Enviro Infra Engineers Limited’s Initial Public Offering (IPO) is currently open for subscription and will close on November 26, 2024. This IPO consists of both a fresh issue and an offer for sale (OFS), with the fresh issue aiming to raise Rs. 572.46 crore and the OFS targeting Rs. 77.97 crore. The total offer size is expected to reach Rs. 650.43 crore. The shares are likely to be listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on November 29, 2024.
Grey Market Premium (GMP) of Enviro Infra Engineers
As of November 25, 2024, the shares of Enviro Infra Engineers are trading at a 17.57% premium in the grey market, indicating strong demand from investors. The shares are being traded at Rs. 174, which is Rs. 26 more than the cap price of Rs. 148. The positive GMP signifies investor confidence in the company’s growth prospects and could be an encouraging sign for those considering investing in the IPO.
Company Overview: Pioneers in Water and Wastewater Treatment
Established in 2009, Enviro Infra Engineers Limited has carved a niche for itself in the water and wastewater treatment industry. The company specializes in designing, constructing, operating, and maintaining water and wastewater treatment plants (WWTPs) and water supply scheme projects (WSSPs) primarily for government authorities across India. Over the past seven years, Enviro Infra Engineers has successfully completed 28 projects, including 22 large-scale projects with capacities exceeding 10 MLD (Million Liters per Day), which highlights the company’s ability to execute complex and large-scale water treatment projects.
The company’s business model primarily revolves around government tenders, securing projects funded by national schemes like AMRUT (Atal Mission for Rejuvenation and Urban Transformation), NMCG (National Mission for Clean Ganga), and the Jal Jeevan Mission. Enviro Infra Engineers executes these projects under the Engineering, Procurement, and Construction (EPC) or Hybrid Annuity Model (HAM). The company’s water treatment processes comply with Zero Liquid Discharge (ZLD) norms, allowing treated water to be reused in various industries and sectors such as horticulture, industrial cleaning, and manufacturing. This positions the company as a key player in India’s push for water sustainability.
Financial Performance: Strong Growth and Impressive Margins
Enviro Infra Engineers has shown remarkable financial growth in recent years. For the fiscal year 2024, the company posted a revenue of Rs. 728.92 crore, reflecting a 115.59% increase from Rs. 338.10 crore in FY23. This rapid growth is indicative of the company’s expanding market share and successful execution of large-scale water treatment projects across India. Furthermore, the company’s net profit saw a significant rise of 101.05%, growing from Rs. 54.98 crore in FY23 to Rs. 110.54 crore in FY24.
Enviro Infra Engineers has consistently demonstrated strong performance with a Compound Annual Growth Rate (CAGR) of 80.81% in revenue and 78.09% in net profit over the past two years. The company’s revenue for the first quarter of FY25 (April-June 2024) stood at Rs. 205.18 crore, and its net profit was Rs. 30.78 crore. Despite some pressure on margins, with the EBITDA margin reducing from 24.16% in FY23 to 23.23% in FY24, the company continues to maintain a healthy net profit margin of around 15%.
IPO Objectives: Expansion and Debt Reduction
The proceeds from the IPO are aimed at several strategic objectives. A substantial portion of the funds, Rs. 181 crore, will be used to meet the company’s working capital requirements, ensuring it has sufficient liquidity to support its growing order book. Additionally, the company plans to invest Rs. 30 crore to expand its capabilities with the construction of a 60 MLD Sewage Treatment Plant (STP) under the “Mathura Sewerage Scheme” in Uttar Pradesh. Another Rs. 120 crore will be utilized to repay existing borrowings, which will help strengthen the company’s balance sheet and reduce financial leverage.
The remaining funds will be used for general corporate purposes, ensuring the company has the flexibility to execute its plans and maintain its growth trajectory.
Promoters and Offer for Sale (OFS)
Enviro Infra Engineers is led by experienced promoters Sanjay Jain, Manish Jain, Ritu Jain, and Shachi Jain, who have played an instrumental role in the company’s growth. As part of the IPO, these promoters are offering equity shares under the OFS. Sanjay Jain and Manish Jain are each offering 21,34,000 shares, while Ritu Jain and Shachi Jain are each offering 5,00,000 shares. The sale of these shares by the promoters allows them to partially monetize their holdings while providing liquidity to new investors.
Competitive Landscape and Market Positioning
In terms of competition, Enviro Infra Engineers faces stiff competition from well-established players such as EMS Limited, ION Exchange Limited, Va Tech Wabag Limited, and Vishnu Prakash R Punglia Limited, which also operate in the water treatment sector. Despite having lower revenue than some of its larger competitors, Enviro Infra Engineers boasts a higher return on equity (ROE) of 37.83% for FY24. This strong ROE demonstrates the company’s ability to generate superior returns on invested capital, an essential indicator of financial efficiency.
The company’s strengths lie in its proven track record of project execution, strong relationships with government bodies, and its expertise in advanced water treatment technologies. However, it faces challenges such as its heavy reliance on government contracts, which exposes it to regulatory risks and policy changes. Additionally, the company’s geographical diversification is limited compared to its larger peers, which could affect its ability to capture opportunities in other regions of India.
Risks and Considerations for Investors
Investors should consider several factors before subscribing to the IPO. While Enviro Infra Engineers has shown strong growth, its dependence on government contracts means that the company is exposed to potential delays in project approvals and changes in government policies. Additionally, fluctuations in raw material costs could impact the profitability of ongoing projects, especially if material prices rise unexpectedly.
The company’s limited geographical reach compared to its larger competitors is another potential risk, as it may restrict the company’s ability to compete effectively in other regions or expand its presence beyond India. The IPO proceeds will help address some of these challenges, but investors should weigh these risks against the potential rewards from participating in a growing and critical sector such as water treatment.
Conclusion: A Promising Investment Opportunity with Risks
Enviro Infra Engineers Limited’s IPO presents an exciting investment opportunity in the rapidly growing water and wastewater treatment sector, which is expected to play a crucial role in India’s sustainable development initiatives. With a proven track record of executing large-scale projects, strong financial growth, and plans for expansion, the company has the potential to deliver significant long-term value to investors.
However, potential investors should carefully assess the risks associated with regulatory dependencies, limited geographical diversification, and competition from larger peers. While Enviro Infra Engineers is well-positioned for growth, it’s essential for investors to consider both the opportunities and risks before subscribing to the IPO. With a strong order book, strategic use of IPO proceeds, and an expanding market, the company offers an intriguing investment opportunity in the infrastructure and water management sectors.
