Notable listing gains predicted for this IPO: Is it worth investing in?

Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of 80 per cent in revenue and 76 per cent in net profit.

About the Issue  

Enviro Infra Engineers Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are its issue details. 

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. To meet the working capital requirements

2. Infusion of funds in the subsidiary, EIEL Mathura Infra Engineers Pvt Ltd to build 60 MLD STP under the project titled ‘Mathura Sewerage Scheme’ at Mathura in Uttar Pradesh through Hybrid Annuity Based PPP Mode

3. Repayment/prepayment in full or in part, of certain of its outstanding borrowings

4. Funding inorganic growth through unidentified acquisitions and general corporate purposes.

Promoter holding  

Sanjay Jain, Manish Jain, Ritu Jain, and Shachi Jain are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 93.60 per cent in the company.

Company profile  

Enviro Infra Engineers Ltd is engaged in the design, 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 encompass Water Treatment Plants (WTPs) along with pumping stations and the laying of pipelines for water supply. The treatment processes installed at most STPs and CETPs are Zero Liquid Discharge (ZLD) compliant, enabling the treated water to be reused for horticulture, washing, refrigeration, and other industrial processes.

WWTPs and WSSPs are partly funded by the Central Government under schemes such as 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.

The company participates in tenders issued by State Governments and Urban Local Bodies for the development of WWTPs and WSSPs. As of June 30, 2024, it has successfully developed 28 WWTPs and WSSPs across India over the past seven years. As of the same date, its order book includes 21 WWTPs and WSSPs with an aggregate value of Rs 1,906 crore.

Financials 

The company has consistently delivered robust growth in both revenue and profits over the past few years. Between FY22 and FY24, the company recorded a Compound Annual Growth Rate (CAGR) of 80 per cent in revenue and 76 per cent in net profit.

The annualized figures from the June quarter indicate a decent growth trajectory compared to FY24. The company delivered a robust return on equity (RoE) of 51 per cent and a return on capital employed (RoCE) of 32 per cent for FY24.

Valuation & Outlook

*RoE: Based on FY24 data

The issue is priced with a P/BV ratio of 6.27 times, calculated using its Net Asset Value (NAV) of Rs 23.60 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 2.90 times, considering its post-IPO NAV.

Based on the company's annualized FY25 earnings and fully diluted equity capital, its price-to-earnings (P/E) ratio is 22x. From a valuation standpoint, the company stands apart from its peers with attractive metrics. Additionally, its return on equity (RoE) for FY24 was an impressive 51 per cent, significantly outperforming all other listed competitors.

Considering the company's pivotal role in advancing sustainable development through effective water management and pollution control, its strong financial performance and a robust order book, we recommend investors to subscribe to the issue with a long-term perspective.