Enviro Infra Engineers (EIEL) 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). 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. The WSSPs include Water Treatment Plants (WTPs) alongwith pumping stations and laying of pipelines for supply of water (collectively, “Projects”).

The company bids for tenders issued by State Governments and ULBs for developing WWTPs and WSSPs on an EPC or HAM basis. The states or Urban Local Bodies (ULBs) under their respective schemes fund the WWTPs and WSSPs along with the Central Government. 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.

As on Jun 30, 2024, it had successfully developed 28 WWTPs and WSSPs across India in past seven (7) years which included 22 projects with 10 MLD capacity and above across states of Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, Uttarakhand and Chhattisgarh. Of the 28 WWTPs and WSSPs completed in last 7 years about 7 are with Joint Venture partners.

The order backlog (excluding O&M) as of end of June 30, 2024, stood at Rs 1906.2806 crore and of which HAM order backlog is Rs 194.70 crore and balance is EPC. Additionally operating and maintenance (O&M) contracts, which is in almost all cases an inherent part of its EPC and HAM project contract stood at was Rs 753.9706 crore (unexecuted portion). The O&M order book is spread across 40 projects having a term from 1 years to 15 years as end of Jun 2024. Of the 40 O&M contracts the O&M activities for 16 projects are ongoing as of end of June 2024.

The company is presently executing 5 projects under the Atal Mission for Rejuvenation and Urban Transformation, 5 projects under the Jal Jeevan Mission, 2 projects under the Namami Gange Programme and 1 project under the National Mission for Clean Ganga. As on June 30, 2024, it was executing 5 WWTPs and WSSPs projects in partnership with joint venture partners.

It is presently executing projects in eight (8) states namely, Gujarat, Rajasthan, Delhi, Jharkhand, Karnataka, Uttar Pradesh, Chattisgarh and Madhya Pradesh.

The company, along with its joint venture partners, has been awarded two (2) HAM projects having a contract value of Rs 233.7210 lakh and Rs 240.01 crore, respectively from Uttar Pradesh Jal Nigam, under the Namami Gange Programme, for cleaning, rejuvenation and protection of river Ganga at Bareilly and Mathura, Uttar Pradesh. While the Bareilly project is completed ahead of the scheduled time by more than two months and for Mathura project the SPV have already been sanctioned term loan facilities to the tune of Rs 87.62 crore by banks.

Further, the company along with its JV partner have been awarded another HAM based STP project at Saharanpur, Uttar Pradesh on July 26, 2024, for design, development and operation & maintenance of STP of 135 MLD along with associated infrastructure.

All the ongoing and completed projects are government projects in the last 7 years; except for 3 completed projects, i.e., construction of 10 MLD STP and 5 MLD STP at Udaipur, Rajasthan; 1000 KLD STP at Jind Haryana and 40 KLD STP at Rohini, Delhi which were completed in the year 2019-20, 2024 and 2021, respectively.

The company is selective in expanding to new locations and look at new geographies where it can deliver quality services without experiencing significant delays and interruptions due to local considerations. It looks to expand its business operations to other regions of the country, especially the East and South India. It has recently been awarded projects in the States of Jharkhand and Karnataka and has submitted bids for projects in the States of Odisha, West Bengal and Goa.

The company currently have 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. It increase its focus on qualification, bidding/execution of projects of higher size to upto 50-200 MLD for STPs and 20-50 MLF for CETPs. Execution of higher capacity projects has lesser competition, better margins, economies of scale and better utilization of resources. The company will pursue larger projects of higher MLD, both in partnership with other players in the industry or independently. Large sized projects will require requisite higher level of competencies in designing and execution of such projects.

Under the backdrop of supportive regulatory and industry trends, the company has taken initiatives towards transforming “Waste to Energy” in its projects and focus on its commitment to renewable energy, maximizing energy efficiency, reducing carbon footprint, and enhancing, protecting and contributing to environmental sustainability. It is also committed to offering solutions which aid in producing green energy which are economically viable. Out of its existing order book of 21 WWTPs and WSSPs, 7 projects are “Projects contributing to Sustainable Development”.

The Issue, Object of the Issue

The Initial Public Offer comprises fresh issue of up to 38680000 equity shares of Rs 10 each, and an offer for sale of up to 5268000 equity shares of Rs 10 face value each.

Entire portion of offer for sales is by promoters, i.e., Sanjay Jain (2134000 equity shares), Manish Jain (2134000 equity shares), Ritu Jain (500000 equity shares) and Shachi Jain 500000 equity shares).

Of the net proceeds from the fresh issue of equity shares, about Rs 181 crore will be used to meet working capital requirement, Rs 30 crore for infusion of fund in EIEL Mathura Infra Engineers (EIEL), a subsidiary of the company and SPV for 60 MLD STP project at Mathura (in UP) through Hybrid Annuity based PPP project, Rs 120 crore for repayment/prepayment in full or in part of certain outstanding borrowings and balance for general corporate purposes.

