By Majid Ahamed
About the Company
Envirotech Systems Limited is one of the leading acoustic engineering organizations specializing in noise measurement and control for industrial and commercial applications. Incorporated in 2007, they have expanded their capabilities to include innovative acoustical product design and manufacturing. With over 98 employees, they offer cost-effective solutions for various acoustical challenges in industrial, commercial, architectural, and environmental markets.
The key business segment is as follows:
- Acoustic Enclosure
- Noise Test Booth
- Engine Test Room Acoustic
- Anechoic & Semi-Anechoic Chamber
- Envirotech Noise Barrier
- Polycarbonate Noise Barrier
- Metallic Noise Barrier
- Echo Barrier
- Acoustic Louvers
- Envirotech Metal Doors
The company generates most of their revenue in the key 3 segments, Acoustic Enclosure, Envirotech Metal Doors, and Nose Barrier, contributing nearly 65% of the total revenue.
In FY24, the majority of the company’s revenue, about 98%, came from domestic markets. Over the years, the company has reduced its reliance on export revenue and increased its domestic revenue from ₹15 crore to around ₹45 crore, representing a nearly 200% increase over three years.
Regarding capacity utilization, the company operated at around 60% in FY22 and has scaled up to full capacity in the current financial year, FY24. The company sells its products to various sectors, primarily construction, real estate, and infrastructure, across different locations in India.
For the financial years ending March 31, 2024, 2023, and 2022, the top ten customers accounted for approximately 50.43%, 26.83%, and 43.26% of the total revenue, respectively. The loss of a significant customer could have a materially adverse effect on the company’s financial results.
The Offer & Proceeds of the Issue
The company is looking to raise capital of around 30.4 Crores in total in the IPO, of all of them 30.4 Cr is the fresh issues where this amount would go inside the company’s reserve, in which 3.9 Cr is allotted for the market makers or dealers, and the remaining 26.5 Crores is giving for the public and institution to subscribe.
The fresh issue money will be allocated as follows:
- The company plans to spend ₹12 crore on capital expenditure to invest in long-term assets. This includes setting up a new factory in Noida, UP. The total cost for the land and building is ₹22 crore, out of which the company has already paid ₹10 crore. The remaining ₹12 crore is needed to complete the investment.
- An additional ₹8 crore will be allocated to meet the company’s working capital requirements, as it needs higher working capital for inventory and trade receivables.
- The remaining funds will be used for general corporate purposes, including but not limited to operating expenses, initial development costs for projects other than the identified ones, strengthening business development and marketing capabilities, and addressing contingencies.
Valuation
The company is targeting a market capitalization of ₹105.22 crore, with a P/E ratio of 9.1. The P/E appears cheap, especially given that the company is new to the market and there are no directly comparable public companies in its industry. The company reported strong results in FY24, with revenue increasing by 65% YoY and PAT growing by over 500% YoY.
However, it’s important to note that the company faces client concentration risk, with more than 50% of its revenue coming from its top 10 customers. The company operates in a niche market, providing noise solutions for multiple industries. Given the demand and growth in both this sector and the automobile & industrial sector, the company could serve as a proxy for industry growth. The market is expected to grow at a CAGR of 8% until FY2030, with the industry currently valued at around US$150 million. There are very few organized players in this industry, which could benefit the company’s growth prospects. Considering these factors, the company’s valuation looks attractive.