Enviro Infra Engineers Limited - water recycling theme

Stock Opportunities Untested - but worth a good look
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Enviro Infra Engineers Limited is an Indian company that specializes in the design, construction, operation, and maintenance of water and wastewater treatment plants (WWTPs) and water supply schemes (WSSPs) for government authorities.

Here is the key information about the company:
The company focuses on government projects for WWTPs and WSSPs, executing them using EPC (Engineering, Procurement, and Construction) or HAM (Hybrid Annuity Model) models.

Their projects include sewage treatment plants (STPs), sewerage schemes, common effluent treatment plants (CETPs), and water treatment plants (WTPs), often incorporating zero liquid discharge (ZLD) technology.

Financials
Enviro Infra has seen consistent financial growth in recent years, with revenue from operations increasing at a compound annual growth rate (CAGR) of 80.58% from Fiscal Year 2022 to 2024.

FY2022 Revenue: â‚ą 22,352.51 lakhs
FY2024 Revenue: â‚ą 72,891.50 lakhs

Profit for the same period has also grown significantly, with a CAGR of 78.87%.
FY2022 Profit: â‚ą 3,455.03 lakhs
FY2024 Profit: â‚ą 11,054.41 lakhs

As of June 30, 2024, the company’s debt-to-equity ratio stood at 0.95.

Growth Strategies
Government Support: The company benefits from several government initiatives aimed at improving water and wastewater management in India, including the Jal Jeevan Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and the National Mission for Clean Ganga.

Expanding Project Portfolio: Enviro Infra is actively expanding the number and capacity of projects they undertake. They are also looking to increase their pre-qualification status to bid on larger projects.

Geographical Expansion: While currently operating in eight states, the company plans to extend its reach to new geographies across India.

New Initiatives: Enviro Infra is exploring “Waste to Energy” projects as part of their future plans.

Customer Base
Enviro Infra’s primary customers are government authorities and urban local bodies (ULBs)
The company derives almost all of its revenue from government clients.

Government initiatives:
Jal Jeevan Mission (JJM): This scheme aims to provide safe and adequate drinking water to all rural households in India through individual household tap connections by 2024. The company is already executing 5 projects under the JJM.

Atal Mission for Rejuvenation and Urban Transformation (AMRUT): AMRUT focuses on improving basic urban infrastructure, including water supply, sewerage, and drainage systems. As of June 30, 2024, the company was executing 5 projects under AMRUT.

National Mission for Clean Ganga (NMCG): This mission aims to rejuvenate the Ganga river and its tributaries by addressing pollution and improving water quality. The company is executing one project under NMCG and two projects under the Namami Gange Programme.

National River Conservation Plan (NRCP): NRCP is a centrally sponsored scheme that provides financial and technical assistance to state governments for the abatement of pollution in identified stretches of various rivers.

National Plan for Conservation of Aquatic Eco-systems (NPCA): This program focuses on the conservation and management of lakes and wetlands.

Swarnim Jayanti Mukhya Mantri Shaheri Vikas Yojana (SJMMSVY): This scheme is specific to the state of Gujarat and focuses on urban development, including infrastructure improvements. As Enviro Infra operates in Gujarat, this scheme could provide potential project opportunities for the company.

Waste to Energy Programme: This program promotes the generation of energy from waste, including biogas production from wastewater.Enviro Infra is exploring the integration of biogas plants into their sewage treatment projects.

Sustainable Alternative Towards Affordable Transportation (SATAT) program: This initiative encourages the production of Compressed Bio Gas (CBG) from various waste sources.It provides financial and technical assistance, making it attractive for Enviro Infra to incorporate CBG plants into their projects, as they are planning to do in Jodhpur and Jaipur.

Future Outlook
Enviro Infra is well-positioned to capitalize on the growing demand for water and wastewater treatment solutions in India. The company’s strong financial performance, experienced management team, and government support provide a solid foundation for continued growth.

Risks
Investing in Enviro Infra Engineers Limited carries significant risks due to its heavy reliance on government contracts, which exposes the company to policy changes and funding uncertainties.

Project execution challenges, including potential cost overruns and disputes, could also impact profitability.

Disclaimer: Invested after IPO and biased.

