Is Denta Water IPO Good or Bad - Detailed Review

Denta Water and Infra Solutions IPO is kicking off its initial public offering which will be open from January 22, 2025, to January 24, 2025. While considering applying for this IPO, certain questions may arise in your mind, including whether the Denta Water and Infra Solutions IPO is good or bad, whether it is worth investing in this IPO, and so on. 

This article offers a comprehensive Denta Water and Infra Solutions IPO review, covering its business operations and fundamental analysis to help you make an informed investment choice.

Denta Water and Infra Solutions IPO Review

Denta Water and Infra Solutions Limited, established in 2016, is a growing player in water and infrastructure solutions with expertise in groundwater recharge systems using recycled water. The company specializes in designing, installing, and maintaining water management infrastructure and has executed notable projects like the Byrapura and Karagada LIS Projects.

The company’s revenue doubled from Rs.119.57 crore in FY 2022 to Rs.238.59 crore in FY 2024, driven by project expansion. While, EBITDA and PAT grew, but margins declined due to increase in the raw material expenses. ROE and ROCE also decreased, due to operational inefficiency.

Denta Water faces notable risks, primarily due to its heavy reliance on the Government of Karnataka for the majority of its revenue and its dependence on a limited customer base. However, the company remains resilient, showcasing strong profitability and an impressive Return on Net Worth (RONW) of 36.36%.

Company Overview of Denta Water and Infra Solutions IPO

Incorporated in 2016, Denta Water and Infra Solutions Limited (commonly known as "Denta Water") is a growing company specializing in water and infrastructure solutions. 

They focus on designing, installing, and commissioning water management infrastructure projects, with expertise in groundwater recharge systems. Alongside this, they also take on construction projects in the railway and highway sectors.

What sets them apart is their unique position as one of the few companies in India with experience and expertise in the design, installation, commissioning, operations, and maintenance of groundwater recharging using recycled water. 

Their notable achievements encompass pivotal projects like the Byrapura and Hiremagaluru LIS Project, Karagada LIS Project, and others, primarily executed through lift irrigation systems.

Denta Water and Infra Solutions has emerged as one of the key players in the field of water engineering, procurement, and construction (“EPC”) services.

Industry Overview of Denta Water and Infra Solutions IPO

India faces critical challenges in wastewater management, with only 44% of the urban domestic sewage (31,841 MLD) being treated, compared to a daily output of 72,368 MLD. The actual treatment rate is even lower at 28% or 20,236 MLD. 

Among Class I and Class II towns, which comprise 72% of the urban population, only 30% of wastewater is treated (11,787 MLD out of 38,254 MLD generated). A report by CPCB (March 2021) highlights India's current water treatment capacity at 27.3% and sewage treatment capacity at 18.6%.

The market for water and wastewater treatment in India is projected to grow due to rapid urbanization and increased government focus on sustainability and environmental protection. According to Denta RHP, the demand for advanced water management systems is driven by increasing industrialization and urban demands

Source: Denta Water and Infra Solutions RHP

Financial Overview of Denta Water and Infra Solutions IPO

The revenue from operations increased from Rs.119.57 crore in FY 2022 to Rs.238.59 crore in FY 2024. The growth was primarily driven by the expansion of water infrastructure projects.

EBITDA grew from Rs.51.81 crore in FY 2022 to Rs.79.13 crore in FY 2024. However, EBITDA margin declined from 43.33% in FY 2022 to 33.17% in FY 2024. The drop was due to rising operational costs, including raw material expenses and employee benefits.

Profit After Tax (PAT) increased from Rs.38.33 crore in FY 2022 to Rs.59.72 crore in FY 2024. However, the PAT margin reduced from 32.06% in FY 2022 to 25.03% in FY 2024 due to an increase in raw material expenses.

Return on Equity (ROE) fell from 70.43% in FY 2022 to 36.36% in FY 2024. While the Return on Capital Employed (ROCE) decreased from 126.60% in FY 2022 to 76.99% in FY 2024. This decrease is primarily due to a significant increase in equity and a decrease in net earnings during the year.

