Daybreak - Private companies have stumbled upon a goldmine — Bengaluru's water crisis

Episode Date: April 1, 2025

On January 29 of this year, Denta Water and Infra Solutions – a company that specialises in groundwater recharging projects – listed on the bourses. Three weeks later, the Bangalore Water Supply and Sewerage  Board, or BWSSB, issued a set of guidelines to address what has become pretty much inevitable every summer in the city – a full blown water crisis. Now, those may seem like two completely random developments to you. But actually, there is a connection there. Because today, both the BWSSB and Denta Water have a vested interest in solving Bangalore’s water crisis. But one has had more luck than the other. Tune in. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. On January 29th of this year, Denta Water and Infra Solutions, a company that specializes in groundwater recharging projects listed on the borses. Three weeks later, the Bangalaw Water Supply and Surridge Board, or BWSSP, issued a

set of guidelines to address what has pretty much become inevitable every summer in the city. A full-blown water crisis. Now, those may seem like two completely random developments to you, but actually, there is a connection there. Because today, both the BWSSSB and Denta water have a vested interest in solving Bangalore's water crisis. One has had more luck than the other. I think it's both that the government doesn't. want to deal with the problem and even if it wanted to it can't. In the

sense that A I think the BWSB is perennially underfunded. It nearly went bankrupt last year. B is that there is like a mismatch between like what various government bodies, you know, what their mandate is and what

the people actually need. So because of this mismatch and incentives like people do exactly what they are supposed to do and like because there are so many gaps between these kind of bodies, there are a lot of gaps that need to be filled, which private players come and fill in.

That's my colleague Abhiramiji. A couple months ago, when she read about the Denta Water IPO, she got curious. Here's a company less than a decade old that specializes in water management projects. Its biggest customer? The Karnatica government. So, Denta is an interesting company.

So they are in the engineering procurement construction. space, which is in like, you know, like in simple terms, it means that they take like government contracts and they implement it. They build out the architecture. So one of their most famous projects is the Kasi Valley project, which stands for the Khoramangla Chalagata very proud. The KC Valley is a watershed, one of the five major watersheds of Bangalore. And basically the project intended to take water from basically sewage water that was collected from the, from the these areas, from areas in Bangalore, and taken, treated and taken to irrigate two districts in Karnataka, which are Kolar and Chikabalabalur. You see, year after year, the government has tried to

solve the water problem in Bangalore. It's issued the guidelines, it's shut down the swimming pools, it's deployed the tankers, its high water tariffs, and quite unsurprisingly, none of that has worked. To be fair, this is a tough problem to solve. Bangalore needs 2,100 MLD or million litres of water per day and it's short by 650 MLD which is about 30%. Our main source of water, the Kaveri River, is drying up, groundwater is depleting so no one really knows where the missing water will come from. Added to that, it doesn't help that water departments are broken,

curtsy, inadequate staff and general bureaucratic inefficiency. But that's exactly where private companies. companies like Denta Water have found a massive opportunity. Just as the government is throwing up its hands, these companies are swooping in to save the day and solve all of Bangalore's water problems. But there is more to the story. Meet C. Mrutjyun Jaya Swami,

the real face behind Denta's success. One thing that stood out to me when I was looking through the company is that the promoter of the company, one of the promoters of the company, is a former Karnataka, like, chief secretary of the minor irrigation department, which is basically what deals with lift irrigation projects of a certain size. And I mean, he's also held like many other positions.

He's been involved with like the KSRTC. He's been involved with the water department generally. There is a gray area here that we need to unpack. But the bigger issue is the pattern. States passing on the water crisis buck to private. companies. And the results? Well, they are worrying. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahil Philippos and I don't chase the news cycle. Instead, every day of the week, my colleagues, Nikda Sharma and I will come to you with one business story that is worth

your time and worth understanding. Today is Tuesday, the 1st of April. In the last two years, Denta Waters revenue from contracts with the Karnatica government have increased from an already high 63% in FY24 to 84% in the first half of FY25. Naturally, a lot of people started putting two and two together. Actually, one interesting thing that's in their IPA docs is that anonymous, like, complainants went and, like, you know, complained to Sebi about some discrepancies that they had noticed, which include, you know, like allegations like the bureaucrat who is the promoter of this company was

you used undue influence to get tenders for instance to modify tender guidelines or like tender requirements to kind of like fit their company better than others. Many other allegations and the company strongly refuted most of these, all of these actually and filed a FIR with

the police and later found out that the complainants complained from an anonymous phone number and address. is. So, you know, some interesting things in the document. Like, you know, we can't like corroborate these, obviously. But I think the fact that they are in the DRHP at all is something that's interesting. The main target of these complaints was CM Swami, the ex-bureaucrat who holds 25% of Denta Waters' shares. That's not all. Swami and three members of his family together held a 96% stake in the company at the time of listing. So it's really a family affair.

In fact, even after the listing, the Swami family continued to hold 71% of the company's shares. But Abidami says, this is just smart business. I think it's not too uncommon for like government officials to be involved in like these kind of projects, these kind of companies. Like if you are a smaller company and you kind of need to like start out and you're like build their like, you know, order book, you need someone who is like connected with the government because like otherwise it's.

very difficult to get tenders and very difficult to like get like projects run. But naturally there is still some distrust, especially considering the share of the company's total revenue that came from government contracts. In the run-up to the IPO in particular, its order books were looking even better than usual. This is a company that has been consistently profitable, which is unusual for an EPC or engineering procurement construction company. In fact, one executive in the wastewater treatment space said the profit margins Denta enjoys are unusually large, particularly considering all the high capital projects Denta has undertaken.