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Please provide insights on the management team of the company as well

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Manish Jain has significantly contributed to the growth of Enviro Infra Engineers Ltd. through his extensive experience in the water and wastewater treatment sector. As Managing Director, he has driven strategic initiatives, focusing on innovation and operational efficiency. His leadership has facilitated the execution of large-scale projects, enhancing the company’s market presence. Jain’s ability to navigate complex challenges and implement effective growth strategies has positioned the company for sustainable expansion in a competitive industry. His insights into market trends have also been pivotal in aligning the company’s objectives with emerging opportunities.

Manish Jain: He holds a Bachelor’s Degree in Chemical Engineering from Punjab University and has over 26 years of experience in the water and wastewater treatment industry. His expertise encompasses project execution, finance, and operational strategies, contributing significantly to the company’s growth.

Ritu Jain: She has a Bachelor’s Degree in Science (Home Science) and Education, along with a Master’s Degree in Science (Home Science) from Kurukshetra University. With over 7 years of experience in the industry, she leads the company’s Corporate Social Responsibility initiatives.

The promoter group holds approximately 70.02% of the total shares.

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Some excerpts from one of the recent interview on NDTV profit with the management (dated 18Nov2024)

The company is in the water, wastewater, and sewage treatment plant business and operates throughout India, currently in 10 states.

The company’s growth strategy includes:

  • List item Expanding geographically, as demonstrated by recent projects in Bangalore.
  • Implementing innovative technologies in sewage treatment plants to reduce power consumption
  • Integrating solar plants into STPs.
  • Converting waste into methane gas for power generation, promoting sustainability.

IPO Details and Use of Proceeds

The IPO opened on November 22nd and closed on November 26th, with a price band of Rs. 140 to Rs. 148. The company aims to raise Rs. 650 crores, with Rs. 572 crores as a fresh issue. The proceeds will be used for:

â—Ź Working capital requirements (Rs. 181 crore)

â—Ź Term loan repayment (Rs. 120 crore)

â—Ź Ham project in Mathura, awarded by U.P. Jal Nigam (Rs. 30 crore)

● Promoter’s equity contribution (Rs. 30 crore)

â—Ź GCP (Rs. 35 crore)

â—Ź Acquisition for inorganic growth (Rs. 10 crore)

Financials and Debt

As of FY24, the company’s total debt was Rs. 233 crore, with Rs. 90 crore attributed to a consolidated subsidiary. After subtracting the subsidiary’s debt, the remaining debt on March 31st is Rs. 143 crore. A significant portion of this debt, including working capital term loans and CC limits, will be repaid using the fresh issue proceeds. The company plans to become working capital self-sustainable through internal accruals. Future banking requirements will primarily consist of bank guarantees and non-fund-based needs.

Revenue Growth
The company has experienced significant revenue and profit growth between FY23 and FY24. This is mainly attributed to a large order from MP Jalnigam for water supply schemes worth Rs. 1.6 billion, which was executed over the past two years.

Order Book and Business Focus
The company’s order book is robust, standing at Rs. 1,906 crore as of June 2024. This includes:

  • Rs. 650 crore for WSSP projects from MP Jalnigam
  • The remaining portion for WWTPs, including both EPC and HAM projects.
  • Rs. 750 crore for Operation and Maintenance, which will continue for the next 5 to 15 years.

The company primarily focuses on government projects but also engages in private industry projects like common affluent treatment plants (CETPs). They have set up 7 CETPs for HSIADC in Haryana. The company believes government policies are encouraging the development of CETPs.

EBITDA Margins
The company has maintained consistent EBITDA margins of around 24% for the past three years. Margins are higher in operation and maintenance, HEM projects, and CETPs. The company’s focus on innovative technologies, energy-efficient equipment, solar power integration, and biogas generation contributes to higher EBITDA margins. Their in-house execution capabilities allow for faster project completion and cost savings, further supporting decent margins. The company expects to maintain these margins in the future.

Geographical Presence
The company derives the highest revenue from Madhya Pradesh (MP), followed by Uttar Pradesh (UP) and Rajasthan. They are currently working in 9 states and expanding their geographical presence with new projects in Jharkhand, Karnataka, Bangalore, and Odisha. They are also an L1 bidder for a common effluent treatment plant in Odisha, expecting to receive the order soon. The company aims to have a PAN-India presence.

