Techknowgreen solutions is a business incorporated in 2001 by Dr.Ajay Ojha and Mr. Prasad Pawar which focuses on providing environmental consultation, research and IT services. The business started of as a partnership firm but was then later converted to a publicly listed company in the late 2023.
As the government and the private industries start paying more attention to enviornment and becoming net carbon free, Techknowgreen positions itself to play a key role in this mega tailwind. This blog will delve deeper into the business model and discuss the thesis and anti-thesis of the company!
About the business
The business has three key verticals:
Consultation:
This makes up for most of the revenue. Out of 13.56 crores in H1FY25, the company did 7.83 crores or 57.7% of the total revenue.70% of the business here is from private and the rest is from government In consultation, the business has two verticals.
The first segment here is sustainability compliance where the top 1000 companies in the listed space are required to produce a sustainability report, which techknowgreen is equipped to do.
Second being the regulatory compliance, where they work with all regulatory permissions, not only in the environment now but have extended to MIDC(Maharastra Industrial Development Corporation), the Local Pollution Control Board, and local bodies for providing companies with related clearances and permits, they have various specialized services such as environmental crime investigation, cost-benefit analysis for environmental optimization. The company got the NABIT (National Accreditation Board for Education and Training) certificate, which allows it to take environmental clearing projects from 13 sectors, compared to 7 previously. This means that the board recognizes that it meets high standards for providing services in education, training, and other related areas.
When I first read this, I was so confused. I didnt understand a lot of it. To ensure that does not happen with you guys, I will try to explain it at as simply as possible.
So basically, The company helps businesses follow all the rules and laws required to operate legally with respect to the environmental regulations. They investigate illegal activities harming the environment, like unauthorized pollution or deforestation. They analyze how businesses can reduce environmental harm while balancing costs and benefits effectively.
Technology
Technology did a revenue of 99L or 7% of the total revenue. Currently, 100% of the business comes from private. The company has been focusing less on this business vertical as the cash flows are not as good as consulting and the margins too are attractive there.
Technology vertical stands for the deployment of the company's unconventional environmental methods. Here, two prominent technologies that they have developed are circular economic wetland technology, which uses grasses to treat wastewater treatment and a device called Yuka Yantra, which helps treat the rising air pollution in cities of India. In fact, Maharastra selected only four technologies (out of 14) for testing, and they were one of them. According to the management, the reception of the product has been great.
Another vertical here IT services where they develop apps to development of carbon reduction or carbon tracking apps, and software for environmental compliance.
Research
Research is the core of the company. The revenue from this vertical was 35% of H1FY25 or 4.74 crores. Research has two verticals: Engineering and policy.
In terms of engineering, the company developing different technologies for environmental pollution treatment. Research is where Yuka Yantra and the circular economic wetland technology were made.
And in policy, they provide policy research analysis in terms of whether certain policies can be really implemented in a beneficial form, right from carbon or climate change policies to cost benefit for alternative fuels. This is the brief of our technology vertical. These are the three verticals we have been working on.
In my opinion, the true differentiator will be the research business vertical as this is where they will have entry barriers and can experience exponential growth. Moreover, the promoters have PhD in enviornmental science research and from the looks of it, the DnA of the promoter is the DnA of the company.
Strengths and Thesis
Industry tailwinds and growth: The adoption of environmental regulations is only going to increase. India aims to be carbon neutral by 2070, a; hence, massive ramp-upp needs to happen. Swachh Bharat Abhiyan has about 8000 crores allocated in the budget. This will be used for multiple things, including wastewater management and recycling. Technologies used by Techknowgreen tackle this. Namami Gange Programme, Launched in 2014, aims to rejuvenate the Ganges River by implementing sewage treatment, river surface cleaning, and afforestation projects. The program emphasizes the interception and treatment of wastewater from open drains to prevent river pollution. India's NAPCC outlines missions such as the National Mission for a Green India, focusing on enhancing carbon sinks through afforestation and ecosystem restoration. These are just a few examples; there are too many from the government side. More importantly, corporations are pushing and being pushed to become aware of their carbon emissions. SEBI has asked the top 1000 companies to submit a yearly sustainability report. This highlights the focus on environmental concerns and creates multiple opportunities for such companies. Since this is a yearly activity, companies like Techknowgreen can generate recurring business here and stabilise their earnings. Mega corporations like Reliance aim to be carbon neutral by 2035 and invest 10 billion dollars, while the Adani group plans to invest 70 billion dollars for this initiative! The industry is massive, and the investments will be huge. Techknowgreen has a purple patch ahead of itself which it needs to take advantage of.
