Concord Enviro IPO analysis

Concord Enviro IPO (initial public offering) will open for subscription on December 19, 2024, and close on December 23, 2024. We break down the EPC (engineering, procurement and construction) company's strengths, weaknesses and growth prospects to help investors make an informed decision.

Concord Enviro IPO in a nutshell

• Quality : Between FY22 and FY24, the company reported a three-year average ROE and ROCE of around 7.3 and 6.9 per cent, respectively.
  
• Growth : Between FY22 and FY24, its revenue and profit after tax grew by 22.8 and 58.6 per cent per annum.
  
• Valuation : At the upper end of the price band, the stock is valued at a P/E and a P/B ratio of 35 and 2.9 times, respectively.
  
• Overview: The growing market for water treatment and increased government spending on water infrastructure is expected to help Concord Enviro expand its business. However, factors like competition from larger players and high working capital requirements pose a threat to the company's growth.

About Concord Enviro

Incorporated in 1999, Concord Enviro provides engineering, procurement and construction (EPC) services for wastewater treatment. Operating two manufacturing facilities in Maharashtra, the company has in-house capabilities to design, manufacture, install and operate water treatment plants.

Concord Enviro primarily provides industrial wastewater reuse and zero liquid discharge solutions with its clients spanning various industries, including chemicals, pharmaceuticals, energy, automotive, etc. As of August 2024, the company had over 300 clients. It also has a significant presence in the international market, with exports contributing nearly 42 per cent of its revenue in FY24.

Strengths of Concord Enviro

• Integrated solutions: Concord Enviro provides solutions across the supply chain of wastewater treatment plants and boasts in-house capabilities for most of its operations. As a result, the company has reported higher operating profit margins than its peers.
  
• Repeat business: The company has reflected significant client stickiness despite serving over 300 clients. In FY24, almost 93 per cent of its revenue came from repeat businesses.

Weaknesses of Concord Enviro

• Revenue concentration: Concord's top 10 clients are responsible for almost 55 per cent of its revenue, which reflects substantial concentration considering that the company caters to over 300 customers. Losing any one of them can result in a significant blow to its financials.

Risk report

Company and business

• Are earnings before tax of Concord Enviro more than Rs 50 crore in the last 12 months?
  No. The company reported a profit before tax of Rs 44 crore in FY24.
  
• Will Concord Enviro be able to scale up its business?
  Yes. Rising demand for freshwater across the globe and government initiatives in water infrastructure are expected to help the company scale its business.
  
• Does Concord Enviro have recognisable brands with client stickiness?
  Yes. On average, repeat customers accounted for 83 per cent of the total revenue from operations during FY22-24.
  
• Does the company have a credible moat?
  No. Concord Enviro operates in an industry where technical expertise and project execution are replicable by other established players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold over a 25 per cent stake in the company?
  Yes. Its promoters hold a 51.4 per cent stake in the company.
  
• Do the top three managers have over 15 years of combined leadership at Concord Enviro?
  Yes. Prayas Goel, Chairman and Managing Director of Concord Enviro, has been associated with the company since 2009.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Concord Enviro free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of over 15 per cent and a return on capital employed of over 18 per cent?
  No. Its three-year average ROE and ROCE were 7.3 and 6.9 per cent, respectively, while in FY24, it reported an ROE and ROCE of 13.7 and 9.9 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flows in FY24.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company had a net debt-to-equity ratio of 0.5 times as of August 2024.
  
• Is Concord Enviro free from reliance on huge working capital for day-to-day affairs?
  No. The company's business is working capital intensive.
  
• Can the company run its business without relying on external funding in the next three years?
  No. This is because the business is working capital intensive and thus, would require external funding to scale up its operations.
  
• Is Concord Enviro free from meaningful contingent liabilities?
  No. As of Q1 FY25, the contingent liabilities and commitments as a percentage of total equity were more than 25 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 2.9 per cent on its enterprise value.
  
• Is the stock's price-to-earnings (P/E) less than its peers' median level?
  Yes. It is valued at a P/E ratio of over 35 times compared to the median of 49.1 times for its industry peers.
  
• Is the stock's price-to-book (P/B) value less than its peers' average level?
  Yes. It is valued at a P/B ratio of over 2.9 times compared to its peers' average of 8.6 times.

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