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Salient features of the IPO:

* Denta Water And Infra Solutions Ltd. (DWISL), one of the key players in the field of water engineering, procurement, and construction (“EPC”) services, is coming up with an IPO to raise around Rs. 209.25 - 220.50cr, which opens on 22nd Jan. and closes on 24th Jan. 2025. The price band is Rs. 279 - 294 per share.

* The IPO solely comprises of fresh issue (Rs. 209.25 - 220.50cr). From the fresh issue net proceeds, the company will be utilizing Rs. 150cr to meet working capital requirements of the company; and residual proceeds will be used for general corporate purposes.

* Consequently, post-IPO, the P&PG and public shareholders will have 71.91% and 28.09% stake in the company, respectively.

Key competitive strengths:

* Established expertise in water management projects with special focus on ground water recharging

* In-house expertise in designing and engineering of water management infrastructure projects

* Established track record for project execution

* Efficient Business Model

* Strong Management Team

* Strong order book

Risk and concerns:

* General slowdown in the global economic activities

* Geographical Risk

* Volatility in Profitability and margins

* Delay in project execution or order cancellations

* Competition

Below are the key highlights of the company:

* The India Water and Wastewater Treatment market is expected to grow at a CAGR of 6.20% in terms of value to reach USD 23,849.806mn in 2033 from USD 13,101.158mn in 2023. Based on region, south India is expected to have major share in the water and wastewater treatment market with a CAGR of 6.24% in terms of value.

* According to Government of India Census, 2022, the region's expanding population, rapid urbanization rate exceeding 33% annually, and robust industrial growth are creating an unprecedented demand for advanced water management solutions.

* The total annual ground water recharge is 449.08 billion cubic meters (bcm), with natural discharges amounting to 41.89 bcm. Consequently, the Annual Extractable Ground Water Resources are 407.21 bcm. The primary source of this recharge is rainfall, contributing 270.78 bcm or 60% of the total recharge, with 54% occurring during the monsoon and 6% during the non-monsoon seasons. The remaining 40%, equivalent to 178.31 bcm, comes from secondary sources like canal seepage, irrigation return flow, and water conservation structures.

* Established in 2016, DWISL has emerged as one of the key players in the field of water EPC services. With a meritorious track record in infrastructure project installations, including groundwater recharging through recycled water, DWISL has been a contributor to addressing the rising demand for water-related solutions in the country. In addition, it also undertake construction projects in the field of railways and highways. It is one of the few companies in India having experience and expertise in design, installation, commissioning, operations and maintenance of ground water recharging using recycled water.

* The company is awarded contracts through transparent competitive bidding process undertaken by the State and Central Governments. Further, it also undertake contracts as sub-contractors from various private parties.

Key highlights of the company (Contd…):

* Notably, DWISL played a substantial role in the first phase of the KC Valley project, contributing to Bengaluru's reputation as the second-largest city globally in terms of treated wastewater quantity. The company's significant involvement in the “Jal Jeevan Mission" of the Government of India reflects its commitment to critical water management initiatives. Furthermore, the company secured contracts for lift irrigation projects in various regions. Their growth is inherently linked to the nation's infrastructure development, with a focus on design and engineering consultancy that aligns with the ongoing and anticipated projects in the Karnataka Government's water management sector.

* It participate in tenders for developing projects such as infrastructure for ground water recharging, lift irrigation, infrastructure for supplying drinking water to various habitations under “Jal Jeevan Mission” on a competitive basis.

* It renders a range of services from “concept-to-commissioning” and beyond to various water management projects to the clients by leveraging it’s diverse experience, core competencies and using the technical know-how. Over the years, the company has developed the expertise for servicing the clients at each stage of project development cycle. The services for any given project include any one or a combination of (i) preliminary investigations and reconnaissance; (ii) feasibility studies, (iii) planning and project formulation; (iv) field surveys and testing of soil; (v) design; (vi) tender bidding consultancy; (vii) project management and construction supervision; (viii) formulation of operation and maintenance guidelines; (ix) engineering procurement consultancy, turnkey projects; etc. regarding water management projects.