Growth outlook: The company has been aiming to grow at a CAGR of 50% and with the tailwinds, low base and capabilities, it surely can. The company currently has an orderbook of 40 crores which is to be executed in the next 3-15 months (depending on the delivery) .It does not account for all the revenue that they will make though as some revenue of consulting does not come under this. Hence, we can see that the company has the order book to backs its subtle claims of growing at 50%+ CAGR
Carbon trading optionality: The carbon credit market is a system designed to reduce global greenhouse gas emissions through financial incentives. It operates by issuing carbon credits, each representing the reduction or removal of one metric ton of carbon dioxide or its equivalent. Entities that reduce emissions below a set cap can sell their surplus credits to others needing to offset higher emissions, promoting cost-effective emission reductions. There are two main types of carbon markets: compliance markets, regulated by governmental policies, and voluntary markets, where entities voluntarily purchase credits to offset their emissions. The carbon market is a huge market and the company operates in both areas to consult companies on what to do and help them become carbon neutral. What excites me is the optionality to generate their own carbon credits to sell. This way, they can make a lot of money without any addiotonal expenditure. The management has said that it is something they are looking to do in the future, hence I am assuming it to be an optionality.
Data center optionality: As every investor has become an expert in data centers (joke), we all must be aware of the tremendous amounts of energy being used and the carbon emissions that stand to happen from that. We are also aware of the 40% CAGR projected growth. Companies like Techknowgreen are a good proxy for this trend as they too need to aim to be carbon neutral in the future. They are already working with a few data center businesses like Singapore Telecom.
Lab, launches and subsidaries: The company recently opened their own labarotary which will act as a backward integration as they will not need to outsource their lab work when consulting etc. Moreover, they get orders for research from government and other organisations which requires intense labarotary usage. This initiative helps them tackle all of that.
Yuka Yuntra is set to be launched soon, it was previously under Beta testing and has gotten a commercial order. They expect a patent by January and then we can see the product being commercialised well. They have also been working on an app which is KYC (know your compliance) which is set to be launched soon. These launches and the laboratory should bring good earnings in the next few quarters.
The company has also incorporated two wholly owned subsidiaries in USA and Singapore which can be a great growth trigger as environment as a priority is always high in countries with high GDP per capita.
Strong fundamentals, clientele: The company is debt free and has seen its CFO move in the right trajectory. Although I would have hoped for the business to be cash flow positive, I will take this. The balance sheet is very impressive as mentioned above.
The company also has strong clientele under its belt:
Anti thesis
Stiff competition: In sustainability compliance, they have to compete the big four which is obviously not an easy task. They do hold superiority in terms of brand reach and audits but the management cliams that their advantages lies due to the umbrella of services that they provide which these guys do not. It is a point of concern to me though. Moreover, they also face competetion from IIT in research which too is a tough competetion. Moreover, about 200 companies are registered which hold the same credentials as them for environmental consulting and that too means that this is a difficult industry to crack.
Receivables : Although the company has always recovered its receivables, we must keep close track of them as multiple cases are ongoing against different entities where Techknowgreen thinks that they have not been paid their dues.
Too many verticals: The business has three verticals and about 6-7 sub verticals. This is a great thing but can also be a problem as the resources are distributed amongst all. Hence, focusing less on technology is a good sign and we must see how the business continues to do. In my opinion, research is the DnA of the business and consulting the cash cow with multiple tailwinds and hence it is a good idea to stick to these.
Valuations
For a good period of time, the business was expensive but it does seem to be in the value zone now. It is currently valued at 27 PE which is a great deal for a 50% grower, strong fundamentals and a sunrise sector. Broader market triggers+ continued earning growth might do the trick.
Technicals
After a strong rally post listing, the stock price has been consolidating for a while now. I think it was a case of earnings needing to catch up to the valuations. The volumes too have dried up quite a bit. It is currently in a channel and I do not really expect a lot of things to change until market conditions improve and the H2FY25 results to be out.
That marks the end of the blog! It took me quite a bit of time to research this and I enjoyed it, I hope you all did too. Subscribe if you find my content useful!
Citations
Company presentation, Annual report, DRHP and earnings call
Prudent Parrot. "Techknowgreen Solutions: Pioneering with Their Green Wisdom." Prudent Parrot, 2024, https://prudentparrot.com/techknowgreen-solutions-pioneering-with-their-green-wisdom/. Accessed 28 Nov. 2024.
"Techknowgreen Solutions Overview." YouTube, uploaded by [], 2024, https://www.youtube.com/watch?v=6LKUIdLrRfU. Accessed 28 Nov. 2024.
"[Leading India's Green Revolution, Techknowgreen Solutions Limited]." YouTube, uploaded by [Uploader Name, if known], 2024, https://www.youtube.com/watch?v=TpDXkq8zGl4. Accessed 28 Nov. 2024.
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