Enviro Infra Engineers coming with an IPO to raise upto Rs 650 crore

Enviro Infra Engineers

• Enviro Infra Engineers is coming out with a 100% book building; initial public offering (IPO) of 4,39,48,000 shares of Rs 10 each in a price band Rs 140-148 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on November 22, 2024 and will close on November 26, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 14.00 times of its face value on the lower side and 14.80 times on the higher side.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Piyush Jain.

Profile of the company

Enviro Infra Engineers is in the business of designing, construction, operation and maintenance of Water and Wastewater Treatment Plants (WWTPs) and Water Supply Scheme Projects (WSSPs) for government authorities/bodies. WWTPs include Sewage Treatment Plants (STPs), Sewerage Schemes (SS) and Common Effluent Treatment Plants (CETPs) while WSSPs include Water Treatment Plants (WTPs) along with pumping stations and laying of pipelines for supply of water (collectively, Projects). The treatment process installed at most of the STPs and CETPs is Zero Liquid Discharge (ZLD) compliant and the treated water can be used for horticulture, washing, refrigeration and other process industries. WWTPs and WSSPs are partly funded by the Central Government under schemes like the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and fully funded under the National Mission for Clean Ganga (NMCG) for projects in urban areas. WSSPs are similarly funded by the Central Government schemes like the Jal Jeevan Mission (JJM) for rural areas of the country. The states or Urban Local Bodies (ULBs) under their respective schemes fund the WWTPs and WSSPs along with the Central Government.

It has an in-house team for designing, engineering and construction which makes it self-reliant on all aspects of its business. It has a team of 180 engineers who are supported by third-party consultants and industry experts to ensure compliance and quality standards laid down by the industry and government agencies & departments. It also has its own team for civil construction works thereby reducing dependence on third parties. The scope of its services typically includes design and engineering of the projects, procurement of raw materials, execution at site with overall project management up to the commissioning of projects. Post commissioning, operations and maintenance of these plants for a certain period of time is generally a part of the award. It has a team of dedicated engineers and personnel focused on operations and maintenance of completed projects.

In addition to the execution of projects independently, it also enters into joint ventures with other infrastructure and construction companies to jointly bid and execute projects. Joint ventures or partnerships enable it to achieve prequalification, both technical and/or financial, with its joint venture partner at the time of the bid and where the bid is successful, it also executes the project with its joint venture partner considering the technical skill and qualification of the joint venture partner required to execute a particular project. As on June 30, 2024, it is executing 5 WWTPs and WSSPs projects in partnership with its joint venture partners.

Proceed is being used for:

• Meeting the working capital requirements
• Infusion of funds in its subsidiary, EIEL Mathura Infra Engineers Private Limited (EIEL Mathura) to build 60 MLD STP under project titled 'Mathura Sewerage Scheme' at Mathura in Uttar Pradesh through Hybrid Annuity Based PPP Mode
• Repayment/prepayment in full or in part, of certain of its outstanding borrowings
• Funding inorganic growth through unidentified acquisitions and general corporate purposes

Industry Overview

The wastewater treatment industry is experiencing significant growth and evolution driven by a convergence of factors ranging from urbanization and industrialization to regulatory imperatives and heightened environmental awareness. At its core, wastewater treatment is vital for maintaining water quality, safeguarding public health, and preserving aquatic ecosystems. As urban populations expand and industrial activities intensify globally, the volume of wastewater generated continues to rise, necessitating more advanced treatment solutions to mitigate its environmental impact. One of the primary drivers of growth in the wastewater treatment sector is the increasing demand for efficient purification technologies capable of addressing diverse sources of contamination. From residential sewage to industrial effluents, wastewater contains a myriad of pollutants, including organic matter, chemicals, and pathogens, which must be effectively removed before discharge. This demand for comprehensive treatment solutions is propelling innovation in the industry, fostering the development of advanced processes and technologies aimed at achieving higher levels of treatment efficiency.

The Global Water and Wastewater Treatment market is expected to grow at a CAGR of 6.10% in terms of value to reach $521.97 Billion in 2033 from $306.33 Billion in 2024. The global water and wastewater treatment market is experiencing a significant surge in demand, driven by several key factors that underscore the critical importance of efficient and sustainable water management practices. One of the primary drivers behind this uptick in demand is the escalating need for clean and potable water due to population growth, urbanization, and industrialization. As the world's population continues to expand, particularly in urban areas, the strain on existing water resources intensifies, necessitating robust treatment solutions to ensure the availability of safe drinking water and to mitigate environmental pollution.