Strengths and Risks of Denta Water and Infra Solutions IPO

Let’s dive into the strengths and weaknesses to assess if Denta Water and Infra Solutions IPO is good or bad for investors

Strengths:

• They have built a strong reputation as a provider of water management solutions, specializing in groundwater recharge projects (GWR projects) and lift irrigation projects.

• They have a skilled team specializing in groundwater recharging and lift irrigation, supported by an in-house design team for tasks like site identification, hydraulic calculations, drainage and water flow designs.

• They are a growing water and infrastructure solutions companies engaged in design, installation, commissioning of water management infrastructure projects with expertise in GWR Projects. As of November 30, 2024, they have 17 ongoing projects.

Risks:

• The company relies heavily on the Government of Karnataka, which contributed 83.98% of its revenue for the six months ending September 30, 2024. This reliance poses a risk if policies, funding, or payments are affected.

• The company generates a significant portion of its revenue from a few customers. Losing these customers or termination of contracts could impact its business, cash flow, and financial performance.

• The company’s revenue and profitability depend heavily on securing new contracts, which it cannot directly control. Failure to win projects consistently could significantly impact its growth, operating results, and business operations. This reliance poses a risk to sustaining profitability and overall performance.

Strategies of Denta Water and Infra Solutions IPO

They will continue to focus on the construction of existing projects while seeking opportunities to expand their portfolio of GWR Projects. As of November 30, 2024, they have completed 32 GWR projects and are presently executing 11 ongoing GWR projects.

To drive business growth, the company aims to diversify and expand into new regions. Its strategy focuses on selectively entering different industry segments and geographies, ensuring quality service delivery while minimizing delays and local challenges.

As part of their growth strategy, the company plans to focus on water management projects while also diversifying into new sectors. They aim to expand by bidding for projects in railways and highways.

Denta Water and Infra Solutions IPO Vs Peers

Let’s conduct a peer comparison to assess whether it’s worth investing in Denta Water and Infra Solutions IPO

Denta Water and Infra Solutions, despite a smaller revenue base of Rs.238.59 crores compared to VA Tech Wabag’s Rs.2,856.40 crores and EMS Limited’s Rs.538.16 crores, exhibits strong profitability with an EPS of Rs.31.11 and an industry-leading RONW of 36.36%. Although its NAV per share of Rs.85.55 is lowest, amongst its peers.

Objectives of Denta Water and Infra Solutions IPO

• To meet the working capital requirements of the Company.

• To fund general corporate purposes, subject to applicable laws.

Denta Water and Infra Solutions IPO Details

IPO Date

Denta Water and Infra Solutions IPO is open to subscription from January 22, 2025, to January 24, 2025. The shares will be allocated to investors on January 27, 2025, and the company will be listed in the NSE and BSE on January 29, 2025.

IPO Issue Price

Denta Water and Infra Solutions IPO is offering its shares in the price band of Rs. 279 to Rs. 294 per share. This means you would require an investment of Rs.14,700 per lot (50 shares) if you are bidding for the IPO at the upper price band.

IPO Size

The Denta Water and Infra Solutions IPO is offering a total of 75,00,000 shares, amounting to ?220.50 crores, entirely as a fresh issue.

IPO Allotment Status

The shares from the Denta Water and Infra Solutions IPO will be allotted to its investors on January 27, 2025. 

IPO Application Link

Open a demat account with Rupeezy today and enjoy a seamless experience when applying for the IPO. With an easy-to-use platform, Rupeezy makes the IPO application process quick and hassle-free. Click on the apply link below to get started.

Apply for Denta Water and Infra Solutions IPO

Denta Water and Infra Solutions IPO GMP

Investors often check the Denta Water and Infra Solutions IPO GMP for market sentiment and listing price hints. However, GMP doesn’t reflect financial strength, so a financial analysis is crucial before investing.

Conclusion

Denta Water and Infra Solutions IPO offers a promising opportunity for investors with its strong focus on niche water management projects, robust profitability metrics, and industry-leading RONW. However, its heavy reliance on a few key customers and the Government of Karnataka poses significant risks. However, it is recommended that investors conduct thorough research before making an investment decision.