Enviro Infra Engineers IPO opens in 2 days: 10 things to know before you subscribe to ₹650 crore issue

The initial public offering (IPO) of Enviro Infra Engineers, the seventh mainboard IPO of November, is scheduled to open on Friday. The company aims to raise ₹650.43 crore from investors through this offering, which consists of a fresh issue of 3.87 crore shares worth ₹572.46 crore, along with an offer for sale of 0.52 crore shares, amounting to ₹77.97 crore.

Retail investors looking to participate in the IPO must bid for at least one lot of shares, which constitutes 101 shares. Investors can bid for up to 13 lots. The minimum bid amount is ₹14,948, while the maximum is ₹1,94,324.

At least 50 percent of the issue is reserved for Qualified Institutional Buyers (QIBs), 35 percent for retail investors, and the remaining 15 percent for Non-Institutional Investors (NIIs).

As the company prepares to go public, potential investors must understand the key details outlined in the Red Herring Prospectus (RHP), which provides valuable insights into the company's financials, growth strategy, and market positioning.

In this article, we will break down the key highlights from the RHP, offering the crucial details needed to make an informed decision about this IPO.

About Enviro Infra Engineers

The company 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 and 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”).

In addition to the execution of projects independently, the company also enters into joint ventures with other infrastructure and construction companies to jointly bid and execute projects.

Market opportunities analysis

The water and wastewater treatment market is poised for growth driven by sustainability initiatives, new governmental efforts, and public-private collaborations. The adoption of reduce-recycle-reuse strategies addresses global concerns over water scarcity and pollution. This approach minimizes water wastage, reduces pollution, and optimizes resource utilization, aligning with regulatory standards while promoting environmental conservation.

India's government-backed initiatives, such as the Swachh Bharat Abhiyan and Namami Gange projects, are transforming the water management landscape. These programs focus on enhancing wastewater treatment infrastructure and driving research into advanced technologies supported by substantial funding.

Additionally, public-private partnerships (PPPs) are playing a vital role by bringing private sector investments, technological expertise, and operational efficiency to water treatment projects.

These collaborations enable cost-effective and innovative solutions, contributing to the development and maintenance of infrastructure and improving overall resource management. Together, these factors create significant opportunities for sustainable growth in the sector.

Objectives of the issue

The company intends to utilise the proceeds from the fresh issue for several purposes. These include meeting its working capital requirements and infusing funds into its subsidiary, EIEL Mathura Infra Engineers Private Limited (EIEL Mathura), for constructing a 60 MLD sewage treatment plant under the "Mathura Sewerage Scheme" in Uttar Pradesh through the Hybrid Annuity-Based PPP Mode.

Additionally, the proceeds will be used to repay or prepay certain outstanding borrowings, as well as to fund inorganic growth through unidentified acquisitions and general corporate purposes.

Order book

The company bids for tenders issued by state governments and urban local bodies (ULBs) to develop wastewater treatment plants (WWTPs) and water supply system projects (WSSPs) on an EPC or HAM basis.

As of June 30, 2024, it has successfully developed 28 WWTPs and WSSPs across India over the past seven years, including 22 projects with capacities of 10 MLD or higher. Its order book includes 21 WWTPs and WSSPs with a total value of ₹1,906.28 crore as of the June quarter.

Government-dependent revenue model

The company's business is substantially dependent on WWTPs and WSSPs funded by the Central and State Governments, and we derive our revenues from the contracts awarded to us. These are primarily dependent on the budgetary allocations of the government.

There are multiple policy initiatives that the company will be capitalizing on, such as the Jal Jeevan Mission (JJM), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the National Mission for Clean Ganga Phase 2 (NMCG), the requirements of the pollution control board for industrial units, the National River Conservation Plan (NRCP), the National Plan for Conservation of Aquatic Ecosystems (NPCA), the Swarnim Jayanti Mukhya Mantri Shaheri Vikas Yojana (SJMMSVY), etc.

Consistent financial performance

The company has demonstrated a consistent financial performance over the years with growth in terms of revenues and profitability. Over the last three financial years, the company has focused its attention towards expanding its projects both in terms of number and capacity, which has resulted in an increase in its revenue from operations and profits.

Its revenue from operations has grown at a CAGR of 80.58% from ₹22,352.51 lakhs in Fiscal 2022 to ₹72,891.50 lakhs in Fiscal 2024. Our profit for this period has also grown at a CAGR of 78.87% from ₹ 3,455.03 lakhs in fiscal 2022 to ₹11,054.41 lakhs in fiscal 2024. As of June 30, 2024, its debt-to-equity ratio was 0.95. The stable growth in revenue and profits enable it to fund the strategic initiatives and pursue opportunities for growth.

Peer comparison

The company competes with several players in the WWTPs and WSSPs business who bid for these projects, including companies like VA Tech Wabag, Ion Exchange India, EMS, and Vishnu Prakash R Punglia.

Key risks

Dependence on Government Budgetary Allocations: The majority of the company's revenues are derived from Central and State Government projects. Any reduction in budgetary allocations could adversely impact the company's financial performance.

Order Book Limitations: The company's Order Book reflects the estimated contract value of the unexecuted portion of existing EPC/HAM contracts. However, this may not accurately represent future revenue, as actual income could be significantly lower than the estimates, potentially affecting operational results.

Challenges in Diversification Initiatives: The company has expanded its offerings with "Waste to Energy" projects, including solar power plants and compressed biogas (CBG). However, failure to successfully implement these initiatives could hamper future growth and business prospects.

Book-running lead managers

Hem Securities is the book running lead manager of the Enviro Infra Engineers IPO, while Bigshare Services is the registrar for the issue.

Allotment and listing details

The allotment for Enviro Infra Engineers' IPO is expected to be finalized on November 27, with refunds being processed on the same day. The company will credit shares to the demat accounts of eligible allottees on November 28.

The shares are scheduled to be listed on both the BSE and NSE on November 29.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.