Concord Enviro Systems Ltd. (May Apply)

Highlights

Concord Enviro Systems Limited (CESL) incorporated on 1999, is a global provider of water and wastewater treatment and reuse solutions, including zero liquid discharge (ZLD) technology. They have in-house capabilities to develop solutions across the entire value chain including designing, manufacturing, installation and commissioning, operation and maintenance (O&M) and digitalization solutions including Internet of Things (IoT).

They are an integrated provider of wastewater treatment and ZLD solutions, with focus upon energy optimization and recovery helping industries achieve water conservation and sustainability goals. Their reach extends to diverse regions, with exports to countries in North America, Latin America, Africa, Middle East and Southeast Asia and a large customer base of 310 customers across the globeprovide.

They also provide their solutions to customers on a turnkey basis. Their integrated solutions incorporate their own custom designs for systems and plants including effluent treatment plants, anaerobic digestors, membrane bio-reactors, sewage treatment plants, membrane-based systems including ultra-filtration (UF), nano-filtration (NF), reverse osmosis (RO), desalination systems and waste heat evaporators (WHE).

As of 5MFY, they serviced over 289 domestic customers and 21 international customers across a diverse set of industries such as pharmaceuticals, chemicals, food and beverage, defence and energy, automotive and auto ancillaries, steel and textiles, and have a presence in two countries. They service both Indian and Multinational customers.

Out of the total proceeds of Rs. 5,003 mn, Rs. 387 mn would go towards financing greenfield/brownfield capex of the company. Rs. 500 mn would utilize towards subsidiaries’ borrowings repayment, Rs. 100 mn would go towards investment in JV, Roserve Enviro Private Limited to grow their pay per use/pay as you treat business. Rs. 235 mn would go towards investment in technology and other growth initiatives for access to new markets. Rs. 527 would go towards general corporate purpose and Rs. 3,253 mn go to existing selling shareholders of the company.

Key Highlights

• The water and wastewater management market in India was valued at USD 7.3 bn in FY24 and is expected to reach USD 12.8 bn by FY29, growing at a CAGR of 12.0 pct from FY24-FY29. This growth is driven by the economic imperative of efficient water management. As the concerns over water scarcity intensify, industries and municipalities face increasing pressure to adopt efficient wastewater treatment practices.
• Their order book is at around Rs. 5,018 mn, of which 74.50 pct comprises system and plant orders and 25.50 pct comprises after-sales revenue (including consumables and spares orders and O&M services orders). The current orderbook is ~0.9x of FY24 sales.
• They have in-house membrane and module manufacturing capabilities. Their R&D has played a key role in the expansion of membrane portfolio, and they have developed 5 membranes. Their membrane portfolio includes three energy efficient and high concentration membranes with wide applications in nanofiltration.
• They have also implemented an Internet of Things (IoT) enabled data capture and analysis platform that enables real-time monitoring, troubleshooting and preventative maintenance of their systems and plants installed across the world. For example, they are able to remotely start and stop systems and remotely clean systems without an operator present.
• The company aim to target system and plant offering and marketing efforts to industries in coastal regions that are facing water shortage. They aim to market their wastewater and ZLD solution to these coastal customers as an alternative to coastal wastewater discharge.
• CESL key growth strategies includes (i) Add new capacity for the manufacture of membrane modules, WHE modules and containerised plants (ii) Expand into new sectors for wastewater reuse and zero liquid discharge (iii) Expand presence in existing geographies and enter new markets (iv) Focus on growing new business initiatives such as design and installation of CBG Plants (v) Cross sell new products to existing customers (vi) Leverage in-house capabilities to address the growing demand for IoT applications in the water and wastewater sector (vi) Grow their pay per use/pay as you treat business model.
• Sales of the company has grown by 22.84 pct CAGR over FY22-24. In FY24 the company reported sales of Rs. 4,969 mn which grew 44.76 pct YoY. EBITDA stood at Rs. 811 mn, grew 63.71 pct. During FY24 profit of the company jumped 655 pct YoY to Rs. 414 mn. In 5MFY25 the company reported Sales/EBITDA/profit of Rs. 2062 mn/ Rs. 151 mn/ Rs.5.16 mn.

Key Risk

• Certain of CESL JV are not wholly owned by the company and present risks that their JV partners will fail to meet their obligations or that company will have conflicts with JV partners.
• CESL business may expose them to potential warranty claims, product recalls and returns, which could adversely affect their results operations, goodwill and the marketability of their products.

Financial Performance

Peer Comparison based on FY24 Financials

Valuation

Concord Enviro Systems Limited (CESL) providing comprehensive water treatment solutions for over 30 years, leveraging technology, research and innovation to efficiently treat diverse water sources. At the upper end of the price of Rs. 701, the issue quotes at PE of 35x on FY24 post issue financials and PE of ~1170x based on FY25E annualized earnings. The issue looks fully priced. One may apply small quantities.

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