Denta Water and Infra Solutions (DWISL) is one of the key players in the field of water engineering, procurement, and construction (“EPC”) services. It is a growing water and infrastructure solutions company engaged in design, installation and commissioning of water management infrastructure projects with expertise in ground water recharging projects and lift irrigation projects. It is one of the few companies in India having experience and expertise in design, installation, commissioning, operations and maintenance of ground water recharging using recycled water. In addition, it also undertakes construction projects in the field of railways (improvement of infrastructure) and highways (roads and bridges construction).

It rendersa range of services from “concept-to-commissioning” and beyond to various water management projects to its clients by leveraging its diverse experience, core competencies and using the technical know-how. Its concept-to-commissioning services cater to a variety of sub-sectors and services in its domain areas, including some of the key areas comprising of ground water recharging, dams and reservoir engineering, lift irrigation, water supply and sanitation and urban and rural development.

Over the years, it has developed the expertise for servicing its clients at each stage of project development cycle. Its services for any given project include any one or a combination of (i) preliminary investigations and reconnaissance; (ii) feasibility studies, (iii) planning and project formulation; (iv) field surveys and testing of soil; (v) design; (vi) tender bidding consultancy; (vii) project management and construction supervision; (viii) formulation of operation and maintenance guidelines; (ix) engineering procurement consultancy, turnkey projects; etc. regarding water management projects.

It has a meritorious track record in infrastructure project installations, including groundwater recharging through recycled water, it has been a contributor to addressing the rising demand for water-related solutions in the country.

The company procures government contracts either through direct contracts (independently or as consortium partner through transparent competitive bidding process) or as sub-contracts. It participates in tenders for developing projects such as infrastructure for ground water recharging, lift irrigation, infrastructure for supplying drinking water to various habitations under “Jal Jeevan Mission” on a competitive basis.

Denta Waters have completed 32 water management projects out of which 11 projects as the main contractor, 1 project has been undertaken under a consortium / joint venture arrangement and 20 projects have been undertaken under a sub-contract arrangement with the main contractor.

Under the Jal Jeevan Mission, the company was awarded three projects, i.e., Kerehalli Drinking Water Project and Chikkabenakal Drinking Water Project and Rehabitation of MVS to Doddakowlande and other 55 Villages of Nanjangud Taluk which are in Karnataka. Furthermore, it secured contracts for lift irrigation projects in various regions, such as Makali, Makali Hosahalli, Krishnapura, Karnataka and neighbouring villages in the Channapatna Taluk of Ramanagar District, Karnataka.

As on November 30, 2024, the company had successfully covered 445.77 km of infrastructure for water management, pumping of secondary treated sewage water from adjoining cities of Bangalore, Mysore in the State of Karnataka, to replenish the dried lakes in adjoining districts such as Kolar, Chikkaballapura and Ramanagara in Karnataka and supplying of drinking water to peripheral habitations from reservoirs.

The infrastructure for water management project includes designing of project, construction and installation of jackwells including pump houses, laying of pipeline, electro-mechanic works, installation of pumps and installation of drinking water treatment plant.

The company as on November 30, 2024, have 17 ongoing projects constituting an aggregate contract value of Rs 1100.436 crore [ of which Rs 1066.752 crore is water management projects; Rs 33.684 crore is infra projects including railways & roadways]. As on November 30, 2024, out of total contract value of Rs 1100.436 crore, it has completed work amounting to Rs 347.985 crore and thus the outstanding order book is of Rs 752.451 crore.

The company though currently relies heavily on Karnataka for contracts, it intends to expand into other geographies such as Gujarat, Madhya Pradesh, Maharashtra and Uttar Pradesh to unearth additional opportunities beyond the confines of Karnataka.

The Issue and objects of the issue

The IPO is entirely a fresh issue of equity shares up to 75,00,000 with no offer for sale component.

The proceeds from its fresh issuance to the extent of Rs 150 crore will be utilized for meeting working capital requirements; and general corporate purpose, subject to the applicable laws.

Strength

Established expertise in water management projects with special focus on ground water recharging.

In-house expertise in designing and engineering of water management infrastructure projects

Outstanding order book as on Nov 2024 end was of Rs 752.451 crore, which translates into 3.15 times of FY24 revenue.

Water reuse and recycling have become increasingly important strategies in India due to the growing water scarcity and pollution challenges faced by the country driving investment.

Weakness

Order Book of it as on Nov 30, 2024, primarily comprises of GWR projects in Karnataka. Revenue contribution from government clients has increased from 18.25% in FY 2023 to 63.40% as of FY 2024.

Delays in completion of current and future projects and time overrun could have adverse effect on business prospects and results of operations. Currently the company is experiencing time overrun in 10 out of 17 of its ongoing projects.

Have experienced negative cash flows from operating activities in the past.

Steady decline in operating margin that stood at 33.2% in FY24 down from 43.3% in FY22.

C Mruthyunjaya Swamy, one of the promoters of the company in the capacity as a secretary of thePublic Works Department, Karnataka, in the past has been subjected to enquiry by the Lokayukta Police, Bangalore and initiation of certain legal proceedings by the Enforcement Directorate against him, which was subsequently disposed off.

Certain untraceable persons have filed complaints with SEBI and other authorities against the company and promoter, C Mruthyunjaya Swamy, with allegations including indulging in corrupt practices, misusing of authority by the promoter while being in public service and influencing the government officers in awarding the contracts to the company, among others.

The immediate relatives of promoters, who are deemed to be a part of the Promoter Group under the SEBI ICDR Regulations have not provided consent, information or any confirmations or undertakings pertaining to themselves which are required to be disclosed as part of the Promoter Group in this Red Herring Prospectus.

Have experienced high attrition rate in respect of its directors and KMP (key managerial personnel). Two Chief Financial Officers have resigned in the past year.

Statutory Auditors of it have included certain emphasis of matters in its Restated Financial Information.

Execute certain of projects through unincorporated joint ventures.

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 Shareholders.

Valuation

Consolidated re-stated revenue for the fiscal ended March 2024 stood higher by 37% to Rs 238.60 crore. With OPM contract by 520 bps to 33.2%, the growth at operating profit was 18% to Rs 79.14 crore. Finally, net profit was up by 19% to Rs 59.73 crore.

For the half year ended September 2024, net profit was Rs 24.20 crore on sales of Rs 97.78 crore.

The EPS for FY2024 on expanded equity (on the upper price band) was Rs 22.4. The PE on upper price band works out to 13.1 times and P/BV stood at 1.9 times.

In comparison, some of the companies that engaged in water projects including water/waste water treatment, desalination etc such as EMS, Enviro Infra, Welspun Enterprises, Vishnuprakash R Pungalia, Va Tech Wabag and Ion Exchange quotes at a PE of 32.1 times, 34.9 times, 28.3 times, 27.3 times, 40.3 times and 47.2 times of their consolidated FY24 EPS and a P/BV of 5.4, 10.5, 5.1, 3.4,4.4, 4.8 and 8.4.

Though not comparable on apple-to-apple basis, companies such as such as NCC, WPIL, KSB and Triveni Engg quote at a PE of 21.5 times, 14.5 times, 59.6 times and 22.3 times of its FY2024 EPS and P/BV 2.3, 5.1, 9.2 and 3.1.