Detailed Rationale

Crisil Ratings has assigned its ‘Crisil A-/Stable/Crisil A2+’ ratings to the bank facilities of EMS Limited (EMS).

 

The rating reflects the established market position of EMS in the water engineering, procurement and construction (EPC) industry backed by extensive experience of its promoters and a healthy order book. The rating also factors in the group’s robust financial risk profile amidst low dependence on external debt. These strengths are partially offset by moderate scale and working capital-intensive nature of operations.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of EMS and its five subsidiaries and three joint ventures (JVs). This is because all these entities, together referred to as the group, operate in the same industry and have operational and financial links.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market presence: The promoters’ experience of over 35 years in the water EPC industry has given them an understanding of the market dynamics, helped to establish relationships with suppliers and customers, and build a strong track record for order execution, resulting in an improved eligibility to bid for large tenders. With specialisation in turnkey services in water, wastewater collection and treatment and disposal, the group has delivered numerous projects over the years, including a recent completion of a hybrid annuity model (HAM) project, thus enhancing its execution capabilities. Resultantly, the group is estimated to register a compound annual growth rate of 38% in the three fiscals through 2025, with revenue expectation of Rs 900-1000 crore during fiscal 2025; ~Rs 685 crore already achieved during April’24 to Dec’24. Revenue growth will remain supported by healthy unexecuted order book of more than Rs 2,500 crore, which is diversified across multiple geographies, including Uttarakhand, Kolkata, and Madhya Pradesh.

 

• Robust financial risk profile: Steady accretion to reserve is likely to lead to a strong networth of Rs 950-1,000 crore as on March 31, 2025, against Rs 798 crore as on March 31, 2024. This, along with healthy operating profitability of 25-26% and reduced dependence on external borrowings, is likely to lead to better gearing and total outside liabilities to tangible networth ratio of less than 0.2 times. Furthermore, with limited exposure to external borrowings and healthy operating profitability, debt protection metrics shall remain comfortable, as reflected in interest coverage and net cash accrual to adjusted debt ratios of over 30 times and 2.5-3 times, respectively, in fiscal 2025. Absence of sizeable debt funded capital expenditure and expected accretion to reserves shall continue to strengthen the financial risk profile over the medium term as well.

 

Weaknesses:

• Moderate scale of operations: Despite continuous growth, revenue is anticipated to remain moderate at Rs 950-1000 crore during fiscal 2025 (Rs 793 crore in fiscal 2024 and ~Rs 685 crore till December 2024) Given the tender based nature of operations, scalability remains dependent upon successful bidding of tenders and its execution thereafter. Though the group enjoys a healthy unexecuted orderbook of ~Rs 2500 crore as of Dec’24, orders worth ~Rs 512 crore are such where execution is yet to commence. Any unexpected delay in commencement of execution for these orders can materially impact the revenue profile and thus, the same will be closely monitored. Also, since the group majorly undertakes government projects, any unfavorable change in government policy could also impact order execution and hence the business growth over the medium term. The group’s ability to manage business growth sustainably, amidst efficient working capital management, will remain a key rating sensitivity factor.

 

• Working capital-intensive operations: Gross current assets are expected to be 220-250 days as on March 31, 2025 (221 days as of Mar 31, 2024), because of stretched receivables as major order execution happens in the last quarter. Retention withheld by the government authorities also increases the average collection cycle for the group. Moreover, running inventory of raw material and work in process inventory also escalates the GCA days and hence the working capital requirements. The group has been able to manage its working capital through mobilization advances, routine cash flows and available liquid reserves, however, given the nature of the business, the working capital requirements are expected to increase with expected growth in revenue. The group’s ability to efficiently manage its working capital amidst business growth, leading to sustained improvement in return on capital employed will remain imperative and a key rating sensitivity factor.

Liquidity: Strong

Liquidity is expected to remain strong with nil bank limit utilisation against sanctioned cash credit limit of Rs 34 crore as the company has sufficient net cash accrual to manage working capital requirement. However, the non-fund-based limit remained utilized at 63% in the 12 months through February 2025. The group is expected to generate sufficient cash accrual of Rs 180-200 crore over the medium term against low debt obligation of Rs 5-6 crore per annum. Unencumbered cash and equivalent stood at Rs 137 crore as of 30th September 2024. Liquidity is supported by strong gearing and adequate networth, which provide financial cushion in case of any adverse condition or downturn in the business.

