Enviro Infra Engineers IPO Analysis 2024: Should You Subscribe?

Enviro Infra Engineers Ltd (Enviro) launched its initial public offering (IPO) on November 22, 2024, with bidding set to close on November 26. The IPO, which is currently trading with a grey market premium (GMP) of 26%, received a solid response on the first day.

However, investors should get a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Enviro Infra Engineers IPO Details

• Issue Details: Mainstream
• Issue Size: Rs 650.43 crore
• Fresh Issue: Rs 572.46 crore
• OFS: Rs 77.97 crore
• Price Band: Rs 140 – Rs 148
• Lot size: 101 shares
• Listing Date: November 29, 2024

Enviro Infra Engineers IPO Subscription Status

As of 5 p.m. on the opening day, the IPO of Enviro Infra Engineers Ltd saw an overall subscription rate of 2.07 times. Non-institutional investors led the charge with subscriptions at 2.98 times their allotment, followed by Qualified Institutional Buyers (QIBs) at 2.04 times, while retail investors subscribed to 1.69 times their allotted shares.

Overview of Enviro Infra Engineers Ltd

Enviro specializes in the design, construction, operation, and maintenance of Water and Wastewater Treatment Plants (WWTPs) and Water Supply Scheme Projects (WSSPs). The firm bids for state government and urban local body tenders to develop these projects on an EPC (Engineering, Procurement, and Construction) or HAM (Hybrid Annuity Model) basis.

Enviro Infra Engineers Key Strengths

• Robust Financial Growth: Enviro has shown exceptional growth, with its operational revenue, EBITDA, and net profit witnessing compound annual growth rates (CAGRs) of 81%, 84%, and 79% respectively, from FY22 to FY24.
• Healthy Return Ratios: Enviro’s financial performance is marked by healthy return metrics, with a Return on Equity (RoE) of 37%, significantly outperforming industry peers.
• Solid Order Book: As of June 30, 2024, Enviro boasted a substantial order book totalling Rs 1,906.28 crore, approximately 2.6 times its FY24 revenues, offering significant growth visibility for the medium term. 
• Proven Project Execution Capability: Over the past seven years, Enviro has completed 28 WWTP and WSSP projects, including 22 with capacities of 10 MLD or more, across states like Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, Uttarakhand, and Chhattisgarh.

Enviro Infra Engineers Risk Factors

• Cash Flow Challenges: Enviro reported negative cash flows from operations for the quarter ending June 30, 2024, as well as for the full fiscal year FY24. If this trend persists, it could significantly impact the company’s operational efficiency and financial stability.
• Contingent Liabilities: As of June 30, 2024, Enviro has substantial contingent liabilities amounting to Rs 258.82 crore that are not accounted for in the restated consolidated financial statements. If these liabilities materialize, they could adversely affect the firm’s financial position.
• Dependence on Government Contracts: Enviro's growth hinges on securing government contracts for WWTPs and WSSPs through competitive bidding in EPC and HAM models. Success depends on qualifying for tenders, project availability, timely awards, and competitive bids. Bid success rates were 58% in FY24, 41% in FY23, and 17% in FY22.

Enviro Infra Engineers Valuation & Recommendation

In terms of valuation, the IPO is reasonably priced at a price-to-earnings (P/E) ratio of 18x based on FY24 earnings.

Enviro has exhibited phenomenal growth in both revenue and profits over recent years. Going forward, the company is well-positioned to benefit from key Indian government initiatives such as Jal Jeevan Mission-Har Ghar Jal, AMRUT, the NAMAMI Gange Programme, and SWAJAL.  

With a robust pipeline of orders and a history of strong financial performance marked by industry-leading margins, Enviro seems well-prepared for sustained future growth. Given these factors, investors may consider subscribing to the IPO from a long-term perspective.

For a deep dive into other IPOs, explore: IPO Corner on Liquide