About the Company:

EMS Limited, incorporated in the year 2012, is engaged in the business of sewerage solutions, water supply systems, water and waste treatment plants, electrical transmission and distribution, and road construction.

The company specialises in the following projects for government authorities/bodies:
1. Operation and maintenance of Wastewater Scheme Projects (WWSPs)
2. Water Supply Scheme Projects (WSSPs)

WWSPs include Sewage Treatment Plants (STPs) along with Sewage Network Schemes and Common Effluent Treatment Plants (CETPs). The treatment process installed at STPs and CETPs is Zero Liquid Discharge (ZLD) compliant and the treated water can be used for horticulture, washing, refrigeration and other process industries.

WSSPs include Water Treatment Plants (WTPs) along with pumping stations and laying of pipelines for the supply of water (collectively, “Projects”).

The Company bids for tenders issued by Central PWD, State Governments and Urban Local Bodies for developing WWSPs and WSSPs on an EPC or HAM basis. The scope of services typically includes design and engineering of the projects, procurement of raw materials, execution at the site with overall project management up to the commissioning of projects.

In fact, in recent times, the company has been receiving post-commissioning, operations and maintenance of these plants for a certain period, as a part of the award.

As of July 31, 2023, the company is Operating and Maintaining 18 projects including WWSPs, WSSPs, STPs & HAM with the value of assets aggregating to Rs. 1744.92.00 crores. In addition to this, the company is also Operating and Managing 5 other projects with asset value aggregating to Rs. 99.28 crores.

All the revenue generated from operations is generated domestically, with Uttar Pradesh leading at 49.03%, followed by Madhya Pradesh at 23.11%, Bihar at 17.48%, and Uttarakhand contributing 10% to the revenue from operations for the fiscal year 2022-23.

Industrial Overview:

The global economic forecast suggests that worldwide real GDP growth is anticipated to hover around 3.00%. In this comparison, the prospects of growth for India look positive as its real GDP is expected to grow at a rate exceeding 6.00%. This growth rate is even higher than that of China’s.

Further, Gross Fixed Capital Formation (GFCF), a measure of the net increase in physical assets has shown improvement as per FY22 estimations. As a proportion of GDP, it is estimated to be at 32.7%, which is the second-highest level in 7 years (since FY15). In FY23, it inched up to its highest in the last decade with 34.0% as per the advanced estimate released.

As far as wastewater treatment is concerned, there is still a 79% (22,939 MLD) capacity gap between sewage generation and existing sewage treatment capacity. This indicates a huge headroom for growth for the company.

Apart from these statistics, the government has also undertaken various missions for providing piped water access to every household in India namely Jal Jeevan Mission - ‘Har Ghar Jal’, Atal Bhujal Yojana, Jal Sakti Abhiyan, Water Vision@2047 etc. which may have a positive impact on the company.

IPO Objectives:

1. Funding of working capital requirements of the Company; and
2. General corporate purposes.

Financials

The Company’s revenue from operations increased from Rs. 330.70 crores in FY 2021 to Rs. 538.16 crores for FY 2023 indicating a CAGR growth of 27.56%. This increase in revenue from operations was primarily due to increased income from the Installation and Commissioning of Sewerage Treatment plants on recovery from COVID & a handsome amount of order book.

The order book has also increased from Rs. 863.62 Crores as of March 31, 2022, to Rs. 1,389.08 Crores as of March 31, 2023.

The company's EBITDA expanded from Rs. 98.90 Crores in FY 2020-21 to Rs. 149.00 Crores in FY 2022-23, with a CAGR of 22.75%. The company’s EBITDA margin has been hovering around the range of 30% which has marginally reduced to 27.69% in FY 22-23.

The company's Net Profit expanded from Rs. 71.95 Crores in FY 2020-21 to Rs. 108.62 Crores in FY 2022-23, with a CAGR of 22.85%. The company’s Net Profit margin has been in the range of 20% - 22% which has marginally reduced to 20.18% in FY 22-23.

The company's ROCE has been in a declining trend as it stood at 33.65% for FY 2020-21, reduced to 29.50% for FY 2021-22, and further decreased to 28.26% in FY 2022-23. Similarly, the ROE has been hovering within a range of 20% to 24% during the past 3 years with 23.83% in FY 20-21, 20.79% in FY 21-22 & 22.27% in FY 22-23.

Valuation:

The company's price-to-earnings ratio stands at 9.11, while the industry's PE ratio is 14.05, suggesting that the issue price is undervalued. Additionally, the company's price-to-book ratio is 2.03, whereas the industry's PB ratio is 2.05, signifying a fair valuation of the issue price.

Key Risks:

1. Negative operating cash flows:- The company has reported negative Cashflows from Operations for FY 2022-23. Sustained negative cash flows may impact the business of the company adversely.

2. Competitive Bidding: - The company competes for projects through competitive bidding processes conducted by government authorities. Failure to qualify, compete, or win future projects may adversely affect the company’s business and financial performance.

3. Dependency on Government Contracts: - EMS Limited primarily derives its revenues from contracts awarded by government authorities/bodies which are often funded by the World Bank through Central and State Governments. Any reduction in budget allocation to this sector may affect the number of projects available for bidding, impacting the company’s business.

4. Legal Proceedings: -The company, its promoters/director, and group companies are currently involved in certain legal proceedings. Adverse outcomes in these legal matters could significantly impact the company’s business, financial condition, and results of operations.

5. Past Blacklisting: -The company has faced blacklisting two times in the past, once for failing to provide safety equipment to labourers resulting in the death of five workers and the other time for fraudulently mentioning wrong details in the bidding form. Although the company has taken necessary steps for preventing blacklisting in future, it cannot be assured the company will not be blacklisted in future.