Jash Engineering: Promising, But is the Price Justified?
The stock is trading 23% above its intrinsic value.
About the company
Jash Engineering Limited (JASH), headquartered in Indore, India, manufactures water engineering systems and solutions equipment. The company's product line includes water intake systems, heavy fabricated gates, fine screening equipment, coarse screening equipment, knife gate valves, screw pumps, filtering equipment, and others. These equipment are used in Water and Wastewater Pumping Stations and Treatment Plants, Desalination plants, Storm Water Pumping Stations, Water Transmission Lines, hydropower generation, and also for power, steel, cement, Paper & Pulp, petrochemicals, chemicals, fertilizers, and other process plants. The company has six manufacturing units, four in Indore (India) and one in the UK and USA. JASH exports its products to more than 45 countries, generating approximately 66% of its revenue.
Subsidiaries include Shivpad Manufacturing Pvt Ltd (to be merged with JASH), JASH USA Inc (Rodney Hunt), Mahr Maschinenbau Ges.m.b.H (Austria), and Engineering & Manufacturing JASH Limited (Hongkong).
JASH’s India clientele includes L&T, NTPC, SAIL, RELIANCE, NCC, VA WABAG, NPCIL, WAPCOS, THERMAX, ENVIRO INFRA, MECON, KIRLOSKAR, and others. The international clientele list includes XYLEM, VEOLIA, CDM SMITH, AECOM, ZUBLIN, GENERAL ELECTRIC, CHEVALIER, SEMBAWANG, BESTWISE, and others.
The water control gates generate significant revenue of approximately 59% and JASH is one of the global leaders in this product. Other revenue-contributing products include screening equipment (22%), Valves (10%), hydropower and pumping, process equipment, and others (9%).
Key Managerial Personnel
Mr. Pratik Patel (60 years), Managing Director (Promoter), has over thirty years of experience in the water treatment industry. He oversees the company's development and strategy.
Mr. Suresh Patel (82 years), Executive Director (Promoter), has over five decades of experience. He oversees technological improvements in manufacturing and product design.
Bhuvanesh Pandey (46 years), Chief Operating Officer has wide experience in P&L Handling, Purchase, Manufacturing, HR, Design, and Quality. Previously worked with General Electric, ABB, and Andritz. He looks after the four plants in Indore, which are included in the SAP implementation.
Dharmendra Jain (53 years) - Chief Financial Officer has over 28 years of experience in finance, accounts, and taxation. He looks after overall Financial, Accounting, Commercial, and Purchase operations in JASH and Shivpad Engineers.
Shareholding Pattern
The reduction in promoter holding in 1H FY 2025 is due to the recategorization of certain inactive promoters to the public category.
Industry Outlook
JASH Engineering primarily serves the wastewater treatment industry and the outlook for this industry seems strong given the rising urbanization, industrialization, and the need for sustainable water management solutions. As JASH generates more than 60% of its revenue through exports, let's first discuss the industry outlook for the global markets.
According to a report published by Fortune Business Insights, the global water and wastewater treatment industry market was valued at $323.32 bn in 2023 and is projected to grow from $346.41 bn in 2024 to $617.81 bn in 2032 with a CAGR of 7.5%. Water and wastewater treatment is necessary as only 1% of the earth’s water is freshwater and with the rising population, the demand for clean water increases. This leads to the conversion of seawater into freshwater through the desalination process. Globally, governments are implementing strict regulations to mitigate water pollution and promote sustainability. The municipal treatment facilities are experiencing saturation as more wastewater is created in urban areas due to rapid development. Governments and local municipal authorities are progressively channeling funds into expanding and modernizing wastewater treatment plants to cater to growing populations and enhance water quality standards. This scenario presents great opportunities for water treatment equipment manufacturers such as JASH to leverage.
The U.S. government introduced the Build America Buy America (BABA Act) as a part of its Infrastructure Investment and Jobs Act (IIJA) in November 2021. Under the BABA Act, federally
funded infrastructure projects should use American-made iron, steel, construction materials, and manufactured products. Up until 2029, 65% of the contribution should be from America and after 2029, 95% of the equipment should be produced in America.
