Concord Enviro Systems (CESL) is a global provider of water and wastewater treatment and reuse solutions, including zero liquid discharge (“ZLD”) technology.

CESL have 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 company generates revenue through (i) sale of systems and plants (ii) operations and maintenance of installed plants, and (iii) supplying consumables and spares for installed plants. The systems and plants business of the company consists of manufacture and sale water and wastewater treatment equipments/systems, reuse and ZLD of systems and plants and turnkey solutions and includes effluent treatment plants, anaerobic digestors, membrane bioreactors, sewage treatment plants, membrane-based systems including ultra-filtration (“UF”), nano-filtration (“NF”), reverse osmosis (“RO”), desalination systems and waste heat evaporators (“WHE”).

CESL is an integrated provider of wastewater treatment and ZLD solutions, with a focus on energy optimization and recovery helping industries achieve water conservation and sustainability goals. The 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.

The company also providesits solutions to customers on a turnkey basis. Integrated solutions of the company incorporate its own custom designs for systems and plants including effluent treatment plants, anaerobic digestors, membrane bioreactors, sewage treatment plants, membrane-based systems including ultra-filtration (“UF”), nano-filtration (“NF”), reverse osmosis (“RO”), desalination systems and waste heat evaporators (“WHE”). 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 installed systems and plants. Leveraging its expertise in anaerobic digestion technology, it in April 2024 entered a business initiative for designing and installation of CBG (compressed biogas) Plants for its customers. In addition, CESL offersits customers a comprehensive suite of O&M services including providing consumables and spare parts (including membranes, plants chemicals and consumables).

Of the FY24 revenue, about 59.61% were from systems & plants, 20.80% from sale of consumables and spare parts and 19.59% from O&M services. Of the 59.61% revenue from Systems & plants about 57.98% is from turnkey contracts and 1.63% from pay per use basis.

As of August 31, 2024, it serviced over 289 domestic customers and 21 international customers across a diverse set of industries such as pharmaceuticals, chemicals, food and beverage, defence and energy, automotive and auto ancillaries, steel and textiles, and have a presence in two countries. Of the FY24 revenue about 16.28% came from Pharmaceuticals, 10.51% from Chemicals, 39.56% from Foods & Beverages, 0.16% from Leachate, 1.68% from Textiles, 6.71% from Defence and 25.11% from others. Further revenue from government customers stood at 8.82%, 6.51% and 5.73% in 5MFY25, FY24 and FY23, respectively, and the balance are from private sector customers.

As on August 31, 2024, the reach has grown across diverse regions, with exports extending to countries in North America, Latin America, Africa, and Southeast Asia. In terms of geography of the FY24 revenue about 58.23% came from India and balance 41.77% from outside India.

O&M contracts of the company are typically for a term of one to three years. As of August 31, 2024, it had O&M contracts with 146 customers. Moreover, as of August 31, 2024, it provided O&M services to 47.10% of its client base, developing long-term relationships and creating value for customers.

CESL service both Indian and Multinational customers such as Diageo Mexico Operaciones, S.A. De C.V., Grasim Industries Limited, AB Mauri, Anthem Biosciences Private Limited, Bhopal Glues and Chemicals Private Limited, KasyapSweetners Private Limited, LANXESS India Private Limited, Puja Spintex Private Limited, SFC Environmental Technologies Private Limited, SMS Limited and Tagros Chemicals India Private Limited.

Further CESL is currently executing projects for multinational companies like Diageo Mexico Operaciones, S.A. De C.V. that include implementing a ZLD solution for their distillery in La Barca, Jalisco, Mexico and a ZLD solution for another customer at their factory in New York, United States of America.

CESL have two manufacturing facilities both housed under its WoS, one located at Vasai in Maharashtra, India, and the other at Sharjah in the UAE. The Sharjah facility is housed under its Subsidiary, Concord Enviro FZE and that of Vasai was housed under its subsidiary Roserve Separation Systems.

In order to capitalize on expected growth in global demand for water and wastewater treatment systems and plants, CESL is expanding its capacity for the manufacture of membrane modules, WHE modules and containerized plants by building a new assembly unit near its existing facility in Sharjah. The construction of the Assembly Unit is scheduled to be completed within a period of 12 – 16 months and is expected to commence assembly operations by May 2025 and date of commencement of commercial operations is September 1, 2026.

The company has a strong R&D team that facilitates designs industry-specific membranes for its systems and develops new technology and processes. As of August 31, 2024, the company had been awarded four patents in India and had filed nine additional patent applications. Its R&D effort is focused on reducing the operational cost of carbon footprint of ZLD.

ZLD solutions of the company using its UHPRO systems and advanced WHE systems reduce total energy demand for ZLD by approximately 97.00%. WHE technology consumes less energy and offers lower O&M costs than the traditional methods of water purification like multi – effect evaporators. The company developed this technology in-house, and it was the first to offer innovative UHPRO technology that reduces energy consumption by 30% and enhances water recovery rates.

