Concord Enviro Systems coming with IPO to raise upto Rs 509.80 crore

Concord Enviro Systems

• Concord Enviro Systems is coming out with a 100% book building; initial public offering (IPO) of 72,72,466 shares of Rs 5 each in a price band Rs 665-701 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 December 19, 2024 and will close on December 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 5 and is priced 133.00 times of its face value on the lower side and 140.20 times on the higher side.
• Book running lead managers to the issue are Motilal Oswal Investment Advisors and Equirus Capital.
• Compliance Officer for the issue is Priyanka Aggarwal.

Profile of the company

Concord Enviro Systems is a global provider of water and wastewater treatment and reuse solutions, including zero liquid discharge (ZLD) technology. It has in-house capabilities to develop solutions across the entire value chain including designing, manufacturing, installation and commissioning, operation and maintenance (O&M) and digitalization solutions including Internet of Things (IoT). The sources through which it generates its revenue include (i) sale of systems and plants (ii) operations and maintenance of installed plants, and (iii) supplying consumables and spares for installed plants. Its business operations include Systems and Plants, operations and maintenance and Consumables and Spares. It has also implemented digitalization solutions (including IoT) to provide data capture and analysis platforms that enable real-time monitoring, troubleshooting and preventative maintenance of its installed systems and plants.

It is an integrated provider of wastewater treatment and ZLD solutions, with focus upon energy optimization and recovery helping industries achieve water conservation and sustainability goals. Its reach extends to diverse regions, with exports to countries in North America, Latin America, Africa, Middle East and Southeast Asia and a large customer base of 310 customers across the globe as of August 31, 2024. It also provides its solutions to customers on a turnkey basis. Its integrated solutions incorporate its own custom designs for systems and plants including effluent treatment plants, anaerobic digestors, membrane bio-reactors, sewage treatment plants, membrane-based systems including ultra-filtration (UF), nano-filtration (NF), reverse osmosis (RO), desalination systems and waste heat evaporators (WHE). In addition, it offers its customers a comprehensive suite of O&M services including providing consumables and spare parts.

The company has two manufacturing facilities, one located at Vasai in Maharashtra, and the other at Sharjah in the UAE. It develops its solutions through its in-house R&D team, which comprises 25 employees as of August 31, 2024, which designs industry-specific membranes for its systems and develops new technology and processes. As of August 31, 2024, it had been awarded four patents in India and had filed nine additional patent applications. Its R&D is focused on reducing the operational cost of carbon footprint of ZLD. It achieves this through energy recovery by anaerobic digestion, ammonia removal and reducing energy required for ZLD by employing its WHE and industry specific membranes. 

Proceed is being used for:

• Investment in its wholly owned Subsidiary, Concord Enviro FZE (CEF) for financing its capital expenditure requirements for the greenfield project to develop an assembly unit to assemble systems and plants for treatment of water, waste water and related membrane modules (the U.A.E Project)
• Investment in its wholly owned Subsidiary, Rochem Separation Systems (India) Private Limited (RSSPL) for financing its capital expenditure requirements for the brown field project to expand the manufacturing facilities, storage and supporting activities (the Vasai Project)
• Funding capital expenditure requirements of the company for purchase of plant and machinery
• Investment in its wholly owned Subsidiary, Concord Enviro FZE for prepayment or repayment, in full or in part, of all or a portion of certain outstanding borrowings availed by Concord Enviro FZE
• Investment in its wholly owned Subsidiary, Concord Enviro FZE, for funding working capital requirements of Concord Enviro FZE
• Investment in its joint venture, Roserve Enviro Private Limited to grow its pay per use/pay as you treat business
• Investment in technology and other growth initiatives for access to new markets
• General corporate purposes

Industry Overview

The water and wastewater management market in India was valued at US$ 7.3B in FY24 and is expected to reach $12.8B by FY29, growing at a CAGR of 12.0% from FY24 to FY29. This growth is driven by the economic imperative of efficient water management. As the concerns over water scarcity intensify, industries and municipalities face increasing pressure to adopt efficient wastewater treatment practices. This leads to stringent regulations on effluent treatment and the escalating concern over water scarcity, prompting a significant shift towards reducing freshwater usage across various sectors. As the world's third-largest coal producer, India faces significant environmental challenges that are spurring demand for advanced wastewater treatment solutions. In 2021, India generates 72,368 MLD of sewage daily, but only 20,235 MLD (28%) of this is treated, despite STPs having an installed capacity of 31,841 MLD (44%). This untreated sewage poses substantial costs for municipalities, including increased public health risks, environmental degradation, and higher expenses for emergency clean-ups. Improved sewage treatment capacity is crucial to reduce these costs and ensure fiscal stability.

