Enviro Infra comes from one of the mega trend themes currently being explored – water and water treatment. Here is why:

• India ranks among the most water-stressed countries globally, with approximately 600 million people experiencing high water stress.
• Per capita water availability is around 1486 cubic meters (m3), against globally recognised threshold water stress of 1700 m3 per person.
• India is home to about 17% of the world’s population but has only 4% of the world’s fresh water resources.
• Niti Ayog predicts 21 cities will face groundwater shortage by 2030, affecting 100 million people.

The water treatment industry’s growth is driven by increased awareness of water issues and stricter regulations on water quality and sanitation. Governments and organizations prioritize sustainable water management and invest in infrastructure for treatment and distribution.

Govt’s Budget Allocation for Water Capex

• FY22 – ₹91,000 Cr
• FY23 – ₹83,000 Cr
• FY 24 – ₹1,07,000 Cr

Given the finite nature of freshwater resources, reusing and recycling water resources is imperative. Wastewater treatment emerges as a critical strategy, offering a potential backup water source.

India’s water and wastewater treatment market is poised for significant growth growing at a CAGR of 6.2% for the next 10 years, driven by escalating demand for clean water and ongoing technological advancements in water treatment methods.

The company we are about to discuss stands to be one of the biggest beneficiaries of this transformative theme.

Enviro Infra Engineers Ltd

Enviro Infra is a newly listed company with exceeded expectations since its IPO, raising ₹650 crore and debuting on November 29, 2024. The stock listed at ₹220, a 48.65% premium to its issue price of ₹148, and is currently trading at ₹321.

The company has delivered exceptional quarterly results and has expressed confidence in sustaining this growth momentum in the future.

Q2 FY25 HIGHLIGHTS

• Enviro Infra’s project order book stands at approximately INR1,960 crores for EPC and over INR750 crores for operation and maintenance (O&M).
• Management anticipates securing a fresh order book of around INR 2,000 crores during the current financial year.
• Management expects to maintain EBITDA margins of around 25%, citing in-house designing capabilities, execution expertise, and focus on sustainability and waste-to-energy initiatives.
• Management aims to maintain a compound annual growth rate (CAGR) of approximately 35% to 40% for the next four to five years.

Our Investment Case

The Indian water and wastewater treatment sector offers immense growth potential, driven by government initiatives and rising demand for sustainable water management solutions. The company stands well-positioned to capitalize on these opportunities in this rapidly expanding market.

Growth Drivers & Revenue Visibility

The management plans to bid for projects worth ₹4,000 crore. Assuming a 50% success rate, the anticipated order book could increase by ₹2,000 crore, adding to the existing ₹1,960 crore backlog. Additionally, the ₹75 crore annual revenue from operation and maintenance contracts further enhances visibility, bringing the total revenue outlook to ~₹4,000 crore over the next 2-3 years, up from the current ₹729 crore.

Strong Financial Metrics

• Valuation: Currently trading at a P/E of 53x, with a PEG ratio of 1.3x, assuming 40% earnings growth.
• Margins: EBITDA margins consistently at ~25%.
• Returns: Exceptional ROCE of 47% and ROE of 50%.

Compelling Investment Opportunity

Operating in a sunrise sector with robust growth potential, the company offers an attractive investment case backed by solid financials, revenue visibility, and strategic positioning.

ABOUT THE BUSINESS

Enviro Infra Engineers Limited specialize in designing, construction and operation and maintenance of water and wastewater treatment plants, including sewage treatment plants, common effluent treatment plants, sewage networks, and water supply schemes projects.

Project Details

Their projects include Sewage treatment plants (STPs), Common effluent treatment plants (CETPs), and Water treatment plants (WTPs), align with government initiatives like AMRUT, Jal Jeevan Mission (JJM), and Namami Gange.

The company primarily operates through EPC (Engineering, Procurement, and Construction) and HAM (Hybrid Annuity Model) contracts.

COMPLETED PROJECTS

As of Sep 30, 2024, the company has developed 28 Wastewater Treatment Plants (WWTPs) and Water Supply and Sanitation Projects (WSSPs) across India over the past seven years spread across Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, Uttarakhand, and Chhattisgarh.

Geographical Presence

Enviro Infra operates in multiple states, including Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, and Madhya Pradesh, and is planning to expand its presence in East & South India and recently been awarded projects in the State of Jharkhand and Karnataka

Key Moats

• In-House Design and Engineering Capabilities: Enviro Infra has a strong in-house design and engineering team, enabling it to optimize project designs for efficiency and cost-effectiveness. This gives them a competitive edge in bidding for and executing projects.Skilled Manpower and Execution Expertise: The company boasts skilled manpower and a proven track record of timely project delivery. This expertise is crucial for securing high-value project tenders.
• Focus on Sustainability and Waste-to-Energy: Enviro Infra is committed to incorporating sustainable practices, including Zero Liquid Discharge compliance and waste-to-energy initiatives, into its projects. This focus not only aligns with environmental goals but also opens up new revenue streams through initiatives like solar power plants and CBG plants
• Experienced Management: Enviro Infra benefits from a highly experienced management team with over two decades of expertise in the water and wastewater treatment industry.

Key Risks:

While the prospects for Enviro Infra appear bright, some key risks warrant consideration:

• Government Spending Slowdown: Temporary slowdowns in government spending, as experienced with the Jal Jeevan Mission, can impact the company’s cash flow from operations. Delays in fund releases can create short-term challenges.
• Competition: The water and wastewater treatment market is becoming increasingly competitive. Enviro Infra will need to continue to innovate and differentiate itself to maintain its market share.
• Execution Risks: Large infrastructure projects are inherently complex and subject to execution risks, including cost overruns and delays. Enviro Infra’s ability to manage these risks effectively will be crucial for its success.

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Rishav Kaushik

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