Why Does EMS IPO Listing Tomorrow Offer A Compelling Opportunity For Investors?

In 2023, so far the SME IPOs have had a success rate of over 80% with 105 listings and 84 of them giving positive returns. Looking to ride the success wave, EMS Limited is raising Rs. 321 Crores from capital markets. The IPO issue opened on September 08 for four days with a price band of Rs. 200-211. It was oversubscribed by 76 times with QII oversubscription reaching 150 times.

EMSL is in the business of Sewerage solution providers, Water Supply Systems, Water and Waste Treatment Plants, Electrical Transmission and Distribution, Road and Allied works, operation and maintenance of Wastewater Scheme Projects (WWSPs) and Water Supply Scheme Projects (WSSPs) for government authorities/bodies. The company has an in-house team for designing, engineering and construction which makes it self-reliant on all aspects of its business. EMSL has a team of 61 engineers who are supported by third-party consultants and industry experts to ensure compliance and quality standards.

On the financial performance front, for the last three fiscals, EMSL has (on a consolidated basis) posted a total revenue/net profit of Rs. 336.18 cr. / Rs. 71.91 cr. (FY21), Rs.363.10 cr. / Rs. 78.93 cr. (FY22), and Rs. 543.28 cr. / Rs. 108.67 cr. (FY23). EMSL's PAT margins were 21.76% (FY21), 21.97% (FY22), and 20.18% (FY23) as well and its RoE were 23.83%, 20.79%, and 22.27% for the said periods Respectively.

Kush Gupta, Director, SKG Assets & Holdings Private Limited Views

The Water and Wastewater Industry in India has immense scope, 65% of the population in India lives in rural areas and 35% are connected to the urban centres. The metropolitan cities of the country are seeing major expansion and this expansion in urban population is unsustainable without efficient planning of cities and provision of utility services, especially clean and affordable water. It is expected that by 2050, about 1450 km3 of water will be required out of which approx. 75% will be used in agriculture, ~7% for drinking water, ~4% in industries, and ~9% for energy generation. However, because of growing urbanisation, the need for drinking water will take precedence over the rural water requirements.

In India, the sewage generation in the urban region was 72,368 MLD, while the operational sewage treatment capacity was 20,236 MLD. Of the total sewage generation only 28% i.e. 20,236 MLD was treated which implies that 72% of the wastewater is left untreated. With the growing focus on environment-friendly measures, the government is pushing to enhance capacity and involve private players to reduce this shortfall.

The government's flagship program called Jal Jeevan Mission aims to ensure piped water access to every household. The estimated cost of the mission is Rs. 36,00,000 million and a majority of funds have already been allocated. Steel Pipe Manufacturers, Water suppliers and infrastructure companies will benefit from this scheme.

Verdict

"We see EMS as a quintessential SME company whose growth story is just getting started. With a global focus on climate and renewables, EMS has plenty of room to grow its business. The listing price comes at a PE of 10.78 which makes it relatively cheap. Our prediction is that the listing price should be 20-25% higher than the IPO price giving a substantial return to investors on day 1. The industry is heavily dependent on government policies but given the current situation, we don't see any U-turn in supporting environment-friendly initiatives," said Kush Gupta, Director, SKG Assets & Holdings Private Limited.

This article is attributed to Mr. Kush Gupta, Director, SKG Assets & Holdings Private Limited.

Disclaimer

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