Water, water everywhere...

Every movement needs a poster boy. India's quest for securing its water needs could use Rajiv Mittal. At 49, the Managing Director of VA Tech Wabag, is one of the younger water entrepreneurs who are changing the way we treat the liquid that sustains our life. Mittal was sent to India from London in 1996 by his employer VA Tech Wabag, the Austria-headquartered water treatment major, to start the Indian operations. When the parent wanted to sell off the India business in 2005, Mittal teamed up with three other colleagues and, with support from ICICI Venture, bought out the company for around Rs 60 crore.

WHY WATER? Financial support available to municipalities from the Jawaharlal Nehru National Urban Renewal Mission: Rs 7,000 crore spent in 2008-09, Rs 13,000 crore earmarked for 2009-10 and likely to go up to Rs 30,000 crore in 2012. Strict environmental norms on water discharge by industries into rivers and seas and public water bodies. Fresh water available per capita per annum in India has dropped from 5,200 cubic metres in 1951 to 1,820 cubic metres in 2001. By 2025, India will be a water-stressed country; by 2050, there will be a water scarcity, says UNDP.

That's good going, indeed. But nothing compared to what followed in 2007—Mittal, once again with ICICI Venture, bought out the Vienna-based parent itself for $100 million. Today, VA Tech Wabag is a Rs 1,300-crore company and is building the prestigious Chennai desalination plant, the largest in India. Come December 2011, the plant is expected to provide 100 million litres of drinking water to 10 lakh people in southern Chennai. VA Tech, a global company with operations in 17 countries, is preparing for an initial public offering in India—the draft prospectus may be filed in March 2010.

Let's move westwards now to Ahmedabad, where Deepinder Mohan Vithal, at 54, has the passion of a much younger man in scaling up a business not too dissimilar from Mittal's. Vithal's company, Environment Planning Group Ltd (EPGL), originally a consulting company, has already gone to 20 villages with its reverse osmosis plant and a social entrepreneurship model to make quality drinking water available for as little as 20-30 paise a litre (current cost: Rs 2-3 a litre). This plant has been installed at a few offices and nine housing societies in Ahmedabad as well as one in Delhi. The Mudra Institute of Communication and IIM-Ahmedabad use it.

EPGL installs and runs these machines at the user's premises and sells the water to the customer. "In villages, we use salty bore well water and produce potable water. If I get Rs 20 crore, I can do this in every village of Gujarat," says Vithal. The US-based Acumen Fund, a non-profit venture fund, has invested Rs 25 lakh in EPGL. Piramal Water Pvt Ltd, an Ajay Piramal Group initiative, wanted him to join up, but Vithal is keen on growing his own business (he has built one plant for Piramal Water in Rajasthan).

H.B. Singh (60), Managing Director, Hydroair Tectonics BACKGROUND: MTech from IIT Kanpur; started work with NEERI, headed its regional lab in Mumbai; started Hydroair Tectonics in 1984, focussing on waste management. Set up 340 plants so far. Likely to touch Rs 1,000 crore turnover this year. "Our plant buys sewage from the municipality in Mumbai to convert it to potable water for the golf course"

Now guess what happens to all the sewage the city of Mumbai generates. No prizes if you do—it's all dumped into the sea. Well, not all of it—the Willingdon Club, one of Mumbai's very exclusive sports clubs, buys some of that sewage at Re 1 per cubic metre from the Brihanmumbai Municipal Corporation (BMC) and converts it into potable water to maintain its greens. It can do that, thanks to the efforts of H.B. Singh, 60, who designed the plant that converts the sewage at a cost of Rs 5 per cubic metre to the club—earlier the BMC used to charge Rs 100 per cubic metre for clean potable water.

Singh, a former regional head of the National Environment Engineering Research Institute (NEERI) in Mumbai, started his waste management company Hydroair Tectonics in 1984. With turnover closing in on Rs 1,000 crore, and 340 plants installed across the country, Hydroair is flirting with possibilities of either a private equity infusion or a public listing. The Mumbai-based Subhkam Ventures invested in the company in 2007, only to exit two years later. More recently, talks with StanChart's PE arm fell through. Singh was in Lucknow last fortnight to supervise construction of a plant that will control the pollution of the Gomti river. It will treat sewage and produce clean water for irrigation or feeding the river. "PE investors are fair-weather friends, they cannot help in building the plants I want to," shrugs Singh.