Total outstanding as at June 30, 2024, stood at Rs 305.5894 crore and this includes unsecured loans of about Rs 49.1838 crore.

Strengths

Strong experience in executing EPC/HAM projects in WWSPs/WSSPs with successful completion of about 28 WWTPs/WSSPs in the past 7 years.

Strong projects order book at about 2.6 times of its FY2024 revenue. Additionally healthy O&M order book provides recurring revenue over 1-15 years. Revenue from O&M contracts accounted for 4.01% and 3.31% in FY24 and Q1FY2025, respectively.

Rely on its in-house designing, engineering and construction teams for project execution

Water, being a precious thing, along with stringent environmental protection policies/legislation/regulations, greatly encourages water reuse and ZLD (Zero Liquid Discharge) solutions, leading to greater government/industrial expenditure.

Ambitious initiatives of the Indian government including the Jal Jeevan Mission-Har Ghar Jal, AMRUT, NAMAMI Gange Programme, and SWAJAL have expanded the market opportunity for the company.

Have the technical and financial qualifications to bid for CETP projects and upto 200 MLD STP projects

Use of advanced technologies in the construction and installation of WWTPs and WSSPs.

Weakness

Business growth relies on government contracts in the WWTPs and WSSPs spaced based on EPC/HAM awarded through tenders under competitive bidding process and the ability of the company to qualify independently/jointly with other partners, availability of enough projects, timely award of the tendered contract as well as ability of the company to win it at competitive bids.Project bid/win percentage stood at 58%, 41%, 17% in FY2024, FY2023 and FY2022, respectively.

Typically, EPC projects are exposed to various implementation and other risks, including risks of time and cost overruns, and uncertainties, which may adversely affect business, financial condition, results of operations, and prospects.

Undertakes projects in JV or executes projects with sub-contractors and thus any execution delays,atthe JV partner/ client level, will materially impact the fortune of the company.

Cash flow from operating activities stood negative in FY2024 and quarter ended June 2024.

Construction of 8.52 MLD STP at Hoskote from Karnataka Urban Water Supply & Drainage Board faces delay in execution due to reasons not attributable to the company and the unexecuted order book of this project amounting Rs 3.66 crore is part of the order book.

Business transactions of the company are with government or government funded entities in India, which may expose it to risk, including additional regulatory scrutiny.

Failure to increase the size of projects and pre-qualification may affect growth prospects

Issued bank guarantees (including letter of credit) amounting to Rs 257.0032 crore towards securing its financial/ performance obligations under ongoing projects as of June 30, 2024.

Its application for trade marks “Enviro” and “EiE” as a word market has received objections even though is application for “EiE’ as a device name and “Empowering Green Planet” as a word mark have been registered by Trademark authorities. Thus inability to protect or use intellectual property rights may adversely affect its business.

Failure to achieve financial closures and funding arrangements within a stipulated period for Hybrid Annuity Model (HAM) projects may attract penalty and may also lead to termination of the contract.

Valuation

Consolidated re-stated revenue for the fiscal ended March 2024 stood higher by 116% to Rs 728.92 crore. With OPM contracting by 100 bps to 23.2%, the growth atoperating profit was107% to Rs 169.32 crore. Finally the net profit after MI was up by 101% to Rs 110.54 crore.

For the quarter ended Jun 2024, the net profit after MI was Rs 28.16 crore on a sales of Rs 205.18 crore.

The EPS for FY2024 on expanded equity (on the upper price band) was Rs 6.3. The PE on upper price band works out to 23.5 times and P/BV stood at 2.9 times.

In comparison, EMS quotes at a PE of 28.1 times of its FY24 EPS and a P/BV and EV/sales of 5.2 and 5.3 times respectively. Vishnu Prakash R Punglia, which is into water supply projects, is quoting at a PE of 27.8 times of its FY2024 consolidated EPS and P/BV of 4.7 times and EV/sales of 2.6 times. Similarly Ion Exchange quotes at a PE of 46.4 times of its FY2024 EPS and P/BV and EV/sales of 8.9 times and 4.1 times.

Va Tech Wabag, a desalination player in water segment quotes at a PE of 45.1 times of its FY2024 consolidated EPS. Welspun Enterprises that is also have presence in large WWTPs quotes at a PE of 21.3 times and P/BV and EV/sales of 2.7 times and 2.5 times. WPIL, which is a pump manufacturer as well as undertakes JJM projects, quotes at a PE of 11.8 times of its consolidated FY2024 EPS. Though not comparable on apple-to-apple basis, Thermax and Triveni Engineering Industries, which have presence in water/waste-water treatment projects, quote at PE of 88.4 times and 20.2 times of their respective FY2024 consolidated EPS.