Furthermore, increasing awareness about water-related health risks and environmental degradation has prompted governments, regulatory bodies, and industries to prioritize water treatment initiatives. Stringent regulations and standards regarding wastewater discharge and water quality have propelled investments in advanced treatment technologies and infrastructure upgrades across various sectors such as municipal, industrial, and commercial. These regulations aim to curb waterborne diseases, protect ecosystems, and promote sustainable water usage practices. The rise of digitalization and technological advancements has also played a pivotal role in driving the demand for water and wastewater treatment solutions. The integration of digital technologies, such as Internet of Things (IoT), artificial intelligence (AI), and data analytics, has revolutionized the water industry by enabling real-time monitoring, predictive maintenance, and optimization of treatment processes. This digital transformation has not only enhanced operational efficiency but also reduced operational costs and improved overall system performance.

Pros and strengths

In house designing, engineering and execution team: The company has been focusing on design capabilities for complex and critical projects such as process description, process calculations, hydraulic calculations, design codes and standards, master drawing schedule, drainage design, STP facilities layout, process flow diagram, hydraulic flow diagram, mass balance diagram, process & instrumentation diagram, tentative single line diagram and electrical load list. This capability enables it to correctly bid with project specifications and provide quality services in a timely and cost-effective manner. The company’s engineering expertise and technology driven processes has enabled it to deliver on the projects in accordance with the designs and specifications of the particular project whether it’s a WWTP or WSSP. It offers a diverse range of design and engineering capabilities for designing of STPs based on various technologies, i.e. Upflow Anaerobic Sludge Blanket Reactor (UASB), Activated Sludge Process (ASP), Moving Bed Biological Reactor (MBBR), along with BNR removal.

Increasing presence in existing geographies with new projects: In the past 7 years the company has increased its presence in the states where it was initially awarded projects like Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, Uttarakhand and Chhattisgarh. It focused on bidding projects in these states and were successful in being awarded number of projects after the initial award. It increased its ability and capability across these states in execution of projects awarded by various authorities and have developed deep relations with authorities across these states. It is presently executing projects in eight states namely, Gujarat, Rajasthan, Delhi, Jharkhand, Karnataka, Uttar Pradesh, Chattisgarh and Madhya Pradesh. It has gained significant knowledge and experience in the eight states that it has developed projects which offers it an advantage in further penetrating other areas and districts of these states where new WWTP and WSSP projects are coming up. It intends to leverage its reputation, knowledge and experience in developing projects in other areas of these states where it not yet present.

Diversified order book of projects across India: The company has developed expertise and capability in executing diverse projects like WWTPs including CETPs, STPs & SS and WSSPs, both on EPC and HAM basis, aggregating into an Order Book of 21 WWTPs and WSSPs for aggregate value of Rs 1,90,628.06 lakh. Consistent growth in its order book has materialized due to its continued focus on Projects and its ability to successfully bid and win new Projects. Its experience in designing, engineering, construction, operations and maintenance of Projects, technical capabilities, timely performance, reputation for quality and timely delivery, financial strength as well as the price competitiveness has enabled it to successfully bid and win projects. Its capabilities as an established player allows it to focus on Projects with EPC/ HAM and O&M components. Post the commissioning of the project, O&M provide steady cash flows and adds to the company’s margins.

In-house execution capabilities with timely delivery: The company has an established track record of installing projects timely and in an efficient manner. Its focus is to leverage its in-house designing and execution capabilities to complete projects in a timely manner while maintaining high quality of engineering and construction. Its project management teams, working in conjunction with the design and engineering team, ensures operational efficiencies through overall supervision of the manufacturing and project execution process. Its track record of successful completion of complex projects in a timely manner has allowed it to grow its business over the years. It has the three important ingredients required by any company in its industry i.e. an in-house design and engineering team, skilled manpower to execute projects in a timely manner and strong post completion team for operations and maintenance of completed projects.

Risks and concerns

Significant revenue comes from WWTPs and WSSPs: The company generates significant revenues from Water and Wastewater Treatment Plants (WWTPs) & Water Supply Scheme Projects (WSSPs). The company derived Rs 7841.82 lakh, Rs 20,296.00 lakh, Rs 23,378.45 lakh and Rs 20,480.62 lakh constituting 38.22%, 27.84%, 69.15%, and 91.63% of its revenues for three months’ period ended June 30, 2024 and for Fiscals 2024, 2023, and 2022, respectively from WWTPs and Rs 11,997.99 lakh, Rs 49,669.60 lakh, Rs 8,682.67 lakh and Nil constituting 58.48%, 68.14%, 25.68% and Nil of its revenues for three months period ended June 30, 2024 and for Fiscals 2024, 2023, and 2022 respectively from WSSPs. Any reduction in budgetary allocation to this sector may affect the number of projects that the government authorities/bodies may plan to develop in a particular period. Its business is directly and significantly dependent on projects awarded by them.