Rajiv Mittal (49), Managing Director, VA Tech Wabag BACKGROUND: Chemical Engineer, Mumbai University Institute of Chemical Technology (earlier UDCT); worked for water company Wabag in London, returned to set up its India subsidiary in 1996. Bought out the Indian arm in 2005 and the parent two years later. "We did the largest-ever buyout by a management in India"

Different Needs, Different Providers
The common strains amongst these companies are that they are promoted by experts in the field of water management and treatment, and they are generating interest among investors— from foreign majors in this field to private equity (PE) players. As recently as January 2010, the Sage NPE Fund I, which invests in private and mid-market Indian companies, (advised by Sage Capital Funds Management) invested $10 million in Concord Enviro Systems, a Mumbai-based industrial waste water management company. Then, IDFC PE has two investments in water—the Ahmedabad-based Ashit Doshi promoted Doshion Ltd, and GMR Infrastructure.

Manish Kanchan, Managing Director, Sage Capital, is bullish. "It is like what the software sector was in the late eighties. There will be a host of PE investments in the sector soon—a lot of deals are floating around." Sumit Chandwani, President, ICICI Venture, for private equity, who was instrumental in the buyout of VA Tech Wabag in 2005, sits on the company's Board. His firm has a 60 per cent stake in the company. "It will be our vehicle for investments in water. We may have a portfolio of water investments— companies with access to technology or markets in India or other emerging markets," he says.

Today, there are two kinds of water companies in India looking for investments. On the one hand there are the ones like EPGL that needs angel funding. Also looking for such funding is SMS Paryavaran, a Delhi-based waste water treatment company started by three professionals, M. Sengupta, S.N. Modak and M.K. Singh. There is Neel Water in Mumbai, and Paramount Ltd in Baroda on a similar scale and pursuit for investment. On a larger scale, are the likes of VA Tech Wabag seeking a public listing and Singh of Hydroair eyeing a NASDAQ listing.

Deepinder Mohan Vithal (54), CEO and Managing Director, EPGL BACKGROUND: Post-grad from Punjab Agricultural University, (doctoral work at IIM-A); started EPGL as a consulting company for agriculture, land, water, forestry in 1984. Launched reverse osmosis-based water purification system in 1999. "Give me Rs 20 crore and I will give drinking water to every Gujarat village"

Another option for the bigger boys is to tie up with a foreign water major. For instance, Doshion Ltd has formed a joint venture with French water major Veolia. Plenty of other foreign majors are seeking an India entry (see Turning on the Tap). Abhijeet Biswas, Director, Equirus Capital, a mediumsized investment banking outfit, is focussed on water. He says: "Indian companies with a certain scale now want technology and are ready to give up a majority stake to foreign players." Biswas says Build Operate Transfer (BOT) projects will dominate water-related investments in the future. "BOTs have an annual payback model, which is not what the PEs look out for. So, PEs will be more interested in the smaller companies," he adds.

The Water Burst
VC Circle, a venture capital forum, estimates that the treated water business is worth Rs 5,400 crore and is growing at a compounded annual rate of 13 per cent. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has boosted investments in water and prodded municipalities to hand over projects to private players. The municipality of Mysore has handed over a six-year project to Jamshedpur Utilities & Services Company (JUSCO), a Tata Steel subsidiary. JUSCO will ensure Mysore has 24 hours a day pressurised water on tap. Underground or overhead storage tanks and pumps will be passé in four years and tap water will be metered. JUSCO will run the project for two years before handing it over to the municipality.

TURNING ON THE TAP A host of foreign companies in water is trying to enter India with local partnerships. These include Enwa of Norway, COWI of Denmark, Lackeby Water Group of Sweden, Kemira of Finland, EN Global of the US, and Marubeni Water from Japan. Some joint ventures have been struck: Veolia of France with Doshion Ltd; Degremont, also of France, with the Anand Group, are two of them. Large Indian water companies want funds and technology and are ready to give up 51 per cent stake for that. A number of smaller, independent water companies are looking to scale up and are looking for PE investments. These include Neel Water of Mumbai, SMS Paryavaran of Delhi, and Paramount Ltd from Baroda. PE funds keen to invest in water include ICICI Venture, Sage Capital, IDFC PE, Subhkam, and Acumen Fund.

Sanjiv Paul, Managing Director, JUSCO, says: "The water sector is just warming up. We are touching-feeling our way about. But there are no regulations or reforms which can bring more private sector participation." Nagpur and Latur in Maharashtra, too, have embarked on similar projects. The BOT model, where the project executing company also runs it for some time, requires big money. It is also attracting the larger engineering companies like Thermax, Hindustan Dorr Oliver, GMR and Larsen & Toubro.

Clearly, a huge opportunity exists, unlike during the IT services or the Internet boom, because of the sheer gravity of the situation. ICICI Venture's Chandwani points out that Namibia has started using recycled sewage water for drinking. "If we do not take care, India will also soon have to walk that path," he says. The good news, though, is that a potential crisis is resulting in some path-breaking work and effort. Says Mittal of VA Tech Wabag: "Today, we have offers for case studies on our company from Harvard Business School and IIM-A. We have to choose between the two schools."