EMS LIMITED IPO (Subscribe)

Highlights

EMS Ltd. incorporated in 2010 is in the business of (i) Sewerage solution providers (ii) Water Supply Systems (iii) Water and Waste Treatment Plants (iv) Electrical Transmission and Distribution (v) Road and Allied works (vi) operation and maintenance of Wastewater Scheme Projects (WWSPs) and Water Supply Scheme Projects (WSSPs) for government authorities/bodies.  

WWSPs of the company include Sewage Treatment Plants (STPs) along with Sewage Network Schemes and Common Effluent Treatment Plants (CETPs) and WSSPs of the company include Water Treatment Plants (WTPs) along with pumping stations and laying of pipelines for the supply of water.

EMS bids on tenders issued by the CPWD, state governments, and urban local bodies (“ULBs”) for the development of WWSPs and WSSPs on an EPC or HAM (Hybrid Annuity Model) basis.

The company has an in-house design, engineering, and construction staff, allowing the company to be self-sufficient in all parts of the operation. To ensure compliance and quality standards set by the industry and government agencies and departments, the company has a staff of 61 engineers who are assisted by third-party consultants and industry experts. It also has its own staff for civil construction, which it enables to decrease reliance on other parties. 

The scope of company’s services comprises project design and engineering, raw material procurement, on-site execution with overall project management, and project commissioning. 

In the past, the Company has completed 50 projects, including 17 projects completed by the proprietorship, which was acquired by the Company in June 2012. Since 2010, EMS has delivered high-quality services to many government agencies and municipalities, and these projects have been completed effectively.

The company would use Rs. 1,012 mn of the net proceeds of the fresh issue for working capital and the remaining amount for general corporate purposes And Rs. 1750 mn will towards existing selling shareholders.

Key Highlights

• Government policies, initiatives and fund allocation towards Roads, Construction, Water and Power industry such as Bharatmala Pariyojana, PM-GatiShakti, National Electricity policy, Jawaharlal Nehru National Urban Renewal Mission, Namami Gange programme and many more initiatives will help company to grow in this industries.

• Along with carrying out projects on their own, company also form joint ventures with other infrastructure and construction firms to jointly bid on and carry out projects.

• The company has a team of dedicated engineers and personnel who focused on the operation and upkeep of finished projects. As of July 31, 2023, the firm was managing 18 projects, including HAM, STPs, WSSPs, and WWSPs, totaling Rs. 17,449 mn, as well as 5 O&M projects of Rs. 992 mn in Uttar Pradesh, Uttarakhand and Bihar.

• 100 pct revenue of the Company are generated through Government tenders/work/projects only. The current order book of the company is 3.5x of its FY23 of revenue of Rs. 5,381 mn. This significant growth in order book has translated into strong revenue growth of 27 pct CAGR over FY21-23.

• Nearly all of the company’s projects are financed by the World Bank through local and state governments. This is the fundamental cause of their steady cash flows, prompt payments, and lack of bad debts, which enables them to take on more projects using solely internal accruals, reduce financing costs, and boost profit margins.

• The company has an asset-light business strategy, which results in effective capital allocation, lower debt, and consistent revenue, allowing them to achieve a greater return on capital employed.

• The company Sales, EBITDA and profit are increasing YoY. The Company is able to maintain is EBITDA margin above 25 pct and profit margin of 20 pct over the FY21-23. The ROE and ROCE of the company is also highest among is listed competitors and it above 20 pct over FY21-23.

Key Risks

• The Company is dependent on the Government projects and changes in government policies related to the environment and water treatment or change in the government may affect company’s business and operations.

• The Company was blacklisted by the two governmental entities in the past, and it could be blacklisted again in the future if they fail to take certain measures & steps for such types of occurrences in future.

Valuation

EMS Ltd. is in the business of sewerage solutions and related services provider. During the pandemic period, the performance was static. But with orders worth Rs 18.45 bn in hand and many in pipelines, the performance is set to improve going forward. At the upper end of the price band, the issue is quoting at PE of 10.8x its FY23 fully diluted earnings. The issue is reasonably priced. One can Subscribe.

Also Read: How To Start Investing? A Beginner’s Guide

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.