could materially expand this business.Beyond infrastructure, ESDS plans to expand SPOCHUB’s digital marketplace with more industry-specific solutions and deepen its work with government and financial-sector customers.It is also targetting a transition to 100 per cent renewable energy over four years.The demand environment also appears supportive. ESDS has managed strong growth even as revenue from a large overseas banking customer fell sharply. Enterprise demand is strengthening with AI adoption, while its pipeline includes potential contracts substantially larger than those it has historically handled. Customers are also paying large advances to secure scarce computing capacity.ValuationAt 41.6 times post-issue FY26 earnings, ESDS is not inexpensive. But the valuation needs to be viewed in the context of both the company’s financial profile and how similar businesses are valued.Global valuations vary sharply depending on growth. Bloomberg consensus estimates point to next-year revenue growth of around 7 per cent for Ionos, against about 31 per cent for DigitalOcean and considerably higher growth for AI-focussed players such as E2E Networks, CoreWeave and Nebius. Their trailing EV/EBITDA multiples range from roughly 10-13 times for the likes of Ionos to over 40 times for DigitalOcean, with some faster-growing AI-focussed names valued substantially higher. ESDS, at around 13 times, sits near the lower end of this range despite having delivered 28 per cent revenue CAGR over FY24-26.These comparisons are not exact --- the companies differ considerably in geography, business mix and maturity --- but they provide useful context. In India particularly, E2E Networks possibly shows the scarcity premium investors are willing to assign to direct exposure to cloud and AI-computing infrastructure.The bigger risk for ESDS investors is not that a near-50 per cent EBITDA margin is unheard of. Global peers show that margins around 40-50 per cent and above can exist in parts of this industry. The question is whether ESDS can sustain its margin after the rapid expansion from 35.6 per cent in FY24 while simultaneously putting substantially more capital to work. New capacity must be utilised well enough to preserve healthy returns.Sharp dependence of recent growth on managed services and execution of the planned expansion also need watching. Despite rapid growth, ESDS’s revenue retention has moderated from FY24 levels, meaning new customer additions will need to contribute meaningfully if ESDS is to sustain its recent pace of growth.Though Indian markets are significantly less concentrated and more insulated from the AI boom-bust cycle, India has seen a surge in data centre announcements. A pullback in global AI capex could slow the buildout and hit exposed listed names.The IPO valuation can be justified largely on the existing business if growth, margins and returns remain healthy. The AI projects provide optionality.Published on August 27, 2026