EIL eyes water, waste water management as high growth areas

The follow-on public offer of Engineers India has been subscribed 0.51 times till day two. The issue, which has a price band of Rs 270-290 per share, will remain open for subscription till July 30.

Commenting on the same, Ashok Kumar Purwaha, Chairman, Engineers India, said the company intends to use the cash for equity stake in a gas-based plant and city gas distribution.

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Engineers India FPO opens; should you subscribe?

He said the company has posted a 47% compounded annual growth rate in sales and profit after tax for the last three years. "We also witnessed lumpsum turnkey growth of 100%. Our consultancy business saw a growth of 30%."

Going forward, Purwaha sees a high growth in hydrocarbons within the consultancy business. Engineers India, he added, is looking at water and waste-water management as high growth areas.

Here is a verbatim transcript of the exclusive interview with Ashok Kumar Purwaha on CNBC-TV18. Also watch the accompanying video.

Q: The one issue, which your investors would want to know, is how the two engines of growth for the company, the consultancy segment and the projects business, how these two are growing relative to each other? Which business is growing faster?

A: You must have seen through the RHP (Red Herring Prospectus) document that we have been growing, year on year basis, at a CAGR (Compound Annual Growth Rate) of about 47% in last three years. It is there in the top-line as well as in the bottom-line.

Consultancy segment is growing at the rate of about 30% whereas the lumpsum turnkey has grown more than 100% in these three years. So, both these segments are growing, you are seeing about 47% CAGR in the last three years.

In the last about ten years, if you see year on year basis, we have been growing in both the segments. But in LST segment that is the turnkey, the growth is more in the last three years time.

Q: That is one reason why the market is a bit concerned. While your overall growth is very strong, the higher margin business is the consultancy business and the turnkey business, which is growing faster, is a slightly lower margin business. If that continues to grow faster, maybe your overall margins will get lower from the current level of 24 odd percentage points. Is that a legitimate apprehension?

A: When you are saying EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin is in the range of 45%, what we have been doing. Our consultancy margins are higher than the lumpsum margin, but then our consultancy is growing at a reasonable rate. As I said about 29-30% has been the growth in the last three-four years.

We have a lot of opportunities there. Hydrocarbon is our real strong areas into that. There is a lot of growth, within the hydrocarbon sector, within the country, is expected and also in the overseas market where we have a presence. We intent to enter new geographies, in North Africa, in the mid-term and long-term perspective, in some of the countries into the Latin America as well.