* DWISL concept-to-commissioning services cater to a variety of sub-sectors and services in its domain areas, including some of the key areas comprising of ground water recharging, dams and reservoir engineering, lift irrigation, water supply and sanitation and urban and rural development. The company has implemented an asset-light business model by outsourcing critical construction equipment, which reduces capital requirements and maintenance costs, while subcontractors provide the necessary manpower and equipment support for its projects.

* Since incorporation, the company has completed 32 projects of water management infrastructure for Government of Karnataka (“GoK”). It has successfully completed projects involving the filling up of numerous tanks and check dams, showcasing its proficiency in managing water resources efficiently. As on November 30, 2024, DWISL procured direct contracts (as consortium partner) worth Rs. 774cr, direct contracts (independent) worth Rs. 46.9cr and sub-contracts worth of Rs. 465.7cr in ground water recharge (GWR) projects.

* As on November 30, 2024, it has 17 ongoing projects constituting an aggregate contract value of Rs. 1,100.4cr, out of which Rs. 1,066.7cr is in relation to water management projects; and Rs. 33.6cr is in relation to infrastructure projects including railways (improvement of infrastructure) and roadways (roads and bridges construction). As on November 30, 2024, out of total contract value of Rs. 1,100.4cr it has completed work amounting to Rs. 347.9cr and outstanding order book is of Rs. 752.4cr.

Key highlights of the company (Contd…):

* While majority of their projects are on sub-contracts basis, company also form project specific unincorporated joint ventures for certain projects including the Byrapura & Hiremagaluru LIS project, KC Valley Phase-2 project, BLR East LIS project have been undertaken by the company through un-incorporated joint ventures or consortiums. As on November 30, 2024, DWISL has executed 32 water management infrastructure projects, where the company has undertaken 11 projects as the main contractor, 1 project has been undertaken under a consortium / joint venture arrangement and 20 projects have been undertaken under a sub-contract arrangement with the main contractor.

* Over the years, the company has built a specialized team of 8 engineers for the design, engineering, and construction of water conveyance systems for groundwater recharge using secondary treated sewage and fresh water. Additionally, it has a team of 42 engineers in civil, mechanical, and electrical fields for project execution. DWISL also collaborate with third-party consultants, including the Indian Institute of Science, Bangalore, and industry experts such as X Impasse Groups and Jalavahini Management Services Private Limited, to ensure compliance with government standards and quality requirements.

* DWISL believes that geographical diversification will reduce reliance on specific states and enable the company to capitalize on opportunities in water management, particularly GWR projects. The company plans to expand into regions like Gujarat, Madhya Pradesh, Maharashtra, and Uttar Pradesh to explore new prospects beyond Karnataka.

Peer comparison and valuation:

DWISL is one of the key players in the field of water EPC with majority of the projects in the state of Karnataka. It is awarded contracts through transparent competitive bidding process undertaken by the State and Central governments and also undertakes contracts as sub-contractors from various private parties. As on November 30, 2024, the company has successfully completed 32 projects of water management infrastructure and has 17 ongoing projects.

At higher price band, DWISL is demanding a P/E multiple of 13.1x, based on its FY24 EPS of Rs. 22.4, this valuation seems to be at a discount compared to its peer average. The company has shown growth in both it’s top and bottom line however, the margins have been impacted. As of November 30th 2024, company’s order book stands at Rs. 752cr which is 3.2x to its FY24 revenue. This reflects revenue’s visibility for the company in the medium term. Going forward, we believe DWISL has strong long term growth potential, supported by government initiatives in the Water Supply & Management sector and the overall positive outlook for the industry. Thus, we recommend a “SUBSCRIBE” rating for the issue.

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SEBI Registration no.: INZ 000160131