Denta Water and Infra Solutions IPO analysis

Denta Water and Infra Solutions Limited IPO (initial public offering) will open for subscription on January 22, 2025, and close on January 24, 2025. Below is a breakdown of the water management company's strengths, weaknesses and growth prospects to help investors make an informed decision. Denta Water and Infra Solutions IPO in a nutshell Quality: During FY22-24, Denta Water and Infra Solutions reported a three-year average ROE and ROCE of nearly 59 and 79 per cent, respectively. Growth: During FY22-24, its revenue and profit after tax grew by around 41 and 25 per cent per annum, respectively. Valuation: At the upper price band of Rs 294, the stock is expected to be valued at a P/E and P/B ratio of around 13.1 and 1.9 times, respectively. Overview: Rising government capex on water infrastructure and demand for water treatment driven by industrial expansion should help the company scale up its business. However, factors like a highly competitive industry and geographical revenue concentration can hinder its growth. About Denta Water and Infra Solutions Founded in 2016, Denta Water and Infra Solutions specialises in designing, installing and commissioning water management infrastructure projects, with a focus on groundwater recharge using recycled water. The company also undertakes construction projects in the railway and highway sectors. Since its inception, Denta Water and Infra Solutions has successfully executed 35 projects. As of November 2024, the company's total order book stood at Rs 752 crore. In H1 FY25, water management and irrigation projects accounted for nearly 97.5 per cent of the company's revenue. While it has operations across India, Karnataka accounts for a significant chunk of revenue (84 per cent) during the same period. Strengths of Denta Water and Infra Solutions Established track record: Since its inception in 2016, the company has executed 35 water management and infrastructure projects. Further, its current order book stands at Rs 752 crore, which is three times its FY24 revenue, providing greater revenue visibility. Weaknesses of Denta Water and Infra Solutions Revenue concentration: The company derives nearly 84 per cent of its revenue (as of H1 FY25) from Karnataka. Thus, any change in clientele or termination of a contract can significantly hamper its financials. Surge in unbilled revenue: Denta Water and Infra Solutions' unbilled revenue (revenue that has been earned but is yet to be billed or invoiced) has ballooned over the last three years from Rs 1.2 crore in FY22 to Rs 95 crore as of H1FY25. This has resulted in negative cash flows (as of H1FY25) and high working capital requirements for the company. Denta Water and Infra Solutions IPO details Total IPO size (Rs cr) 220.5 Offer for sale (Rs cr) - Fresh issue (Rs cr) 220.5 Price band (Rs) 279-294 Subscription dates January 22-24, 2025 Purpose of issue To fund working capital requirements Post-IPO M-cap (Rs cr) 785 Net worth (Rs cr) 409 Promoter holding (%) 71.9 Price/earnings ratio (P/E) 13.1 Price/book ratio (P/B) 1.9 Financial history Key financials 2Y CAGR (%) FY24