Envirotech Systems Limited- Acoustics

The Company:

Envirotech Systems Limited is a company engaged in the business of acoustic solutions. They claim to be a leader in this niche area. Their capability to provide noise control solutions is spread over a number of domains. Envirotech is a manufacturer of noise control products and provider of acoustic solutions, both in India and overseas. The company specializes in customized acoustic enclosures for turbines, compressors, centrifugal blowers, cooling towers, and other industrial as well as commercial applications.

The Business:

Management has described the business as,

“I again repeat that we are the solution provider for several noise related problems and issues. So there are three basically verticals, one is an engineering acoustic, there’s a lot of noise equipments as you stated like the turbine, blowers, compressors and all. That are being manufactured at our organization and we provide the acoustic housing to control the noise. So beside that engineering acoustic, there are lot of opportunities for us in the project because not only these machines but several utilities also making a lot of noise like with the current urban development, there are several cooling towers, we are executing few crores of project at Bengaluru, at BALCO, at Korba, where they are facing some cooling noise. So it’s a primary project where we are providing some good works and the barriers. So yes, the SQUs are customized and designed which depends upon the site requirement and the constraint. So besides the enclosures, we also do acoustic duos is a product which allow the air to release but arrest the noise waves. For that we have a noise barrier which builds like a wall which barricade the noises. Along with this, we are having some commercial products too which are applicable for auditorium and the office space like the soundproof doors and all. So yes, the queues are in multiple.”

The business is structured around engineering acoustics (core industrial), project-based acoustics (urban infra, utilities), and commercial acoustics (auditoriums, offices). The company claims significant technical differentiation, highlighting its R&D, in-house testing, government certifications, and collaborations (e.g., with IIT Delhi for new materials). Management noted, “90% of our competitors… do not have that kind of customization that we are able to provide. That is our USP.”

To the best of my knowledge, there is no listed peer to the company.

The company started in 2007 as manufacturer of sound control products. In due course they increased their product offering and technical expertise. They have a manufacturing facility of work space area covers over 21520 sq. ft. and comprises of a range of equipment for different purposes. Their second plan is coming nearby with around 90000 sq.ft. area. The new plant is coming online, with partial operations by mid-June 2025 (40% utilization) and full operations by December 2025. Management expects “150% kickoff” in capacity utilization in FY26 versus current, with targeted revenue capacity of ₹200-250 crores per annum when fully operational.

FY26 Revenue Guidance: ₹100 crores, with plant utilization ramping through the year.
Transcript of the Management call is enclosed herewith.
Envirotech.pdf (1.2 MB)

Financials:

The company has been a performing well for last 5 years. The topline and the bottomline has gone up substantially.

  • Lacklustre growth in FY 2025 appears to be due to capacity constraints.
    F26 Projection: Management has guided a topline of 100 crores with 25% EBIDTA. Depreciation is likely to be a bit higher, and thus we can expect PBT of 20 crores.

Valuation:

  • Current Market Price: Rs. 129 Market Capitalization: 242 Crores.
  • They came out with IPO, entirely fresh issue, @56 per share. Promoters hold 69% of shares.
  • In the last 4 years, the company topline and bottomline has grown at a very high pace. Such growth cannot be expected to continue in future. Nevertheless, management has guided 100% topline growth in current financial year with slightly lower margins. New capacity can scale the company to upto 200-250 crores. Taking a base value of 50 crores, I expect a decent growth in the company going forward.
  • Presently the company is trading at 17 times last year earning which looks attractive compared to the growth expectation.

Reasons for Investment:

  • New capacity is coming in line, which may give a jump to the topline and bottom line as expected by the management.
  • The company is a lead player in niche area. As the society is becoming aware of noise pollution, the company is in sweet spot. Total Addressable Market is likely to grow in this area giving benefit to the company.
  • The promoters look well experienced in this line of business, working the area for last 20 years.
  • The company is operating on impressive margins, showing some competitive advantage for the company. Though the margins are likely to fall to 25-26% range as expected by management, it still shows some competitive advantage.
  • Management gives importance to research and development activities, which will be crucial going forward in the business they are in.

Risk Factors:

  • The company is generating negative cash flow, which may affect its operations and financials.
  • Future plans are mere estimates/guess; they may not materialise.
  • Investing in Microcap companies may results in 100% capital loss.

Disclosure: Invested and Biased.

4 Likes

What’s your thaughts about inability in converting the great profits in cash?

2 Likes

The company has negative cash flows. But the primary reason is growth, generally growing companies will have negative cash flows as working capital/inventories are likely to increase along with rising topline. Let us have a look in Envirotech Systems balance sheet-


Trade receivable was 4.67 crores [topline 10 Crores] in FY 2021, which has gone up to 27.53 crores [topline 52 crores] in FY 2025. In the same period inventory has gone up from 0.57 crores to 3.64 crores. It can be seen that almost complete working capital finance has been done by internal accruals. They have received arund 30 crores from IPO which have gone largely into creation of new manufacturing facility. Debt level of the company is still close to zero [interest paid is 22 lakhs, which they may have paid for overdraft facilities]. When a company finances its growth, cash flow generally remains negative.
What should be the cash flow situation going into future? Well, the company is into manufacturing custom made systems, based on contract and bidding. Thus, receivable is likely to be high, may be around 6 months sale. They appear to manage inventories rather well within limits. Going forward in the current finacial year, if they manage a topline of 100 crores, receivable is likely to reach 50 crores leading to negative cash flow of another 22 crores- and cash flow shall remain negative in the current financial year even if they manage to generate decent amount of profit in the current financial year.
Growth needs capital. One can get capital through equity sale, or debt or through internal accruals. I am okay to note that they have been able to finance their growth largely through internal accruals- yes, cash flow will be negative in such a situation.

4 Likes

Can you throw some light on the management? To make it 5-10 year horizon company one needs a competent and clean management