Envirotech Systems coming with IPO to raise Rs 30.24 crore

Envirotech Systems 

• Envirotech Systems is coming out with an initial public offering (IPO) of 54,00,000 equity shares in a price band Rs 53-56 per equity share.
• The issue will open on September 13, 2024 and will close on September 18, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.30 times of its face value on the lower side and 5.60 times on the higher side.
• Book running lead manager to the issue is Share India Capital Services.
• Compliance Officer for the issue is Pallvi Sharma.

Profile of the company

Envirotech Systems is a leading acoustic products manufacturing organization specializing in noise measurement and control for industrial and commercial applications. Incorporated in 2007, it has expanded its capabilities to include innovative acoustical product design and manufacturing. With over 98 employees and a network of technical experts, it offers cost-effective solutions for various acoustical challenges in industrial, commercial, architectural, and environmental markets. The company’s comprehensive services encompass research, cost-benefit analysis, and engineering solutions to provide with the most efficient noise abatement solutions.

The company is committed to excellence and customer satisfaction through the use of the latest technology and continuous quality improvement. With a track record of over various successful projects in industries such as Oil & Gas, Manufacturing, Power Generation, Cement & Steel, Automobile, and Construction, the company continues to expand both domestically and internationally. To drive innovation and cost-effectiveness, its well-established R&D department employs computer-aided tools and efficient personnel. The company’s research activities focus on market research, continual product development, and improved product and production technologies. The company delivers professional and concise solutions for noise control needs.

Proceed is being used for:

• Purchase land and building for setting up factory 
• Funding of working capital requirements of the company 
• General corporate expenses 
• Issue expenses

Industry Overview

India’s Acoustics market i.e. NVH (Noise, Vibration, and Harshness) Testing market has valued at $141 million in 2023 and is anticipated to project robust growth in the forecast period with a CAGR of 7.33% through 2029. The Noise, Vibration, and Harshness (NVH) Testing market in India have been experiencing significant growth and transformation in recent years, reflecting the country's dynamic industrial landscape and increasing focus on product quality and performance. NVH testing is a critical aspect of product development and quality assurance across various industries, and India is no exception to this global trend. This burgeoning market is shaped by a multitude of factors, including the rapid expansion of the automotive, aerospace, consumer electronics, and construction sectors, all of which rely heavily on NVH testing to ensure their products meet stringent noise and vibration standards.

India's automotive industry, one of the largest in the world, has witnessed a surge in NVH testing activities. As Indian consumers become increasingly discerning and prioritize vehicle comfort and noise reduction, automakers and suppliers are investing significantly in NVH testing to meet these expectations. This is particularly relevant in the context of India's diverse and challenging road conditions, where NVH testing plays a pivotal role in enhancing the driving experience. Furthermore, as the country transitions towards cleaner and more sustainable transportation solutions, such as electric vehicles (EVs), NVH testing is indispensable in optimizing the acoustic performance of these vehicles, ensuring they are not only eco-friendly but also comfortable and quiet.

The Indian acoustic insulation industry is poised for growth due to factors such as increasing urbanization, construction activities, stringent noise regulations, and rising awareness of noise pollution. With the construction, industrial, and transportation sectors driving demand, market players are investing in innovative solutions to meet the evolving requirements. Regulatory compliance and sustainability considerations will shape the industry's future, fostering the adoption of advanced acoustic insulation technologies and practices.

Pros and strengths

Integrated manufacturing facility: The company do continuous endeavor to maintain the requisite infrastructure and technological upgradation for the smooth running of the manufacturing process as well as to cope up with the changing market demand situation. There is a continuous change in the technology and the markets are very dynamic to the change in technology. It keeps itself technologically upgraded with the latest machines and infrastructure. 

Well-developed distribution network: The company has developed and implemented a wide range of networking channels throughout the industry and society to strengthen the scope of identifying core customer base and designing right marketing strategies for procurement and liaising of projects to deliver customized solutions for clients. The company’s distribution and marketing network ensures its product availability to its customers translating into efficient supply chain, focused customer service and short turnaround times for product delivery.

Quality assurance and control: Quality control through trained inspectors with respect to quality and final delivery. The company has excellent record of providing quality services which makes the company unique from its competitors. 