Business is working capital intensive: The company’s working capital requirements for the three months’ period ended June 30, 2024 and Fiscals 2024, 2023 and 2022 on the basis of its restated standalone financial statements amount to Rs 47,086.59 lakh, Rs 37,876.80 lakh, Rs 12,339.79 lakh and Rs 7,573.22 lakh, respectively. Further, its working capital requirements for Financial Year 2025 are estimated at Rs 75,339.89 lakh out of which an amount of Rs 18,100 lakh will be funded out of the Proceeds from the Fresh Issue, whereas the balance, if any, would be arranged from its internal accruals and/or borrowings. The company requires a significant amount towards working capital requirements which is based on certain assumptions, and accordingly, any change of such assumptions would result in changes to its working capital requirements. A significant amount of working capital is required to finance the purchase of raw materials, equipment, mobilization of resources and other work on projects before payment is received from clients. If the company experiences insufficient cash flows to meet required payments on its working capital requirements, there may be an adverse effect on the results of its operations.

Business transactions are with government funded entities which led to additional regulatory scrutiny: The company’s business is primarily dependent on projects in the WWTPs and WSSPs which are usually undertaken by government undertakings. It provides EPC services both, on a fixed-sum turnkey basis and on an item rate basis. Lumpsum turnkey projects are implemented for a fixed fee, irrespective of the changes in the bills of quantity (BOQ), however in some contracts carry price adjustment formula for escalation if the prices of raw materials, equipment, labour and other inputs increase/decrease. Item Rate projects are implemented on price per unit of each of the BOQ items, therefore, whenever there are changes in BOQ, the contractor is paid based on the unit rate quoted. It also executes certain projects on HAM basis, operate them during the concession period and subsequently transfer the projects to the concessioning authority. In relation to such contracts, it may be subject to additional regulatory scrutiny associated with commercial transactions with government owned or controlled entities. Further, in certain instances, it may face delays associated with collection of receivables from government owned or controlled entities.

Projects in diverse geographical regions may expose it to various challenges: As on June 30, 2024, it has successfully developed 28 WWTPs and WSSPs across India in past seven years which includes 22 projects with 10 MLD capacity and above. As of June 30, 2024, its order book includes 21 WWTPs and WSSPs with aggregate value of Rs 1,90,628.06 lakh and its O&M order book includes 40 WWTPs and WSSPs with an aggregate value of Rs 75,397.06 lakh. The company is presently executing projects in eight states namely, Gujarat, Rajasthan, Delhi, Jharkhand, Karnataka, Uttar Pradesh, Chattisgarh and Madhya Pradesh. Further, the development of WWTPs and WSSPs in these diverse geographies may be challenging on account of its lack of familiarity with the social, political, economic and cultural conditions of these regions, language barriers, difficulties in staffing and managing operations and its reputation in such regions. It may also encounter additional unanticipated risks and significant competition in these diverse geographical areas with different projects which may adversely affect its business, operations, and financial condition.

Outlook

Enviro Infra Engineers was established in 2009 and is engaged in the design, construction, operation, and maintenance of WWTPs and WSSPs for government agencies/entities. The company has in-house execution capabilities with on-time delivery and an established track record of consistently increasing eligibility for high-value project tenders. Also, the company is growing presence in existing regions with new projects. On the concern side, the company derived significant revenue from Water and Wastewater Treatment Plant and Water Supply Scheme Projects. Any reduction in budgetary allocation to this sector may affect the number of projects that the government authorities/bodies may plan to develop in a particular period. Its business is directly and significantly dependent on projects awarded by them. Moreover, the company’s business is working capital intensive. If it experiences insufficient cash flows to meet required payments on its working capital requirements, there may be an adverse effect on the results of its operations.

The company is coming out with a maiden IPO of 4,39,48,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 140-148 per equity share. The aggregate size of the offer is around Rs 615.27 crore to Rs 650.43 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased significantly by 115.59% to Rs 72,891.50 lakh in Fiscal 2024 from Rs 33,810.20 lakh in Fiscal 2023. The increase is primarily due to increase in revenue from Contracts of about 117.54%, increase in Revenue from operation and maintenance of about 223.45% and unbilled Revenue from Contracts of about 120.29%. Moreover, it recorded significant increase of 96.19% in restated profit after tax from Rs 5,533.89 lakh in Fiscal 2023 as compared to Rs 10,856.95 lakh in Fiscal 2024.

The company’s primary focus is to strengthen its prospects in executing WWTP and WSSP projects. It will continue to focus on the designing, construction, operation and maintenance of Projects while seeking opportunities to further increase the size of its projects from the current 50 to 200 MLD for STPs and 20 to 50 MLD for CETPs. It will continue to bid for WWTPs and WSSPs both on EPC and HAM basis. It has executed projects, both construction and upgradation in the range of 5 to 100 MLD in case of STPs and 3 to 26 MLD in case of CETPs. Execution of high capacity projects has lesser competition, better margins, economies of scale and better utilization of sources. Going forward, the company intends to capitalize on its experience and project execution expertise and continue to selectively pursue larger Projects, both independently and in partnership with other players in the industry. Increase in the size of projects will also lead to the company becoming pre-qualified for larger projects of higher MLD.