Impact of Government Changes
The company’s business is not significantly affected by government changes. As water is an essential commodity, contracts and projects remain largely unaffected by political shifts. Historically, there have been no issues with contracts due to government changes, and the company continues to receive government support.

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Company declared super set of numbers for Q2 and H1.

Investor presentation :https://www.bseindia.com/xml-data/corpfiling/AttachLive/4ff527dc-bddb-4364-94c8-c5c1ace2b004.pdf

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Thanks for the detailed write up. Any idea how come they have negative working capital that too working with government

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Any thoughts on their cash generation which looks tepid. 175 total profit reported vs 30 odd CFO for the last 4 years

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As per December Concall:
Cash flow from operations was negative due to an increase in unbilled revenues and reduced trade payables.
Management expects cash flow to turn positive in future quarters as execution ramps up.

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Does anyone know how they are able to make 25% EBITDA Margins, even someone from Niveshaay asked the same question. But the answer was not explanative enough.

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10 Key Points: Investment Analysis of Enviro Infra Engineers Limited

  1. Strong Revenue Growth: The company achieved a 50% YoY increase in H1 FY25 revenue and expects continued growth due to a robust order book of â‚ą1,960 crores (execution) and â‚ą750 crores (O&M), ensuring revenue visibility for 2+ years.
  2. Industry-Leading Margins: EBITDA margins (~25%) are significantly higher than competitors, driven by in-house design capabilities, non-reliance on subcontractors, and innovative renewable energy initiatives.
  3. Alignment with Government Projects: Participation in schemes like Jal Jeevan Mission and AMRUT provides access to consistent project opportunities and long-term funding support from government allocations.
  4. Sustainability and Innovation: Adoption of waste-to-energy technologies and renewable energy solutions (e.g., biogas and solar) differentiates the company in a competitive market and enhances lifecycle project economics.
  5. High Sector Potential: The water and wastewater treatment market in India is growing rapidly due to increasing urbanization, industrialization, and environmental regulations, offering significant growth opportunities for the company.
  6. Negative Cash Flows: Temporary factors such as unbilled revenues, reduced creditor days, and delayed government payments have resulted in negative cash flows, posing a short-term liquidity concern.
  7. Working Capital Intensity: The business model requires high upfront costs for materials and execution, which could strain resources during periods of delayed payments or rapid expansion.
  8. Heavy Reliance on Government Contracts: Dependence on government projects makes the company vulnerable to delays or reductions in government spending, especially during election years or policy shifts.
  9. Execution Risks with Rapid Growth: The aggressive order book expansion and bidding for â‚ą4,000 crores in new projects could stretch resources, potentially affecting timely execution and quality.
  10. Long-Term Growth Prospects: The management aims to maintain a CAGR of 35-40% over the next 4-5 years, supported by a strong bidding pipeline, innovative capabilities, and efficient project delivery, making it a promising long-term investment with calculated risks.
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Company generates more margins than the competitor, company’s cash conversion cycle is negative while other competitors have it more than 200 days. Management says we design the projects by our own and don’t sub contract them. Company had a revenue of around 100 crores in FYE’21 which will be growing to around 1,000 crores in FYE’25 so revenue has grown around 10 times in 5 years and management is guiding 30% to 35% growth for next 4 to 5 years. All of these numbers and story seems like a wow, but if I play a role of devil’s advocate these numbers seems too good to be true.

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plz support with reason

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I am still tracking them, while many established players in the water management industry are losing margins, this one seems to be gaining them. I personally believe that Wabag is a far better water management company and I am not invested either in Enviro or wabag. But i have started scanning this whole space and Enviro seems to know what they are doing. But i have made a point not to invest in IPOs but Enviro is becoming undervalued quickly with the rising EPS. But the problem with such companies is that one actually needs to see how they operate and what their clients have to say about them. From that perspective, Wabag is a much stronger company but i will wait to announce any verdict on Enviro.

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Did anyone check Krystal integrated who entered and have projected 1000 crore evenue in waste water management - the company is owned by BJp MLC Prasad lad

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https://www.business-standard.com/amp/markets/capital-market-news/krystal-forays-into-waste-water-management-and-effluent-treatment-125021301558_1.html