EMS IPO likely to see strong start on bourses despite weakness in market

EMS Limited, an infrastructure player that provides sewerage solutions, is expected to see a strong listing on September 21 in the range of 38-40 percent despite apparent weakness in the market in the last couple of sessions.
The initial public offer (IPO) received strong investor response as it was subscribed 75.28 times, with investors buying 81.21 crore equity shares against the offer size of 1.07 crore shares. Qualified institutional buyers have bought 153.02 times the allotted quota, while the portion set aside for high networth individuals was subscribed 82.32 times. Retail investors subscribed 29.79 times the allocated quota.

“The market is set to witness another interesting listing with the debut of EMS Limited IPO in the secondary market,” said Anubhuti Mishra, Equity Research Analyst at Swastika Investmart, highlighting its grey market premium (GMP) and strong investor response.

As per dealers active in the unlisted market, EMS was commanding a GMP of 40 percent over the issue price of Rs 211. The company had set IPO price band in Rs 200-211 range. The company raised Rs 321.24 crore via public issue that was opened on September 8.

EMS Limited is a water and wastewater management company with a strong focus on government projects. The company has a proven track record of successful project execution and a strong order book. It also has a healthy financial position, said analysts.

EMS posted a consolidated revenue of Rs 543.28 crore in FY23 and a net profit of Rs 108.67 crore. In the previous fiscal FY22, its revenue stood at Rs 363.10 crore and net profit at Rs 78.93 crore. Its PAT margins were 20.18 percent in FY23 and 21.97 percent in FY22, with RoE at 22.27 percent and 20.79 percent, respectively.

According to its IPO draft, as on July 31, 2023, the company was operating and maintaining 18 projects including Wastewater Scheme Projects (WWSPs), Water Supply Scheme Projects (WSSPs), Sewage Treatment Plants (STPs) and Hybrid Annuity Model (HAM) aggregating Rs 1,744.9 crore and 5 O&M projects aggregating Rs 99.3 crore.

Shreyansh Shah, Research Analyst, StoxBox, underlined thar EMS had completed 67 projects so far, mostly in North India. It gradually intends to expand its operations to other regions, especially North-East and South India.

“Most of the company’s projects are World Bank-funded and is the main reason for their robust cash flows/timely payments and no bad debts. The strong performance helps them to take on more projects with the help of internal accruals only. As a result, we remain positive on the company and advise investors who are allotted shares to hold them from a medium to long term perspective,” said Shah.

Prashanth Tapse, Sr VP Research at Mehta Equities, disagreed with Shah and advised investors to book profits. Though, if an investor can absorb some risks, the stock can be held for a long term, he added.

“We expect strong listing gain in the range 40-42 percent from its issue price of Rs 211 apiece. We believe the premium listing is justified on the back of reasonably IPO valuations with healthy revenue visibility of 3.2x of FY23 revenue followed by strong industry outlook which gives room for better than expected listing gains.” he said.

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