As per the International Trade Administration, India has the 5th largest water and wastewater treatment market in the world. Our country is experiencing a growing threat of water scarcity due to population pressure and urbanization. Currently, India sustains 18 % of the world's population with only 4 % of global water resources. Therefore management of water resources has assumed great importance in India. The increased emphasis on improving the standard of living in urban regions should catalyze substantial investments in refurbishing existing waste management systems and establishing new infrastructures. According to the Financial Express, by 2030, India's water demand will exceed supply by two times, indicating severe water scarcity. This water shortage for industrial and residential use is expected to increase the need for water treatment systems in the long run. These initiatives are expected to provide multiple avenues for revenue expansion for entities engaged in the Indian Water and Wastewater Treatment Market. Based on the Mordor Intelligence report, India's Water And Wastewater Treatment Technology Market size is estimated at $1.02 billion in 2024, and is expected to reach $1.71 billion by 2029, growing at a CAGR of 10.78%.
Government-led initiatives such as the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), National Mission for Clean Ganga (NMCG), Jal Jeevan Mission, and Community Drinking Water Schemes are instrumental in propelling the growth trajectory of the Indian water and wastewater treatment market. The AMRUT scheme focuses on the development of basic infrastructure, in the selected cities and towns, in the sectors of water supply; sewerage and septage management; stormwater drainage, and others. The National Mission for Clean Ganga (NMCG) focuses on reducing pollution of the Ganga River by treating wastewater that flows through the open drain.
Recent Quarter performance highlights
JASH’s revenue from operations increased by 47% year over year to 139.6 crores in the second quarter of FY23, Revenues in JASH Engineering grew by 73% Y/Y, in Shivpad Engineers it grew by 133% Y/Y, and in Rodney Hunt revenue grew by 49% Y/Y. Despite this jump in revenues, gross margins remained stagnant at 63.8% due to increased raw material costs. EBITDA margins in the quarter improved by 420 bps year over year given the lower employee benefit expense as a % of revenue. Net profit margins improved 260 bps year over year to 11.6% in the quarter.
On the balance sheet side, total assets increased by 15.6% compared to March 2024, as goodwill in the books doubled to 42.8 crores, given the completion of the acquisition of Waterfront Fluid Controls Limited. Total liabilities were up by 29% during the same period, primarily due to increased long-term borrowings, trade payable, and lease liabilities.
Growth through acquisitions and joint ventures
JASH Engineering started its acquisition spree in 2009 and has acquired six companies over the last decade. In 2009, it acquired Sureseal, India for approximately 1 crore to increase its presence in the water hammer control valve products in India. In 2011, the acquisition of Shivpad Engineers for approximately 6 crores to add treatment process equipment under its range of products. Shivpad Engineers generated Rs. 4.5 crore before the acquisition. Over the years, using JASH’s marketing and client base, Shivpad’s revenue grew to Rs. 40 crore in 2023-24.
In 2012, JASH collaborated for technical assistance with Mahr Maschinenbau Gmbh, an Austrian company for screening equipment. However, in 2014 JASH acquired the company for approximately Euro 2 mn. Before the acquisition, Mahr’s turnover was less than Rs. 5 crore and was only doing business in Hong Kong. However, after its acquisition by JASH, turnover rose to Rs. 60 crores in 2023-24 and the company is doing business in other markets such as the Middle East, Singapore, the USA, and the UK.
In 2016, JASH USA acquired Rodney Hunt, a U.S.-based company, for $4 million to access the North American water control gate market and rescue the company from shutting down. Since then, JASH USA has been focused on restructuring Rodney Hunt’s operations and steadily reducing its losses. This extensive turnaround effort, while time-consuming, limited JASH's ability to pursue other acquisitions over the past seven years. However, with the restructuring process nearing completion, JASH USA is poised to report its first profit in 2024-25 since the Rodney Hunt acquisition.
In April 2024, JASH acquired Waterfront Fluid Controls, a UK-based company for GBP 2 million. This acquisition will help JASH grow its presence in the UK and become the largest company of water control gates in the UK. In addition to its current product line of standard water control gates, the company plans to utilize Waterfront to push other product lines such as screens, Knife gate valves, and Heavy Fabricated gates.
In FY 2023-24, a new company called JASH Invent India Pvt Ltd was created, a joint venture between JASH and Invent Umwelt Und Verfahrenstechnik AG, Germany with a 50-50 partnership. Jash Engineering will manufacture a range of aerators, diffusers, mixing and aeration equipment, decanting equipment, and turbo blowers and the JV will market these products. Indigenous production of these equipment should begin in early 2025.
Capital Expenditure
As discussed above, JASH has six manufacturing units, four in India and two in foreign countries. The company mainly relies on in-house manufacturing as it manufactures custom-engineered products. This benefits the company by meeting the varied requirements of clients and on-time deliveries.
