The Rs 321 crore initial public offering (IPO) of EMS Limited will kick-off for bidding on Friday, September 8 and the issue can be bid till Tuesday September 12. The wastewater treatment player is selling its shares in range of Rs 200-211 apiece with a lot size of 70 equity shares and its multiples thereof.
Incorporated in December 2010, EMS provides various services, ranging from EPC and O&M, in sewerage solutions, water supply systems, and wastewater schemes for government authorities and local bodies. EMS has its own civil construction team and employs over 57 engineers, supported by third-party consultants and industry experts.
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The issue includes a sale of fresh equity shares amounting to Rs 146.24 crore and offer-for-sale (OFS) of up to 82.94 lakh equity shares amounting to Rs 175 crore by promoter Ramveer Singh. The company completed an pre-IPO placement of 16 lakh equity shares at an issue price of Rs 211, aggregating Rs 33.76 crore, which trimmed the fresh issue size.
Proceeds from the fresh issue will fund working capital requirements and other general corporate purposes. Khambatta Securities is the sole manager to the issue, while KFin Technologies has been appointed as the registrar to the Issue. Shares of the company will be listed on both BSE and NSE, with September 21, Thursday, as the tentative date of listing.
The company has executed 67 projects over the past 13 years and has an order book of Rs. 1775 crore, comprising 18 ongoing projects across WWTPs, WSSPs, EPS, and HAM segments. Most of its projects have been executed across Bihar, Uttarakhand, Madhya Pradesh, Rajasthan and Haryana.
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The company’s total revenue from operations stood at Rs 538.16 crore for FY23 against Rs 359.85 crore for FY2021-22. The EBITDA for FY23 stood at Rs 149.01 crore, against Rs 112.51 crore in the year, while the PAT stood at Rs 108.62 crore, compared to Rs 79.04 crore in FY22. The EBITDA margin came in at 20.18 per cent for FY 2022-23, while the PAT margin was 20.18 per cent.
A day before its IPO, EMS mopped up Rs 96.37 crore from six anchor investors, namely- NAV Capital Emerging Star Fund, Abakkus Diversified Alpha Fund, Saint Capital Fund, Meru Investment Fund PCC – CELL 1, BofA Securities Europe SA – ODI, and Morgan Stanley Asia (Singapore)- by allocating 45.67 lakh equity shares at a price of Rs 211 per equity shares.
The company has reserved 50 per cent of the net offer for the qualified institutional bidders (QIBs), while non-institutional investors (NIIs) will get 15 per cent of the offer. Retail investors will get the remaining 35 per cent of the offer.
Brokerage firms are mostly positive on the issue and have suggested to subscribe to it citing its growth potential and infra-based niche business model, supported with strong fundamentals and financials. However, they have also flagged negative cash flows, heavy dependence on government projects and working capital requirements as the key risks for the business.
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Anand Rathi Shares and Stock Brokers
Rating: Subscribe
The company has a strong in house designing, engineering and execution team. They have a strong execution capability with
industry experience. At the upper price band company is valuing at P/E of 10.7 times FY23 earnings with a market cap of Rs 1,171.7 crore post issue of equity shares and return on net worth of 22.31 per cent, said Anand Rathi Shares with a ‘subscribe’ tag.
Arihant Capital Markets
Rating: Subscribe for long term
EMS has a strong order book of Rs 1,744.92 crore as of July 15, 2023 shows potential revenue visibility and is expected to grow at a CAGR of 30 per cent over the medium term. The company is currently bidding under Rs 500 crore projects and expected to bid Rs 1,500-2,000 crore projects going forward, said Arihant Capital Markets, which has a ‘a subscribe for long-term’ rating.
“The company is very selective in bidding for high-margin projects and the conversion ratio is around 10-15 per cent. The higher margins project led to maintaining an EBITDA margin of 30 per cent and a PAT margin of 20 per cent. going forward. The majority of IPO funds will be utilized for working capital requirements of projects indicating strong execution of projects,” it added.
Choice Broking
Rating: Subscribe
EMS is demanding a P/E multiple of 10.9 times, which is at discount to the peer average. Unsustainable expansion in urbanization seems to be putting pressure on the urban wastewater management, planning and treatment. Its robust order book & profitability, healthy balance sheet and demanded discounted valuation makes this issue attractive, said Choice Broking.
“Backed by the government’s proactive policies, the domestic water & wastewater treatment market is expanding rapidly and has strong outlook in the medium term. With a strong focus on the sewage treatment segment, EMS is rightly placed to benefit from the market expansion,” it added with a ‘subscribe’ rating for the issue.
StoxBox
Rating: Subscribe
Almost all of the company’s projects are World Bank-funded through local state government bodies. This is the main reason for their robust cash flows/timely payments, and no bad debts, which helps them to take on more projects with the help of internal accruals only. As a result, there is savings in the finance cost which helps to improve the profit margin, said StoxBox.
“On the upper price band, the issue is valued at a P/E of 9.1 times based on FY2023 earnings, which we feel is fairly valued compared to its peers. We, therefore, recommend an ‘subscribe’ rating for the issue,” it added.
ProfitMart Securities
Rating: Subscribe
EMS’ promoters have significant industry experience and have been instrumental in the company’s consistent growth. The management team’s combined expertise and experience are also a significant asset going ahead. Most importantly the biggest competitive moat EMSL enjoys is that it enjoys a robust order book, said ProfitMart Securities.
“We are positive on EMSL for the long term as Domestically India’s Water & Waste Water Solutions market offers a massive runway for growth over the next 3-5 years ahead. We are confident that EMS will deliver consistent performance and provide an excellent investment opportunity for investors with a long-term horizon. Hence, we recommend ‘subscribe’ for long-term investment,” it said.
Hensex Securities
Rating: Subscribe
EMS are operating and maintaining 18 projects including WWSPs, WSSPs, STPs and HAM aggregating of Rs. 1,744.92 crore & 5 O&M projects aggregating to Rs. 99.28 crore. Strong order book of projects across India, established track record, strong execution capabilities, and strong financial performance, said Hensex Securities with a ‘subscribe’ rating on the issue.
However, it has cited heavy dependence on Government projects, the reported certain negative cash flows, and capital intensive nature of the company as the key risks for the company.
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