EMS IPO booked 8.5 times on day 2 so far; NIIs portion booked over 15x

The Rs 321-crore initial public offering (IPO) of EMS Limited continued to see a strong response from the investors during the second day of the bidding process. The bidding was majorly led by retailers and rich investors. The issue had opened on Friday, September 8.

EMS is selling its shares in the range of Rs 200-211 apiece during the three-day bidding process and investors can make a bid of a minimum of 70 equity shares and its multiples thereafter. The issue includes a sale of fresh equity shares worth Rs 146.24 crore, while an offer-for sale (OFS) of up to 8,294,118 equity shares worth Rs 175 crore.

According to the data, the investors made bids for 9,20,04,640 equity shares, or 8,5 times, compared to the 1,07,87,431 equity shares offered for the subscription by 12.30 pm on Monday, September 11. The three-day bidding process will conclude on Tuesday, September 12.
 

The allocation for non-institutional investors fetched 15.48 times bids, while the portion of retail investors saw a subscription of 10.20 times. However, the portion reserved for qualified institutional bidders (QIBs) was subscribed merely 11 per cent as of the same time.

Incorporated in December 2010, EMS provides various services, ranging from EPC and O&M, in sewerage solutions, water supply systems, and wastewater schemes for government authorities and local bodies. EMS has its own civil construction team and employs over 57 engineers, supported by third-party consultants and industry experts.

Brokerage firms are mostly positive on the issue and have suggested to subscribe to it citing its growth potential and infra-based niche business model, supported with strong fundamentals and financials. However, they have also flagged negative cash flows, heavy dependence on government projects and working capital requirements as the key risks for the business.

The company has a strong in-house designing, engineering and execution team. They have a strong execution capability with industry experience. At the upper price band company is valuing at P/E of 10.7 times FY23 earnings with a market cap of Rs 1,171.7 crore post issue of equity shares and return on net worth of 22.31 per cent, said Anand Rathi Shares with a 'subscribe' tag.

The strong order pipeline coupled with healthy execution shores up well for the company's growth. The sector has huge growth potential considering the requirement of wastewater treatment in urban areas. The high OPM and strong balance sheet will help reduce future working capital requirements, said Indsec Research with a 'subscribe' rating to the issue.

A day before its IPO, EMS mopped up Rs 96.37 crore from six anchor investors, namely- NAV Capital Emerging Star Fund, Abakkus Diversified Alpha Fund, Saint Capital Fund, Meru Investment Fund PCC - CELL 1, BofA Securities Europe SA - ODI, and Morgan Stanley Asia (Singapore)- by allocating 45.67 lakh equity shares at a price of Rs 211 per equity shares.

EMS intends to leverage its presence in the sewerage solutions, water supply systems, water and waste treatment plants segment. The company has a robust and industry leading order book-to-sales ratio of 3.4 times. This provides for visibility of growth in coming years, said Nirmal Bang Securities.

"We believe the asset light business model results in efficient utilization of capital resulting in lower debt, high EBITDA margins and strong ROCE. We believe EMS possesses higher growth and return ratios compared to peers and is also available at cheaper valuations. Thus, we recommend 'subscribe' to the IPO," it added.

Khambatta Securities is the sole manager to the issue, while KFin Technologies has been appointed as the registrar to the Issue. Shares of the company will be listed on both BSE and NSE, with September 21, Thursday, as the tentative date of listing.


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