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Effwa Infra & Research 

• Effwa Infra & Research is coming out with initial public offering (IPO) of 62,52,800 shares of Rs 10 each in a price band Rs 78-82 per equity share.  
• The issue will open for subscription on July 5, 2024 and will close on July 9, 2024.
• The shares will be listed on NSE Emerge Platform.
• The face value of the share is Rs 10 and is priced 7.80 times of its face value on the lower side and 8.20 times on the higher side. 
• Book running lead manager to the issue is Shreni Shares.
• Compliance Officer for the issue is Dhaval H Mirani.

Profile of the company

Effwa Infra & Research (EIRL) is engaged in the business of engineering, consultancy, procurement, construction and integrated project management services in water pollution control, encompassing sewage and industrial effluent treatment, solid waste treatment and disposal, ventilation systems, hazardous waste management, and water treatment plants. Additionally, it also functions as consultants and advisors, providing a range of services encompassing project organization, management, equipment procurement, funding, and project execution. Its expertise spans the entire project lifecycle, from registration and design to implementation, supervision, and finalizing contract terms. The company is ISO 9001:2015 Certified focussing on Engineering, Procurement, Construction, Commissioning, Operation & Maintenance Services for Effluent and Sewage Treatment with Recycling, Water Treatment, Integrated Municipal Solid Waste Management, Hazardous Waste Incineration & Bioremediation of Lakes. It also offers end-to-end project management solutions towards environmental preservation. Its focus lies in ensuring environmentally friendly waste processing practices, including Effluent Treatment Plant management (ETP), Sewage Treatment and Reclamation (STP), Water Treatment and Distribution (WTP) and Hazardous Wate Management.

The company works on the concept revolving around 4R i.e., Reducing, Recycling, Reusing and Rehabilitation to provide technological solutions for a range of industries, thus, enabling them to achieve Zero Liquid Discharge through recovery and recycling of water from effluent streams. It caters to the following industries such as textile, leather, paper, food processing, dairy, chemicals, dyes and intermediates, steel, mining, power, pharmaceutical and bulk drugs, sugar, distilleries, fertilizers, pesticides, ceramics, petrochemicals, and many others. Furthermore, its emphasis on achieving ZLD demonstrates a commitment to minimizing environmental impact and maximizing resource efficiency, which can be attractive to environmentally conscious businesses and regulatory bodies. The company EIRL offers comprehensive services across various industries and sectors, covering the entire project lifecycle from ‘concept to commissioning’. Its services include the preparation of project feasibility reports, technology selection, project management, process design, basic and detailed engineering, procurement, inspection, supply chain management, cost engineering, planning and scheduling, facilitation of statutory and regulatory approvals for Indian projects, construction management, and commissioning. Additionally, it provides services such as equipment design, environmental engineering services, materials and maintenance services, plant operation, and safety services.

Proceed is being used for:

• Funding working capital requirements of the company.
• Funding of capital expenditure requirements of the company towards purchase of new office Equipments.
• General corporate purposes.

Industry overview

Water and wastewater management is a promising subsector in India’s environmental technology segment. India’s demand for water is projected to be twice as much as the available supply by 2030. To overcome these challenges, public and private sector facilities have ambitious plans to develop comprehensive water and wastewater treatment and distribution infrastructure. Demand for high-end treatment technologies is growing in India. Various governmental initiatives, such as the Atal Mission for Rejuvenation and Urban Transformation, National Mission for Clean Ganga, Jal Jeevan Mission, and Community Drinking Water Schemes, contribute to the growth of the Indian water and wastewater treatment market. In May 2019, the Indian government created the Jal Shakti Ministry, bringing all water-related agencies under one ministry to provide safe drinking water to the people of India. Soon after it was founded, the Jal Shakti Ministry launched the Jal Jeevan Mission, designed to provide piped drinking water to 146 million households in 700,000 villages by 2024. The mission earmarked a budget of $51 billion for states to increase household water connection coverage from 18.33 percent in 2019 to 100 percent by 2024. 

Engineering and technical consultancy services, as the term suggests, include a wide bouquet of premium services that are classified under pre project, project execution and post-project, broadly coveting functions such as project identification/ evaluation; environmental impact assessment, development/sourcing of technologies; preparation of feasibility reports, market studies; designing of projects, equipment procurement and erection; engineering design services, project management services, architectural/construction engineering services; and project commissioning, operations and maintenance. The need for specialists with experience and expertise are required to offer sustainable solutions to Indian infrastructure needs. While ‘innovation’ translates to letting go of conventional approaches and replacing those with modern solutions that are more viable and effective, many practicing professionals, including consultants needs to be upskilled to cater to the evolving demand. The infrastructure industry must put innovation at the heart of its future developmental goals to address many of the current and impending domestic & global challenges such as climate change, energy intensity of the economy, effective and efficient infrastructure, in line with the increased pace of urbanization in the developing countries. 

Pros and strengths

Established track record for timely execution: The company has a track record of effectively utilizing its management bandwidth, skills, and internal systems to execute projects that span several years for completion. The company has proven its execution capabilities in managing significant Engineering, Procurement, and Construction (EPC) contracts, such as the construction of a 3 MLD to 135 MLD plant for Treatment of Industrial Effluent/ Waste Water and Recycling. Typically, the average period for the execution of EPC projects ranges between 18 to 24 months, while for Operations and Maintenance (O&M) projects, it varies from one year to five years. The construction of water and wastewater treatment projects demands a substantial amount of technical expertise and skill in execution. Pre-qualification for bidding on projects often relies on the past experience of executing similar projects and financial strength.

