IPO: EMS

EMS, a leading water and waste treatment provider, has come out with its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : The three-year average return on equity (ROE) and return on capital employed (ROCE) of EMS are 22.3 and 30.5 per cent, respectively. In FY23, the company's ROE and ROCE were 22.3 and 28.3 per cent, respectively. Growth : Its topline grew by 49.6 per cent and 8.8 per cent in FY23 and FY22, respectively, due to increasing income from the installation of sewerage treatment plants. Valuation : The stock will be priced at a P/E and P/B of 10.9 and 1.8 times, respectively, as compared to its peer's median and average of 94.1 and 1.9 times, respectively. Overview : The increasing urban population in India will lead to rising demand for clean sources of water, which can help the company grow. Various social initiatives introduced by the government can also benefit the company. However, changes in government policies and high dependence on them for revenue generation remain a threat. About EMS EMS (incorporated in 2010) is involved in providing water and wastewater collection, treatment and disposal services for various government entities such as New Okhla Industrial Development Authority, Agra Development Authority and Uttar Pradesh Jal Nigam, among many others. Additionally, the company is also actively engaged in the construction of infrastructure such as roads and buildings, as well as electricity and power transmission. Strengths of EMS Almost all of the company's projects are funded by the World Bank which helps in reducing reliance on debt. Operates on an asset-light business model which helps in minimising costs and improving profit margins. Weaknesses of EMS High dependence on government projects (100 per cent of revenues are generated through them) - Any change in government policies related to environment and water treatment can adversely affect the topline of the company. A high working capital-intensive business with long gestation periods and delayed collection of receivables. Company has been able to procure only 12 per cent of the tenders that it applied for in the last five years. IPO details Total IPO size (Rs cr) 321 Offer for sale (Rs cr) 175 Fresh issue (Rs cr) 146 Price band (Rs) 200-211 Subscription dates September 8, 11 and 12, 2023 Purpose of issue To fund working capital Post-IPO M-cap (Rs cr) 1172 Net worth (Rs cr) 634 Promoter holding (%) 69.7 Price/earnings ratio (P/E) 10.9 Price/book ratio (P/B) 1.8 Financial history Key financials