The parent company (JASH Engineering India) has plans to expand its manufacturing capabilities and capacity of various machinery at its four facilities within India between October 2024 and March 2025. The management plans to invest Rs. 30 crores in 2024-25 in the following projects. To improve the productivity of its employees, the company is expanding at the cost of Rs. 50 lakhs its canteen at Unit 3 & 4 to cater food. A guest house at Unit 2 is planned for Rs. 3 crores to reduce its guest hotel accommodation costs which exceeds more than Rs. 20 lakhs. To meet the increasing demand in export markets, JASH is also expanding its capacity at SEZ Unit 4 by approximately 64,000 sq. ft to manufacture gates and screens for US/UK/European markets. The construction of this facility began in October 2024 and should be commissioned by December 2025. Once commissioned it should contribute Rs. 75 crores to revenue. The company is in the process of merging its Shivpad operations within JASH in 2024-25 to reduce the number of subsidiary companies. To manufacture process equipment at Chennai, a production facility of 60,000 sq. ft is being set up at an approximate cost of Rs. 20 crores. This facility should be commissioned by Feb 2025 and should contribute approximately Rs. 75 crores to the revenue once commissioned.
For the subsidiary in the USA, Rodney Hunt, the company plans to build a new office building of 13,000 sq. ft for Rs. 20 crores. Once built the annual rental cost of Rs. 120 crores for the existing office should cease to exist, improving JASH’s profitability. If the Rodney Hunt business grows by $15 million, the company will have to upgrade its old sheds at the plant into a suitable production facility which will cost an investment of Rs. 15 crores. The company plans to install a new manufacturing capacity adjoining its new office in Houston in 2027 which should cost about Rs. 33 crores. For the Waterfront Fluid Control business, AAON added approximately 8000 sq. ft of new manufacturing unit at its Glasgow facility, UK in May 2024. The production of water gates and gates will commence in May 2024 for the UK market.
Healthy order book
As of November 2024, JASH’s order book stands at Rs. 873 crores, below the Q1 FY 2024 order book of Rs. 939 crores as significant dispatches took place in October 2024 in the USA. In Q2 FY 2024, the order book of Rodney Hunt (JASH USA) was Rs. 310 crores compared to Rs. 365 crores in the previous quarter. The order book of Jash Engineering in the quarter declined sequentially to Rs. 542 crore from Rs. 553 crore. The Waterfront Fluid Controls business which was recently acquired has an order book of Rs. 21 crore. Currently, JASH has a Rs. 27 crore order already negotiated which should soon flow through its order book (usually takes 2 months) and has Rs. 57 crore order under negotiation.
In October, the company received an order of Rs. 45 crore, of which Rs. 19 crore is from the Indian market and Rs. 26 crore is from markets outside India. The significant contributors to this order book include Girdhari Lal (Panchkula), Khiladi Infra (Mumbai), Enviro Infra Engineering (Delhi) from India and Analogue Technical (Hong Kong), Leonard WTP, Phase 2 (USA), and Greeley WTRF Upgrades (USA) from the international market.
List of Competitors
In India
Outside India
Future Outlook
In FY 2024-25, JASH should generate a topline of Rs. 630 crores, assuming a growth rate of 22% for FY 2024-25. This is on the lower side of the management’s guidance of Rs. 675 crore. The revenue growth within India should be approximately 10% in FY 2024-25 and 15% beyond FY25 given the increased need for water treatment facilities. Outside India, the growth rate should be 30% given the acquisition of Waterfront Fluid Controls in April 2024 and healthy demand in the Rodney Hunt business.
Beyond FY2025, the growth rate should be in the mid-teens for the next five years given the increased growth opportunities in the U.K. market through the acquisition of Waterfront Fluid Controls, JV with Invent India, Capacity expansion at the current manufacturing facilities, and future acquisitions. Using this growth rate, JASH should be able to meet its target of Rs. 1000 crore in FY 2028.
On the profitability side, I believe JASH’s EBITDA margin should improve from 20% to 21% in FY 2025 and should gradually increase to 25% in FY 2029. The reasons are increasing profitability in the Rodney Hunt business, reduction in manpower overheads, increase in export business, changes in product mix, and improving operational efficiency through digitization and automation.
Valuation
Based on my DCF calculations, using FCFF, the intrinsic value of Jash Engineering should be Rs. 499.77 which is currently overvalued by approximately 23%. I have assumed a risk-free rate of 6.85%, based on India’s 10-year bond yield and market return of 12.65% based on the Nifty-50 10-year total return rate. Using the Capital Asset Pricing Model (CAPM), the cost of equity came at 8.7%. I have used 10% as the cost of debt considering the interest rates on previous loans. Despite the healthy growth prospects of Jash, I believe we should wait for a correction in the stock price.