Revenue contribution from repeat customers was 92.82% and 78.54% of its revenue from operations respectively in FY24 and FY23.

The Issue, Object of the Issue

The Initial Public Offer comprises fresh issue of equity shares of Rs 5 face value up to Rs 175 crore, and an offer for sale of up to 4640888 equity shares of Rs 5 face value each.

Of the OFS, the sale by promoters were 454520 equity shares [ Prauas Goel (150600 equity shares), Prerak Goel (150500 equity shares), Pushpa Goel (92420 equity shares), Nidhi Goel (31500 equity shares) and Namrata Goel (29500 equity shares) and that by AF Holdings, the Investor selling shareholders were 4186368 equity shares.

Of the net proceeds from the fresh issue of equity shares, about Rs 25 will be used towards investment in its wholly owned subsidiary (WoS), 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”); Rs 10.505 crore towards investment in its WOS i.e. 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”); Rs 3.07 crore towards funding capital expenditure requirements of the company for purchase of plant and machinery; Rs 50 crore towards 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; Rs 20 crore towards investment in its wholly owned Subsidiary, Concord Enviro FZE, for funding working capital requirements of Concord Enviro FZE; Rs 10 crore towards Investment in its joint venture, Roserve Enviro Private Limited to grow its pay per use/pay as you treat business; Rs 23.5 crore towards investment in technology and other growth initiatives for access to new markets; and balance towards general corporate purposes.

Strengths

Expertise in ZLD technology in India and well placed to harness global industry opportunities

The order book of the company stood strong at Rs 501.746 crore (up from Rs 463.192 crore as end of Mar 2024), which translates into about 1.01 times of its FY24 revenue. Of the current OB about 74.50% comprises system and plants; 3.21% from consumables and spares orders; and 22.29% from O&M services orders.

Integrated solutions provider supported by backward integrated manufacturing facilities

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.

Diversified customer base across multiple industries and geographies

Recurring revenue from O&M business as well as significant sales contribution from sales of spare parts.

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.

Weakness

Is dependent on project awards which are subject to cancellation and changes in scope of services, cost overruns and delays that may adversely affect the business operations of the company.

PAT margin at 0.25%, 8.34%, 1.60%, and 5% for 5MFY25, FY24, FY23 and FY22 has fluctuated wildly.

Capacity utilization for modules is lower at 40.18% at Vasai and 30.82% at Sharjah in FY24 and for Systems at Vasai stood at 36.5%.

The Top 1/5/10 customers accounted for 41.99%, 53.83% and 62.49% of the revenue in FY24 reflecting significant revenue concentration.

About 53.27% and 54.34% of total raw materials purchased in FY24 & 5MFY25 are from overseas. So, any shortfall in the supply of components and raw materials may adversely affect the pricing and supply of products and have an adverse effect on its business.

Water reuse and zero liquid discharge technology is subject to rapid change and if the company is not able to keep abreast of the technological changes and new product instructions are unable to capitalize upon opportunities and this impact the growth of the company.

Have subsidiaries that have incurred losses in FY24, FY23 and FY22.

have in the past entered related party transactions and may continue to do so in the future, which may potentially involve conflicts of interest with the equity shareholders

There is an outstanding legal proceeding involving the logo of its company.

There have been certain instances of delays in payment of statutory dues by the company and its subsidiaries in the past.

Certain Joint Ventures of the company are not wholly owned by the company and present risks that the joint venture partners will fail to meet their obligations or that the company will have conflicts with its joint venture partners.

Face foreign exchange risks that could adversely affect its results of operations as a portion of its revenue and expenditure is denominated in foreign currencies.

Tariffs and trade barriers and international sanctions could adversely affect its exports.

Significant 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 to other water intensive industries may affect growth prospects

Valuation

Consolidated re-stated revenue for the fiscal ended March 2024 stood higher by 45% to Rs 496.86 crore. With OPM expand by 140 bps to 13.9%, the growth atoperating profit was 60% to Rs 68.96 crore. Finally, the net profit was up by 655% to Rs 41.44 crore.

For the 5MFY25 period ended Aug 2024, the net profit was Rs 0.52 crore on sales of Rs 206.17 crore.

The EPS for FY2024 on expanded equity (on the upper price band) was Rs 20.4. The PE on upper price band works out to 34.4 times and P/BV stood at 2.9 times.

In comparison, Ion Exchange quotes at a PE of 54.2 times of its FY2024 EPS and P/BV and EV/sales of 10.4 times and 4.6 times. Va Tech Wabag, a desalination player in water segment quotes at a PE of 50 times of its FY2024 consolidated EPS with its P/BV and EV/Sales stand at 6.4 times and 4.2 times respectively.

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 96.9 times and 25.4 times of their respective FY2024 consolidated EPS. Praj Industries quotes at a PE of 55 times of its FY24 EPS. Similarly, Enviro Infra and EMS quotes at a PE of 61.6 times and 35.8 times of its FY24 EPS respectively.