But without access to the breakup of contractual details, one can only speculate. What is interesting, though, is the sheer number of private companies like Denta that have entered the scene to fix what the government could not. Stay tuned. Across the country, engineers working with government departments, ranging from public works to power are dealing with a crisis. Unfilled vacancies, delayed promotions and general ad hoc functioning have meet their life's hell. Just last April, for instance, 20 engineers from Bengaluru Municipal Corporation's public works department were left sitting idle for eight whole months.

You know, from talking to people who have worked with the BWSSB, the impression I get is that a lot of them are very hardworking people. a lot of them are people who want to get their job done and are constrained by various factors and the job itself is you know, sounded insanely difficult like you know, you kind of have to, you know, like you have to work weekends,

you know, how to, you know, get up and like go to sites at 6 a.m. in the morning, come back at 12, 12 a.m. in the night, you know, kind of like a journalist job if you think about it. And the impression I'm getting is that, you know, people who work in the government are kind of like stuck between a rock in a hard place

and that's partly why young graduates especially might not be asking to join the government as they would a private company that's working in this because, you know, hours are limited and you don't have to like do as much work and it's easier work. And I think, on one hand, I do think that people deserve like minimum quality of work and minimum like regulations. On the other hand, it's affecting public bodies like, you know, like ability to kind of work on these issues that improve. practice. And it's not something that you can blame on them, but at the same time, it is something that you can kind of be like, okay, where is the funding for this? Where is the, you know,

where are they getting the, you know, like, where is all the money that's supposed to be going into this going? Because the BWSP is like perennially underfunded. Vikram Gulecha, the founder of water treatment company, Osher Water, told the Ken that the municipal cooperation is currently working at about 30 to 40% of its strength. And that's likely because they don't have the funds to feed so many mouths. And the fact that the government is increasingly relying on private contractors for the same work is only making it worse for these departments. You see, this combined with the growing water crisis has led to a mushrooming of private

water companies across the country. Right, but you know what's interesting, Abidami, is that for decades you were only hearing about the intra-j giants, right? We were talking about Shapur-ji-Palongi. we were talking about L&T. They have ruled the construction world for so long, water projects included. But I'm curious to know what's changed now, right? Like, why are we seeing so many smaller upstarts kind of enter the scene and really thrive while they're at it?

I think it's just that all of these companies occupy different parts of the value chain, right? And different companies work with different governments because they have good ties with them. and, you know, L&T and, you know, these guys can't, like, take up every single project in the, like, you know, in the country, right? I think that there is space enough for, like, smaller players to get in. Like, it's more of a question of how far they'll be able to scale. And in terms of, like, EPC companies like Denta, I think, you know, there are many of these, like, across, like, different parts of the country. I think one of the, like, biggest in the country is something called VA VABAB, which is, an offshoot of a

German company that set up its global headquarters in Chennai I tried looking into it it's kind of complicated how the like structure works but they are one of the biggest companies in the EPC space in India and they're listed as well so it's not like you know the big players take up everything

I think there's enough space for like smaller players to also come and apart from these there's also like tech providers right There are also companies who, you know, work on a tech that's required to, like, do things, like, for real. Like, groundwater recharging is not something that requires a lot of technical expertise, but something like, say, you know, like river cleaning or lake regeneration or something that does. So, you know, you have those kind of companies as well. And then you have, you know, companies who work in the, you know, water treatment space in the wastewater treatment space, both of which are, like, you know, two completely different kinds of sectors. And there is a lot of things, there are a lot of, like, parts to this. like value chain and I think different companies occupy different parts of this.

Denta Water isn't the only EPC company that's managed to list on the borses. VATEC-Wab, the company Abhirami mentioned a little while ago, listed back in 2010, while Nagpur-based intra-company, Wrightwater, filled its draft red herring prospectus in February this year. But Denta still stands apart. I think it's, it stands out, I mean, because of all the things that I'm missing. in the sense that it has connections, it is well placed to capture like a big part of like Karnataka's

water space. And if you look at their history, if you look at their order book, I think out of like maybe 30, 35 projects they have done almost like, if they have done like maybe 35 projects, 30 of them are for the Karnataka government,

which is not a small number. And it means that, you know, they do have like some kind of like, what do you say? They have some kind of strategic. advantage here and they are looking to like expand outside of Karataka. I think that I, you know, like, I think their true test is whether like, you know,

they can like actually succeed outside of Karnataka like once they get into like, you know, more unfamiliar waters, pun intended. It's just that, you know, like, so I think with companies that go public, like companies like Denta which go public

which are not as big as like the big companies like I think Denta's current revenue for FI 20 was around 250 crores. For these companies to kind of succeed, they have to have a solid order book for the next two years. And only then can you tell whether they will like, you know, survive in the next space or not.

So I guess it's a waiting game. It's kind of like, okay, you know, time will tell what will happen here. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample, of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories,

newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma and edited by Rajiv Sien.