In-house expertise in designing and engineering of water management infrastructure projects: The company’s in-house design and engineering team focusses on design capabilities for geographical complexities and critical aspects of the projects such as identification of potential sites, calculations, drainage laying design, process flow diagram and water balance. Its engineering expertise and capability of the designing & implementation aspects water and water waste management projects has enabled it to deliver projects in accordance with the requirements envisaged by the principal employer of these projects. It has diverse capabilities that enable it to offer tailor-made solutions for meeting exigencies due to changes in project, design and installation.

Lower investments and capital expenditure in projects due to outsourcing model: The company usually outsources the civil works and erection works for its projects to third party contractors. This benefits its returns on investments in each project as its fixed assets costs are low. Where the civil works and erection works were outsourced. It utilises this outsourcing model as it allows scalability and allows it to focus on engineering, design and technology to provide quality water & waste water engineering solutions. It has been using this model since 2012 and this has been a key factor in the efficient execution of its projects. It has experienced and capable site management teams who oversee the civil and erection work being undertaken by third party contractors and execute all aspects of its projects. 

Risks and concerns

Majority of revenue comes from limited number of clients: The company currently derives a substantial portion of its revenue from a limited number of clients. The top ten clients of the company accounted for 98.14%, 96.37% and 98.71% for the financial year ended March 31, 2024, 2023 and 2022. The business it derives from its clients is dependent on the decisions that its clients make which are largely influenced by various factors beyond its control. In the future, it could lose these key clients due to major events affecting them such as change of management, mergers and acquisitions or an economic slowdown, change in government and political scenario or lack of funding by the government. Moreover, it is not the exclusive service provider to such clients and they have not committed to provide it with a minimum volume of work.

Projects subject to construction, financing and operational risks: The development of new projects involves various risks, including, among others, regulatory risk, construction risk, financing risk and the risk that these projects may prove to be unprofitable. The company may need to undergo certain changes to its operations as a result of entering into these new projects. Entering into any new projects may pose significant challenges to its management, administrative, financial and operational resources. It cannot provide any assurance that it will succeed in any new projects it may enter into or that it will recover its investments. The funding requirement and project costs for its projects are based on cash flow analysis and any period of negative cash flow is provided with interest cost borrowing. If the funding requirements and project costs for these projects are higher than as estimated and the negative cash flow period is prolonged, it will need to find sources to fund the extra costs which may not be readily available. Any failure in the development, financing or operation of any of its new projects may materially and adversely affect its business, prospects, financial condition and results of operations.

Water treatment or reuse and zero liquid discharge technology subject to rapid change: Water reuse and zero liquid discharge technology is subject to rapid change. These changes may affect the demand for its services. Its future performance will depend on the successful installation of WWTPs and WSSPs with updated new, improved and enhanced technology catering to customer requirements and changing market trends. If its clients require a new technology or a technology which it is not able or capable to provide, it may be disqualified from bidding from such projects and if its clients continue to prefer a technology which it is unable to provide, its business, results of operations and financial condition would be adversely affected. In order to cater to the changing customer preferences and market trends, it has introduced and developed various new upgraded water treatment plants for water reuse, ZLD and desalination solutions in recent years. However, there is possibility that it may miss a market opportunity if it fails to invest, or invest too late, or would be unable to upgrade itself or enter into an arrangement with a technology partner. 

Outlook

Effwa Infra & Research (EIRPL) is an engineering powerhouse that offers cutting edge environmental solutions to various Industries and Municipal Authorities across the globe. EIRPL is an ISO 9001: 2015 organisation with a dominant presence in fields of effluent treatment and recycling, sewage treatment and recycling, water treatment and distribution, restoration of water bodies, hazardous waste incineration etc. It is a young and agile company constantly expanding its capabilities through intensive research and development to improve and develop technologies that stand the test of time. Its timeless business philosophy and outstanding quality system has enabled it to be recognized as a reputed brand in the field of environmental engineering. On the concern side, the major portion of the company’s revenue for the financial year ended March 31, 2024, March 31, 2023 and March 31, 2022 is from Government Institutions i.e., 46.57% and 43.02% and 52.28%. Such concentration of its business heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. 

The company is coming out with an IPO of 62,52,800 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 78-82 per equity share. The aggregate size of the offer is around Rs 48.77 crore to Rs 51.27 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations had increased of 26.12% from Rs 11,509.57 lakh in Fiscal 2023 to Rs 14515.93 lakh in Fiscal 2024. The company reported a net profit of Rs 1,380.06 lakh in Fiscal 2024 as compared to a net profit of Rs 513.04 lakh in Fiscal 2023 which got increased due to higher revenue from operation at increased margins and reduction in operating expenses due to increased operational efficiency during the year. Meanwhile, the company intends to continue to focus on the designing, construction, operation and maintenance of Projects while seeking opportunities to further increase the size of its projects. It intends to bid for ETP, STP and WTP on EPC basis. Execution of high-capacity projects has lesser competition, better margins, economies of scale and better utilization of sources. It intends to capitalize on its experience and project execution expertise and continue to pursue larger Projects, both independently and in partnership with other players in the industry. Increase in the size of projects will also lead to the company becoming pre-qualified for projects of higher MLD. Large sized projects will require requisite higher level of competencies in designing and execution of such projects.