Over time, population growth, industrial expansion, and infrastructure development have intensified the depletion of natural water sources, leading to water stress in various regions worldwide. Consequently, strict environmental regulations are now in place to curb overburdening and pollution of natural resources. To comply, advanced technology is necessary to manage wastewater before discharge and implement effective water conservation practices. ZLD systems are used in a variety of applications, including cooling tower blowdown, ion exchange regeneration, flue gas desulfurization, treatment of leachate, municipal wastewater treatment, and industrial effluent management from sectors like textiles, food and beverage, mining, refineries, gas-to-liquid, and power generation. One innovative solution, ZLD, has emerged as a recent breakthrough in wastewater treatment. ZLD eliminates the need for wastewater discharge into the environment and optimizes wastewater treatment, recycling, and reuse. By employing ZLD desalination, up to 75-90% of wastewater can be recovered, significantly reducing the demand for fresh water.

The growth of the zero liquid discharge (ZLD) market is driven by the increasing adoption of these systems, largely due to stringent government regulations on wastewater discharge. Wastewater discharge destabilizes ecosystems and harms water bodies. ZLD systems aim to eliminate all liquid waste from a system, producing clean water suitable for reuse. The captured solid waste can be repurposed for various industrial processes. The clean water obtained from ZLD treatment systems is utilized as a coolant and in various industrial applications such as cooling tower blowdown, boiler blowdown, and oil refinery effluent treatment. Concord, an integrated solutions provider supported by backward-integrated manufacturing facilities and comprehensive wastewater reuse solutions, plays a key role in this sector by offering advanced ZLD systems and technology. As an integrated water treatment system and plant provider with its own manufacturing facilities and O&M services offering, Concord Enviro is well positioned to capitalise on opportunities in water reuse and ZLD markets in India.

Pros and strengths

Expertise in ZLD technology in India: The company is an integrated solutions provider of industrial wastewater reuse and ZLD solutions with a global presence. Its in-house capabilities span across the value chain including design, component manufacturing, installation and commissioning, O&M including digitalization solutions including IoT technology for analysis of customer data. As of Fiscal 2024 it was among the top two largest ZLD solutions providers in India in terms of the revenue and through its recycling solutions have been supporting its customers to achieve their water conservation and achieve sustainability goals. In addition, it is one of the major Indian manufacturer of offshore desalination systems, which is well-positioned to contribute to these efforts.

Integrated solutions provider supported by backward integrated manufacturing facilities: The company is a leading global provider of water and wastewater treatment and reuse solutions, including zero liquid discharge (ZLD) technology, in terms of revenue from operations, as on March 31, 2024. It design, manufacture, install, operate and maintain industrial wastewater reuse and ZLD solutions. Its integrated solutions incorporate its own industry specific designs and include its in-house designed and manufactured membranes and systems and plants (including effluent treatment plants, Membrane based plants and waste heat evaporators). It is an end-to-end solutions provider for the entire wastewater treatment needs of its customers across a diverse set of industries such as pharmaceutical, chemicals, food and beverage, defence and offshore, automotive and auto ancillaries, steel and textiles. Its end-to-end solutions encompass a range of integrated offerings. It develops and provides industry specific designs, cast its own membranes, and ensure that its systems and plants are fully integrated.

Established presence in international markets: It has an established presence in international markets, which complements its domestic business and present opportunities for growth. It employs a differentiated approach for entering and deepening its presence in each of its markets so as to address the unique characteristics of each market, such as, its regulatory landscape, market size, competitive landscape and scope for its products. It exports its products and deliver its services across geographies. As on August 31, 2024, its reach has grown across diverse regions, with exports extending to countries in North America, Latin America, Africa, and Southeast Asia. As of August 31, 2024, it exported its products and delivered its services to over 14 countries in Asia, North Africa, Latin America and Europe. Its major international customers are Diageo Mexico Operaciones, S.A. De C.V. and AB Mauri. Its focus on quality and large range of global certifications enables it to have a wide global presence.

Diversified customer base across multiple industries and geographies: The company has a diversified customer base across industries and geographies. As of August 31, 2024, it had 289 domestic customers and 21 international customers. It provides its wastewater treatment products and services to industries such as pharmaceutical, chemicals, food and beverage, defence and offshore, automotive and auto ancillaries, steel and textiles industries, amongst others. it also has built a strong international customer base. It uses its operations in the UAE. to spearhead its international business. As of August 31, 2024, it exported its products and delivered its services to over 14 countries in Asia, North Africa, Latin America and Europe. Its major international customers are Diageo Mexico Operaciones, S.A. De C.V. and AB Mauri. During the five-month period ended August 31, 2024 and Fiscal 2024, Fiscal 2023 and Fiscal 2022, its consolidated revenue outside India, as a percentage of its revenue from operations were 44.39%, 41.77%, 24.04% and 22.48%, respectively.

