Best Water Infra Stock: Enviro Infra Engineers vs VA Tech Wabag

One of the biggest challenges the world is currently facing is water scarcity. In times like this, the water infrastructure industry stands as a primary pillar for sustainable development.

The water infrastructure industry encompasses the planning, construction, and maintenance of systems that ensure the delivery of clean water and effective wastewater management.

With the world population expected to touch 9 billion (bn) by 2050, the need for water infrastructure and solutions has never been more urgent.

To add to this, India is experiencing rapid urbanisation, and technological advancements. Hence, the water infrastructure industry is poised for growth.

In this strong growth industry, two players are making their mark with rapid expansion.

They are Enviro Infra Engineers and VA Tech Wabag.

We compare both companies across various parameters to see which is better.

Take a look...

Business Overview

#Enviro Infra Engineers

Enviro Infra Engineers was established in 2009 and is engaged in the business of design, construction, operation and maintenance of water, waste water treatment plants, and water supply projects for government bodies.

The company primarily operates through EPC (Engineering, Procurement, and Construction) and HAM (Hybrid Annuity Model) contracts.

Some of its projects include sewage, common effluent, and water treatment plants which are successfully implemented in various states including Gujarat, Rajasthan, Punjab, Haryana, Uttar Pradesh, and Madhya Pradesh.

As of 30 June 2024, the company has successfully developed 28 wastewater treatment plants and water supply and sanitation projects.

#VA Tech Wabag

VA Tech Wabag is engaged in the design, supply, installation, construction, and operational management of drinking water, waste water treatment, industrial water treatment, and desalination plants.

With a presence across the entire water solutions value chain, it has successfully executed over 6,500 municipal and industrial projects across 25 countries.

The company undertakes projects through various business models including EPC, HAM, operation and maintenance (O&M), Design Build Operate (DBO), and Build-own-operate-transfer (BOOT).

It is an established player in the water treatment business, the third largest private water operator in the world, and among the top 5 global desalination players by Global Water Intelligence, UK.

Some of its key clients are Delhi Jal Board, Reliance, ONGC, Petronas, Indian Oil, and NMDC.

Particulars	Enviro Infra Engineers	VA Tech Wabag
Market Cap (in Rs billion)*	50.1	111.5
Order Book (in Rs billion)**	37.8	114

Source: Equitymaster|* as of 12th December 2024| ** as of March 2024

Between the two companies, VA Tech Wabag has a higher market cap of Rs 111.5 billion (bn) against Rs 50.1 bn of Enviro Infra Engineers.

VA Tech Wabag is also leading in terms of the order books. At the end of March 2024, the order book of VA Tech Wabag is Rs 114 bn as against an order book of Rs 37 bn.

Of the Rs 114 bn, 56% are EPC orders and the rest, 44%, O&M. Moreover, 89% of the orders are from municipal entities, and the remaining 11% are from industrial projects.

For Enviro Infra Engineers, 36% are EPC orders, 33% are joint venture projects, 9% are HAM projects, and 19% are O&M projects.

Majority of the company's orders are government orders and its success rate has increased over the years to 58% from a low of 17%.

With respect to the company's performance on the bourses, VA Tech Wabag's shares zoomed by over 180%, whereas the Nifty 50's returns were 16.3%. Enviro Infra Engineer's shares, on the other hand, zoomed by 37% since its listing on 29 November 2024.

#Revenue

Both companies earn their revenue through water treatment projects. However, Enviro Infra Engineers earns majorly from government projects, whereas VA Tech Wabag has a mix of government and industrial projects.

In the last five years, Enviro Infra Engineers sales grew at a compound annual growth rate (CAGR) of 46.4%, driven by strong order book and timely execution of orders.

Moreover, the company has a long standing and healthy relationship with its clients and suppliers making it easy to get repeat orders.

For VA Tech Wabag, the sales grew at a CAGR of 2.2% in the last five years driven by a strong order book. A low revenue growth is primarily due to slow order execution.

However, the company has a strong order book, which indicates medium-term revenue visibility.

Revenue

Net Sales (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Enviro Infra Engineers	946	1,085	1,968	2,945	6,358	46.40%
VA Tech Wabag	25,572	28,345	29,793	29,605	28,564	2.20%

Source: Equitymaster

#Profitability

To evaluate profitability, it is important to assess earnings before interest tax depreciation and amortisation (EBITDA), net profit growth, and profit margins. Growing profits and margins are considered a good sign for the business.

In the last five years, the EBITDA of Enviro Infra Engineers has grown at a CAGR of 72.5%. The net profit also grew by a CAGR of 82.9% during the same period.

Such healthy growth in profits is primarily due to the company's ability to execute its orders in a timely manner through its in-house design team. The gross margin and net margin also averaged 27.7% and 17.7%, respectively.

For VA Tech Wabag, the EBITDA and net profit grew at a CAGR of 10.7% and 24.4% respectively. The company's profitability was slightly affected due to high commodity prices. However, it bounced back strong in financial year 2024 primarily due to the company's improved pace of order execution.

Moreover, it has a strong order book which already has factored the high commodity prices, and hence the profitability is expected to improve further. The gross margin and net margin of the company averaged at 12.1% and 4.5% respectively in the last five years.

Profitability

EBITDA (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Enviro Infra Engineers	115	166	521	852	1,756	72.50%
VA Tech Wabag	2,522	2,270	2,694	3,714	4,191	10.70%
PAT (in Rs m)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24	5-Year CAGR
Enviro Infra Engineers	52	86	345	553	1,065	82.90%
VA Tech Wabag	839	1,008	1,321	110	2,504	24.40%
Gross Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Enviro Infra Engineers	12.20%	15.30%	26.50%	28.90%	27.60%
VA Tech Wabag	9.90%	8.00%	9.00%	12.50%	14.70%
Net Profit Margin	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Enviro Infra Engineers	5.50%	7.90%	17.50%	18.80%	16.80%
VA Tech Wabag	3.30%	3.60%	4.40%	0.40%	8.80%

Source: Equitymaster

#Debt Management

It is important to assess the debt as it is a fixed financial obligation of the company and can impact the profitability and cashflows.

