Denta Water and Infra Solutions IPO Analysis: Should You Apply?

Denta Water and Infra Solutions Limited is set to launch its much-anticipated Initial Public Offering (IPO) on January 22, 2025, with the subscription closing on January 24, 2025. As aleading player in India’s water management infrastructure sector, the company has garnered significant investor interest.

In this blog, we will take an in-depth look at the strengths, risks, financial performance, and valuation metrics of the company to help you make an informed investment decision.

Denta Water and Infra Solutions IPO Details

 

• IPO Size: ₹220.5 crore
• Fresh Issue: ₹220.5 crore (no offer for sale)
• Price Band: ₹279 – ₹294 per share
• Market Capitalization Post-IPO: ₹785 crore
• Subscription Dates: January 22 to January 24, 2025
• Purpose of IPO: To fund working capital requirements

Company Overview

Founded in 2016, Denta Water and Infra Solutions specializes in designing, installing, and commissioning water management infrastructure projects. Their key focus is on groundwater recharge using recycled water, addressing the rising demand for sustainable water solutions.

In addition to water management, the company is involved in infrastructure projects in the railway and highway sectors, expanding its reach beyond water treatment. As of November 2024, Denta Water had successfully completed 35 projects, with an order book valued at ₹752 crore, which is approximately three times its FY24 revenue.

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Key Business Highlights:

• Major Revenue Driver: 97.5% of revenue comes from water and irrigation projects.
• Regional Focus: Karnataka contributes 84% of the company’s total revenue.
• Industry Potential: Government investments in water infrastructure are rising, providing long-term growth opportunities.

Strengths of Denta Water and Infra Solutions

1. Established Track Record
   • Successfully executed 35 water management projects since inception.
   • A robust order book of ₹752 crore ensures revenue visibility for the near future.
2. Strong Financial Growth
   • Revenue grew at a CAGR of 41.3% from FY22 to FY24, reaching ₹238.6 crore in FY24.
   • Profit after tax (PAT) increased by 24.8% annually, showing strong profitability.
3. Attractive Valuation
   • With a P/E ratio of 13.1x, Denta Water’s valuation is significantly lower compared to the industry average of 31.5x, indicating potential undervaluation.
   • P/B ratio of 1.9x is also below peer levels, making it an attractive investment option.
4. Debt-Free Business
   • The company has minimal debt with a debt-to-equity ratio of 0.0, which enhances financial stability and reduces interest burden.
5. Rising Demand for Water Solutions
   • The government’s push for infrastructure development and increasing water scarcity issues present significant growth opportunities.

Investment Insight: The company’s steady financial growth and order pipeline provide a strong foundation for long-term expansion.

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Challenges and Risks to Consider

While the company has strong growth potential, there are a few concerns investors should keep in mind:

1. Revenue Concentration Risk
   • Approximately 84% of revenue comes from Karnataka, making the company vulnerable to regional risks such as policy changes, economic downturns, or project cancellations.
2. High Working Capital Needs
   • The company has experienced a surge in unbilled revenue, increasing from ₹1.2 crore in FY22 to ₹95 crore in H1 FY25, leading to negative cash flows.
   • This high reliance on working capital could strain liquidity.
3. Competitive Market
   • The infrastructure sector has low entry barriers, leading to stiff competition and pricing pressures.
   • Contracts are awarded through competitive bidding, limiting the company’s pricing power.
4. Lack of Strong Brand Recognition
   • Denta Water lacks significant brand differentiation, and client relationships are based primarily on price competitiveness rather than loyalty.

Investment Insight: Investors should carefully evaluate the regional revenue dependency and working capital challenges before investing.

Financial Performance Overview

Key Financials (₹ crore)	FY22	FY23	FY24	2-Year CAGR (%)
Revenue	119.6	174.3	238.6	41.3
EBIT	51.7	66.6	78.7	23.3
PAT	38.3	50.1	59.7	24.8
Net Worth	54.4	104.5	164.3	–
Total Debt	0.0	1.2	0.9	–

 

Key Ratios:

Ratios	FY22	FY23	FY24	3-Year Average
Return on Equity (ROE) (%)	70.4	63.0	44.4	59.3
Return on Capital (ROCE) (%)	95.0	83.1	58.1	78.7
EBIT Margin (%)	43.3	38.2	33.0	38.1
Debt-to-Equity Ratio	0.0	0.0	0.0	–

Investment Insight: The company’s high returns on equity and capital indicate efficient management, but declining margins need attention.

Should You Invest in Denta Water and Infra Solutions IPO?

Pros:

• Strong financial performance and revenue growth.
• Attractive valuation compared to peers.
• Positive industry outlook with rising demand for water solutions.
• Debt-free company with a solid order book.

Cons:

• High dependence on Karnataka-based projects.
• Working capital challenges due to high unbilled revenue.
• Competitive industry with low pricing power.

Verdict:
If you are an investor looking for exposure to the infrastructure sector with a focus on water management, Denta Water and Infra Solutions’ IPO presents an attractive opportunity. However, it’s essential to be mindful of the regional concentration risk and the company’s ability to manage its cash flows effectively.

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Final Thoughts

Investing in an IPO requires careful consideration of the company’s fundamentals, growth potential, and associated risks. Denta Water and Infra Solutions presents an exciting opportunity with its steady financial growth, but investors should ensure it aligns with their risk tolerance and investment goals.

Stay informed and make an informed decision before investing in this IPO!

Disclaimer: This analysis is for informational purposes only. Investors should conduct their own research or consult financial advisors before making investment decisions.