Risks and concerns

Maximum revenue comes from limited customers: The company is dependent on and derive a substantial portion of its revenue (more than 50%) from its top 10 customers. During August 31, 2024 and Fiscal 2024, its revenue from its top 10 customers was Rs 1,127.41 and Rs 2,779.95 million, which is 54.69% and 55.95% of its revenue from operations respectively. The company expects that in the future a limited number of customers will continue to comprise a significant percentage of its operating revenue. Consequently, if it is unable to expand its sales volumes to existing customers, maintain its relationship with its key customers or diversify its customer base, it may experience material fluctuations or decline in its revenue and reduction in its operating margins, as a result of which its business, results of operations and financial condition could be materially and adversely affected.

Dependent on the recurring revenue from its O&M business: The company is dependent on the recurring revenue from its O&M business. Its O&M agreements are for terms of one to two years, with an option to renew thereafter. Its agreements include, details of services to be provided, quality standards, warranties to be provided by the company, period of time for provision of services and price. As its O&M agreements expire, it must renew or renegotiate the contracts, and if it is unable to renew or renegotiate them on acceptable terms, it may lose its revenue from that customer. Its inability to renew or renegotiate license agreements with its existing O&M customers may materially and adversely affect its business, results of operations and financial condition.

Sale of systems and plants are subject to seasonality: The company’s sale of systems and plants are subject to seasonality, which may contribute to fluctuations in its results of operations. In that regard, a significant proportion of its systems and plants sales are made in the last quarter of the fiscal year, i.e. January to March on account of the ensuing summer period, wherein the customers have to be prepared to be able to meet their water requirements. Another factor impacting is the customers wanting to place their orders before the expiry of their capital expenditure budgets. Its revenues and results of operations may therefore vary significantly in the future. It is possible that seasonal variations in its revenue generation and cost incurrence will be affected by market developments. Any fluctuation in its revenues generated and costs incurred, whether due to seasonal factors or otherwise, could materially and adversely affect its business, results of operations and financial condition.

Huge working capital requirement: The company required sizeable amounts of working capital for its continued operation and growth. In August 31, 2024 and Fiscal 2024, its total outstanding working capital loans were Rs 1,442.45 million and Rs 1,303.67 million, which were 22.54% and 20.77% of its total assets, respectively. Its inability to meet its working capital requirements could have a material adverse effect on its business, results of operations and financial condition. Further, any surplus production on account of inaccurate forecasting of customer requirements and failure to manage inventory could adversely affect its business, results of operations and financial condition.

Outlook

Concord Enviro Systems is a global water and wastewater treatment and reuse solutions provider, including ZLD technology. the company has served over 353 domestic and 24 international customers in pharmaceuticals, chemicals, food and beverage, defence, automotive, steel, and textiles, with a presence in two countries. On the concern side, the company is dependent on and derive a substantial portion of its revenue from its top 10 customers. Cancellation by customers or delay or reduction in their orders could have a material adverse effect on business, results of operations and financial condition. It also has a number of Government customers which exposes it to various risks inherent in doing business with them, which may adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 72,72,466 equity shares of Rs 5 each. The issue has been offered in a price band of Rs 665-701 per equity share. The aggregate size of the offer is around Rs 483.62 crore to Rs 509.80 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 44.76% from Rs 3,432.19 million in Fiscal 2023 to Rs 4,968.59 million in Fiscal 2024. Moreover, the company’s profit for the year increased by 655.22% from Rs 54.87 million in Fiscal 2023 to Rs 414.39 million in Fiscal 2024.

The global industrial wastewater recycling and reuse market is influenced by regulatory frameworks, technological advancements, market demand, and sustainability initiatives and is valued at $80.6 billion in CY23, the market is projected to reach $120.0B by CY28, with a CAGR of 8.3%. In order to capitalize on this expected growth in demand for water and wastewater treatment systems and plants, the company is expanding its capacity for the manufacture of membrane modules, WHE modules and containerised plants by building a new assembly unit near its existing facility in Sharjah. Going forward, the company aims to grow its industrial wastewater reuse business by adding new sectors with high water consumption such as paper mills, refineries, common effluent treatment plants (CETPs), power plants solar panel manufacturing and cleaning and treated sewage plants.