Enviro Infra IPO review (May apply)

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Review By Dilip Davda on November 18, 2024

•    EIEL is in the business of designing, construction, operation and maintenance of water and waste water treatment plants and supply scheme with all related services.
•    It marked boosted growth from FY24 in its top and bottom lines. 
•    It has an order book worth Rs. 1906+ cr. as of June 30, 2024.
•    Based on FY25 annualized super earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Enviro Infra Engineering Ltd.  (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) 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 DisZLD) 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. The Company bids for tenders issued by State Governments and ULBs for developing WWTPs and WSSPs on an EPC or HAM basis. As on June 30, 2024, it had successfully developed 28 WWTPs and WSSPs across India in past seven (7) years which includes 22 projects with 10 MLD capacity and above.

It has an in-house team for designing, engineering and construction which makes it self-reliant on all aspects of business. The company 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 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 pre-qualification, both technical and/or financial, with joint venture partner at the time of the bid and where the bid is successful, it also executes the project with 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, the company was executing 5 WWTPs and WSSPs projects in partnership with joint venture partners.

In line with government policies and industry trends, it is taking various initiatives towards "Waste to Energy" in projects to reduce carbon footprint and contribute to environmental sustainability. It has installed solar power plants at some of its projects and the solar power generated by these plants is being used for captive utilisation or supplied to the power grid. Government authorities are also providing for the installation of Compressed Bio Gas (CBG) plant to produce CBG from STP in bids for new projects and EIEL is in the process of installing CBG plants at ongoing projects at Jodhpur and Jaipur in Rajasthan. The CBG generated and purified will be directly sold to the Oil Marketing Companies (OMCs) in public sector or used for power generation once STPs are established and running. By integrating solar power plants and/or Compressed Bio Gas (CBG) plants into projects, the company is now focussing on "Projects contributing to Sustainable Development". Out of existing Order Book of 21 WWTPs and WSSPs, 7 projects are "Projects contributing to Sustainable Development".

The company had an order book worth Rs. 1906.28 cr. as of June 30, 2024. As of the said date, it had 939 employees on its payroll, and is also hiring contract workers for various department as and when required. 

According to the management, since the company is in the position of offering all sort of waste water treatment under one roof with its product mix, it enjoys better margins and such trends will continue going forward. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 43948000 equity share of Rs. 10 each worth Rs. 650.43 cr. at the upper cap). The company has announced a price band of Rs. 140 - Rs. 148 per share. The issue consists of 38680000 fresh equity shares worth Rs. 572.46 cr. (at the upper cap) and an Offer for Sale (OFS) of 5268000 equity shares worth Rs. 77.97 cr. (at the upper cap). The issue opens for subscription on November 22, 2024, and will close on November 26, 2024. The minimum application to be made is for 101 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 25.04% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 181.00 cr. for working capital, Rs. 30.00 cr. for infusion of funds for its subsidiary EIEL Mathura Infra Engineers Pvt. Ltd. for building 60 MLS STP, Rs. 120.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The company has reserved 100000 equity shares for its eligible employees and offering them a discount of Rs. 13 per share, and from the rest, it has allocated not less than 50% for QIBs, not more than 15% for HNIs and not more than 35% for Retail investors. 

The sole Book Running Lead Manager (BRLM) to this issue is Hem Securities Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. Syndicate member for this issue is HEM Group's Hem Finlease Pvt. Ltd.

Having issued initial equity capital at par value, the company issued further equity shares in the price range of Rs. 40.00 - Rs. 332.00 per share between April 2010 and September 2023. It has also issued bonus shares in the ratio of 6 for 1 in May 2022, 1 for 2 in June 2022, and 4 for 1 in March 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.70, and Rs. 0.76 per share. 

Post IPO, company's current paid-up equity capital of Rs. 136.85 cr. will stand enhanced to Rs. 175.53 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2597.84 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted a total income/net profit Rs. 225.62 cr. / Rs. 34.55 cr. (FY22), Rs. 341.66 cr. / Rs. 55.34 cr.(FY23), and Rs.  738.00 cr. / Rs. 108.57 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a net profit of Rs. 29.97 cr. on a total income of Rs. 207.46 cr. Thus it marked sharp jump in its top and bottom lines from FY24 onwards. 

For the last three fiscals, the company has reported an average EPS of Rs. 5.95, and an average RoNW of 41.44 %. The issue is priced at a P/BV of 6.27 based on its NAV of Rs. 23.60 as of June 30, 2024, and is at a P/BV of 2.90 based on its post-IPO NAV of Rs. 51.01 per share (At upper cap). 

If we attribute annualized FY25 super earnings to post-IPO fully diluted equity base, then the asking price is at a P/E of 21.67 and based on FY24 earnings, the P/E stands at 23.90. Thus the IPO appears fully priced. Debt of Rs. 305 cr. as of June 30, 2024, raises some concern. 
 
For the reported financial periods, the company has reported PAT margins of 15.46% (FY22), 16.26% (FY23), 15.17% (FY24), 15.00% (Q1-FY25), but RoCE margins data is missing from the offer documents. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It adopted a dividend policy in June 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown EMS Ltd., ION Exchange, Va Tech Wabag, and Vishnu Prakash R., as their listed peers. They are trading at a P/E of around 24.4, 43.1, 40.5, and 27.9 (as of November 18, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The sole BRLM associated with the offer has handled 60 public issues in the past three fiscals, out of which 1 issue closed below the offer price on listing date.

Enviro Infra Engineers IPO FAQs