Risks and concerns  

Substantial revenue comes from limited customers: The company is a manufacturing company engaged in the sale of acoustic insulation heavy machines used in sound control and reduction. It sells its products to various industry segments mainly, construction, real estate and infrastructure, at various locations in India. For the financial years ended March 31, 2024, financial years ended March 31, 2023 and March 31, 2022 its top ten customers accounted for around 50.43%, 26.83% and 43.26% of its total revenue from operations. The loss of a significant customer would have a material adverse effect on its financial results. A significant number of its customers are big companies in their industry having multiple suppliers for their products and it cannot assure that it can maintain its current levels of business from these customers or that it will be able to replace these customers in case it loses any of them. 

Dependent majorly on top 10 suppliers for procurement of raw materials: The company’s top 10 suppliers constitute 50.10%, 54.53%, and 73.35% of total purchase volume Financial Year ended March 31, 2024, for the Financial Year ended March 31, 2023 and Financial Year ended March 31, 2022, respectively for procurement of raw materials. It has not entered into any long-term supply agreement for procurement of such traded goods. In case of any disruption in supply of traded goods from these suppliers/vendors or its procurement of traded goods on terms that are not favorable to it; will adversely affect its operations and financial cost. Further in case the company is unable to procure the requisite quantities of traded goods well in time and at competitive prices due to volatility in the prices of raw materials, the performance of the company may be affected, thus adversely affecting its business, prospects, results of operations and financial condition.

Huge working capital requirement: The company’s business is working capital intensive including fund requirement for payment for purchases of various products across different brands and product verticals. Hence, major portion of its working capital is utilised towards debtors and inventory. The company’s debtors for the FY24, FY23 and FY22 was around 92.95% and 176.77% and 153.75% of the total net worth respectively in each year. The company’s inventories for the FY24, FY23 and FY22 was around 10.53%, 3.76 %, 10.71% of the total net worth respectively in each year. If the company’s management fails to accurately evaluate the credit worthiness of its customers, it may lead to bad debts, delays in recoveries and / or write-offs which could lead to a liquidity crunch, thereby adversely affecting its business and results of operations. A liquidity crunch may also result in increased working capital borrowings and, consequently, higher finance cost which will adversely impact its profitability.

Outlook

Envirotech Systems manufactures noise measurement and control solutions for industrial and commercial applications. The company offers its services across India and has a track record of successful projects in industries such as oil and gas, manufacturing, power generation, cement and steel, automotive and construction. Early entry into the Acoustic Insulation sector has given the company a distinct competitive advantage. Moreover, the company has entered into strategic partnerships with industry experts that enhance its technical expertise and market knowledge. All product ranges undergo rigorous testing and receive certifications from recognized government bodies that confirm their quality and reliability. On the concern side, substantial portion of the company’s revenues has been dependent upon its few customers. The loss of any one or more of its major clients would have a material adverse effect on its business operations and profitability. Moreover, the company is highly dependent on its suppliers for uninterrupted procurement and sale of its traded goods and any disruption of supply from such entities may affect its business operations.

The company is coming out with a maiden IPO of 54,00,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 53-56 per equity share. The aggregate size of the offer is around Rs 28.62 to Rs 30.24 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2023-24 stood at Rs 4,687.95 lakh whereas in Financial Year 2022-23 the same stood at Rs 2,874.78 lakh representing an increase of 63.07% primarily due to an increase in revenue from operations and installation charges. Restated Profit after tax for financial year 2023-24 was Rs 1,142.88 lakh as compared to Rs 257.34 lakh in the financial year 2022-23, representing a significant increase of 344.12%.

The company envisages long term growth by building long term relations with customers. In line with this vision, the company is implementing a business strategy with the following key components. The company’s strategy will be to focus on capitalizing on its core strengths and expanding the operations of its business. It intends to focus on its existing projects with specific emphasis on the following factors as business and growth strategy. The company’s business is a by-product of relationships. This is a continuous process in its organization and the skills that it imparts in its people give importance to customers. It aims to enhance the growth by leveraging its relationships and further enhancing customer satisfaction. It plans to increase its customers by meeting orders in hand on time, maintaining its customer relationship and renewing its relationship with existing buyers.