IPO Analysis: EMS Limited

IPO Rating: Apply for long-term

About the Issue 

EMS Limited, formerly operating as EMS Infracon, is in the business of offering comprehensive services related to the collection, treatment, and disposal of water and wastewater. 

The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 10. The IPO price range is set between Rs 200 and Rs 211 per equity share, resulting in a total issue size of Rs 321.24 crore at the upper price band. 

The IPO is scheduled to commence on September 8, 2023, and will conclude on September 12, 2023. The anticipated listing on the exchange is set for September 21, 2023. The market lot size for the IPO is 70 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 910 shares or a total investment of Rs 1,92,010, assuming the upper price band.

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. Funding of working capital requirements of the company 

2. Meeting general corporate requirements and expenses 

Promoter holding 

The current promoters, namely Ramveer Singh and Ashish Tomar, possess a significant pre-issue ownership stake in the company, amounting to 96.71 per cent. It's important to note that the company will not receive any funds from the offer for sale conducted by the promoter-selling shareholder. The proceeds generated through the offer for sale will not be included in the net proceeds of the company. Instead, the promoter selling shareholder will be entitled to the proceeds from the offer for sale, with deductions made for their respective share of issue expenses and applicable taxes. 

About the company 

The company operates across a diverse spectrum of infrastructure sectors, including services related to sewerage solutions, water supply systems, water and waste treatment facilities, electrical transmission and distribution networks, as well as road and associated projects. Furthermore, the company specializes in the operation and maintenance of projects in the field of Wastewater Scheme Projects (WWSPs) and Water Supply Scheme Projects (WSSPs) for government entities.  

EMS Limited actively participates in competitive tender processes initiated by CPWD, State Governments, and Urban Local Bodies to undertake the development of WWSPs and WSSPs. The services of the company typically encompass a comprehensive range of tasks, starting from project design and engineering, raw material procurement, on-site execution, and overall project management, all the way through to project commissioning. 

Lately, the company has adopted a practice of frequently incorporating post-commissioning duties, which involve the ongoing operation and maintenance of these facilities for a predefined period. EMS has a strong track record of delivering high-quality services to various government bodies and municipalities since 2010. Over the years, the company has achieved successful completion of more than 50 projects. 

Financials

Valuation and Outlook

For the purpose of offering a comparative context, the prospectus emphasizes VA Tech Wabag Ltd as a listed peer company. VA Tech Wabag Ltd is presently trading at a PE, which is multiple times greater than that of EMS Ltd. If we calculate the PE ratio for EMS Ltd by attributing FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, the resulting PE ratio stands at 10.78x. 

The issue is priced with a P/BV ratio of 2.03 times, calculated using its Net Asset Value (NAV) of Rs 103.80 as of March 31, 2023. At the upper price cap, it is priced at a P/BV ratio of 1.64, considering its post-IPO NAV of Rs 128.69 per share. 

The company has demonstrated consistent growth in both its revenue and net profit in recent years. Notably, the growth achieved in FY23, compared to FY22, was particularly remarkable. The company has consistently maintained PAT margins and Return on Equity (RoE) above 20 per cent over the last three years. 

The company's strength lies in its in-house design, engineering, and execution team, which boasts strong capabilities and industry experience. Furthermore, the company maintains a robust order book, featuring projects funded by the World Bank. In line with its growth strategy, the company aims to expand its presence while leveraging government policy initiatives within the WWSP and WSSP sectors. Hence, we recommend investors to subscribe the issue with a long-term perspective.