Both Enviro Infra Engineers and VA Tech Wabag have debt on their books.

For Enviro Infra Engineers, the debt to equity ratio at the end of March 2024 is 0.3x. it has a term debt obligation of Rs 350 million (m), but has healthy cash accruals of Rs 1,150 m which indicates sufficient liquidity.

Moreover, since the company has recently gone public, it plans to use a part of the funds raised to repay its obligations. The rest of the funds will be used for working capital, and infusing funds into its subsidiary for the Mathura Sewerage Scheme.

At present, the company is very active in north and central India. However, it plans to expand into Karnataka and Jharkhand through inorganic expansion.

For VA Tech Wabag, the debt to equity ratio is 0.1x with a negligible outstanding debt. Moreover, the company has strong cashflows after it managed to recover part of its outstanding receivables from two disputed projects.

The company has low capex requirement given that it follows the asset-light model through a partnership with financial, construction, and technology partners.

With cashflows and an asset-light model, the company has taken up several new initiatives. It has entered into a strategic tie-up with peak sustainability ventures to establish 100 compressed biogas plants. It is also investing in artificial intelligence (AI) for use in water treatment plans.

Apart from this, it is expanding its customer base to the semi-conductor industry to supply them with clean water. It plans to fund all these projects through internal accruals. Hence, no additional debt is anticipated in the near future.

Debt Management

Debt to Equity Ratio (x)	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Enviro Infra Engineers	0.0	0.1	0.0	0.3	0.3
VA Tech Wabag	0.0	0.1	0.1	0.0	0.1

Source: Equitymaster

#Financial Efficiency

The two ratios that help in assessing the financial efficiency of a company are return on capital employed (RoCE) and return on equity (RoE).

Both ratios indicate the company's ability to generate returns from the capital invested. A high and consistently growing ratio is considered a positive sign.

The 5 year average RoE and RoCE for Enviro Infra Engineers are 33.9% and 47%, respectively. On the other hand, VA Tech Wabag's RoE and RoCE averaged 7.5% and 15%, respectively, in the last 5 years.

Strong order book and high-profit margins have helped Enviro Infra Engineers maintain high-efficiency ratios, whereas for VA Tech Wabag, moderate profitability has kept the efficiency ratios at bay.

Financial Efficiency

ROCE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Enviro Infra Engineers	34.90%	38.70%	68.60%	48.70%	44.30%
VA Tech Wabag	20.10%	14.30%	15.70%	5.10%	20.00%
ROE	Mar-20	Mar-21	Mar-22	Mar-23	Mar-24
Enviro Infra Engineers	18.10%	23.20%	48.20%	43.70%	36.40%
VA Tech Wabag	7.10%	7.20%	8.60%	0.70%	13.80%

Source: Equitymaster

#Dividend

Both Enviro Infra Engineers and VA Tech Wabag haven't paid any dividends in the past.

However, given the growing profitability, and low capex investments for both the companies, we can expect dividend payments in the medium term.

#Valuation

A company's valuation can be assessed through the price to earnings (PE) and price to book value (PB) ratio.

These ratios help us estimate the intrinsic value of a company. They also help us analyse whether a company's shares are overvalued or undervalued when compared to its peers. A high ratio indicates that the shares are overvalued, and a low ratio indicates that the shares are undervalued.

The PE and PB ratios of Enviro Infra Engineers are 47.1x and 5.3x, respectively. For VA Tech Wabag, the ratios are 43.5x and 5.8x, respectively.

In terms of PE, the shares of Enviro Infra Engineers are slightly overvalued, and in terms of PB, the shares of VA Tech Wabag are slightly overvalued.

When compared to the industry average, both companies are overvalued.

Valuations	Enviro Infra Engineers	3-Year Average	VA Tech Wabag	3-Year Average
PE (x)	47.1	NA	43.5	46.1
PB (x)	5.3	NA	5.8	3.3

Source: Equitymaster

Which is a Better Water Infra Stock: Enviro Infra Engineers or VA Tech Wabag?

In terms of revenue growth, profit growth, profit margins, financial efficiency, and valuations Enviro Infra Engineers is leading.

However, in terms of absolute revenue and profit numbers, as well as debt management, VA Tech Wabag is ahead of its competitors.

Being a well-established player in the water infra business, the company has a competitive edge over others. It has a diversified client base across municipalities and industrial businesses across India and several countries.

The company has also started several new initiatives to diversify its business. VA Tech Wabag plans to establish 100 compressed biogas plants via a strategic tie-up with Peak Sustainability Ventures.

It is also focussing on expanding its customer base in the industrial business by supplying the semiconductor industry with clean water. The company is also investing in artificial intelligence (AI) to use it in water treatment plans and to improve efficiency.

Enviro Infra Engineers, on the other hand, is a budding player in the water infra industry. It is experiencing exponential growth in revenue and profits primarily due to its ability to execute projects quickly.

The company plans to expand its business from North and Central India to Eastern and South regions. It already forayed into Karnataka and Jharkhand by winning projects. It also plans to expand through its wholly owned subsidiaries and is aggressively investing in them.

Given the growing demand for desalination and water reuse globally, both companies could benefit.

However, it is important to note that the companies' profits can be affected due to delay in order execution, and its cashflows can be impacted due to delay in receivables from clients.

Hence, it is very important to do thorough research before jumping into any financial decision.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...