EMS IPO: 5 Things to Know

In 2023, the primary market started off slowly, but it gained significant momentum as the new financial year kicked off in April 2023.

And as markets started to go up. Companies like to come out with their public offers when the sentiment in overall market is good.

In recent two weeks, the primary market has become a hive of activity with numerous new public offerings, and this trend is only gaining strength.

Many of these IPOs have delivered impressive double-digit returns, some even soaring as high as 106% since their listing dates.

Looking ahead, the second half of the financial year 2024 is expected to see the launch of IPOs by at least 71 companies.

Among the highly anticipated upcoming offerings, EMS kicked off its IPO this week.

Here are the key details of the IPO.

Issue period: 8 September 2023 to 12 September 2023

Type of issue: Book Built Issue

Price band: Rs 200 to Rs 211 per share

Face value: Rs 10 per equity share

Lot size: 70 shares

Application limit: Maximum thirteen lot for retail investors. Retail investors can make an application for a minimum of Rs 14,770 for one lot (70 shares) and their maximum investment would be Rs 192,010 (910 shares).

Tentative IPO allotment date: 18 September 2023

Tentative listing date: 21 September 2023

#1 About the company

EMS previously known as EMS Infracon, is engaged in the business of providing water and wastewater collection, treatment, and disposal services.

The company provides complete, single-source services from engineering and design to construction and installation of water, wastewater, and domestic waste treatment facilities.

The company provides water supply and waste treatment systems, electrical distribution, road construction, and maintenance services. These services are primarily focused on government wastewater and water supply projects.

#2 A look at the financials

The company's revenue has grown at a CAGR of 16.7% in the last three years, while the net profit of the company grew at a CAGR of 14.7%.

This was due to the increase in government projects and decrease in operating expenses over time.

For the financial year 2023, the company reported a 50% YoY jump in revenue to Rs 5.4 bn. This is primarily due to increasing income from the installation of sewerage treatment plants.

The net profit also reported a net profit of Rs 1,086.7 m, up 37.6% from the net profit of Rs 789.3 m reported a year back.

EMS Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	3.4	3.6	5.4
Revenue Growth (%)	1.1	5.9	50.0
Net Profit (Rs in m)	719.1	789.3	1,086.7
Net Worth (Rs in bn)	3.0	3.8	4.9

Data Source: Company's Red Herring Prospectus (RHP)

Going forward, the company's goal is to enhance its income by capitalising on the increasing prevalence of non-communicable diseases (NCDs) and the growing medical tourism industry in India, which will contribute to its further expansion.

#3 Peer comparison

As per the company's red herring prospectus, the following is industry peer of EMS.

Peer Comparison

Company	Total Income (2023) (Rs in bn)	EPS (Basic) (in Rs)	Return on Net Worth (%)
EMS	5.4	23.2	22.3
VA Tech Wabag	30.1	36.9	0.7

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

• The company has an in-house designing, engineering and execution team which enables it to correctly bid with project specifications and reduces its dependence on outsourcing engineering and design work to third-party consultants.
• Given the intricate and resource-intensive nature of project design and engineering due to unique requirements, the company continually enhances its technical capabilities. This commitment enables it to offer a comprehensive range of services while maintaining cost-efficiency and quality.
• A significant portion of the company's projects is funded by the World Bank through local state government bodies. This ensures reliable cash flows and timely payments, eliminating bad debts, thus facilitating the pursuit of additional projects and improving profit margins.
• The company adopts a scalable and asset-light business model, primarily focusing on development management, joint development agreements, and joint ventures. This approach requires lower upfront capital expenditure compared to a direct investment strategy.

#5 Risk Factors

• Many of the company's agreements feature penalties or liquidated damage clauses triggered by project delays. These clauses can have financial repercussions if project timelines are not met.
• The company heavily relies on substantial working capital to sustain its operations. Insufficient access to such cash flows can adversely impact its ability to operate effectively.
• Contracts secured from government clients often come with terms favoring the government, limiting negotiation scope. The company may be compelled to accept unconventional or burdensome provisions, potentially affecting project execution efficiency and profitability.
• For government project bids and project execution, the company relies on joint venture partners. Noncompliance with obligations by these partners may result in additional financial and performance commitments for the company, impacting its earnings.

Conclusion

In recent years, the Indian government has launched a series of initiatives aimed at enhancing the country's water supply and sewage infrastructure.

Notable programs include JJM, Jal Shakti, and Atal Bhujal Yojana, all of which have been rolled out within the past seven years.

Looking forward, the company has formulated a strategic plan to expand its footprint in Western markets.

This expansion is expected to receive significant support from government initiatives such as the Pradhan Mantri Jan Arogya Yojana (PMJAY), reflecting the government's growing emphasis on the healthcare sector.

Additionally, the company anticipates a surge in power demand in the future, driven by population growth and increased economic activity.

The government has taken proactive steps by implementing a Revamped Distribution Scheme with a substantial budget allocation of Rs 3,040 bn over a five-year period spanning from FY22 to FY26.

This initiative is poised to further enhance the company's performance and opportunities in the energy sector.

Like any investment opportunity, EMS bears its own set of advantages and disadvantages. Therefore, one should conduct thorough research.

For more information on IPOs, check out the list of upcoming IPO's.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...