Outlook: Stable

Crisil Ratings believes EMS will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating sensitivity factors

Upward factors

• Sustained improvement in revenue by 20% and sustenance of operating margin leading to higher-than-expected cash accrual
• Successful bidding and awarding of new tenders leading to order book to turnover ratio of over 3 times on a sustainable basis.
• Efficient working capital management leads to lower dependence on external debt and hence sustenance of financial risk profile

 

Downward factors

• Significant decline in revenue and/or operating profitability moderating below 20%, thus impacting the net cash accruals
• Any large debt-funded capex or substantial increase in working capital requirement weakening liquidity and financial risk profile

About the Company

Headquartered in Ghaziabad, EMS (erstwhile, EMS Infracon Pvt Ltd) was incorporated in 2010 as a private limited company and was subsequently reconstituted as a public limited company in 2022. It is promoted by Mr Ramveer Singh (Chairman) and Mr Ashish Tomar (Chief Financial Officer and Managing Director). The company, along with its subsidiaries and JVs, provides engineering, procurement and construction services for the infrastructure sector on turnkey basis. It specialises in providing turnkey services in water and wastewater collection, treatment and disposal solutions (including operation and maintenance) and HAM projects. It also constructs roads and buildings and undertakes electrical work. EMS is listed on BSE Ltd and National Stock Exchange of India Ltd.

About the Group

1.      SKUEM Water Projects Private Limited (SUWPL)

SUWPL was incorporated on March 30, 2012, it is a SPV (Special Purpose Vehicle) company to control, acquire, manage, develop and O & M of wastewater Collection System and Common Effluent Treatment Plant (Project) at Integrated Industrial Estate (IIE), Haridwar on BOT (Build Operate and Transfer) basis for a concession period of 30 years

 

2.      EMS Green Energy Private Limited (EGEPL)

EGEPL was incorporated on November 02, 2018. EMS Green Energy Pvt. Ltd., a subsidiary of EMS Ltd., offers a spectrum of services delivering concepts to commission power plants including Design, supply, installation, Testing, Commissioning (EPC), Operation & Maintenance             

 

3.       EMS-TCP JV Private Limited (EMSTCP)

It is a Special Purpose Vehicle (SPV), engaged in contractor business activities. To control, acquire, manage, develop, construction of work, Water Supply Distribution Network Improvement with House Service connections for non-revenue water reduction, continuous water supply and providing sewer network with house connections, construction of sewage treatment plant, allied work and operation services of the entire system for 10 years at External Aided Project, Rajasthan Urban Drinking Water sewage and Infrastructure Corporation Limited.

 

4.       Mirzapur Ghazipur STPS Private Limited (MGSPL) a 60:40 JV with the EMIT Group (Ercole Marelli Impianti Tecnologivi S.r.l),

MGSPL, incorporated on 15th March 2021.  The JV is engaged in the development & installation of a Sewerage Treatment Plant & at present executing Hybrid Annuity Model (HAM) project. The company entered into the service concession agreement with Uttar Pradesh Jal Nigam for Design, Build, Rehabilitate, Finance, Operate and Transfer Sewage Treatment Plants (STPs) of the capacity as set out along with associate infrastructure, with operation and maintenance period of 15 years under “One City One Operator”.

 

5.    Canary Infrastructure Private Limited (CIPL)

CIPL was incorporated on January 17, 2006, to carry on in India or elsewhere the business to construct, reconstruct, build, rebuild, alter, acquire, develop and turn to account all types of buildings, multiplexes. Colonies, complexes. shopping malls, clubs, entertainment plazas, hotels, hospitals, colonies, werehouses, shops, factories and furnishing, fitting up and improving building draining.

 

Details of Joint Venture

1.    EMS Himal Hydro JV : This entity was formed in September 2014 between EMS Limited (Formally known as M/s EMS Infracon Pvt Ltd) & M/s Himal Hydro & General Construction Ltd. for the purpose of bidding & executing the following works:-  Providing, Laying, Jointing, Testing and Commissioning and allied works of Secondary Sewerage System to connect the Secondary Sewerage outfalls discharging the sewage in Khan & Saraswati Rivers of City to the Primary Sewerage network under Simhasth 2016 works.

 

2.     EMS Constructions is a partnership firm, formed on 04th August 2021. The registered office of the firm is situated at C-88, IInd Floor, RDC, Raj Nagar, Ghaziabad, UP – 201001. The firm is formed with the objective of doing construction business activities.

 

3.     EMS Singh JV was formed in January 2018 between EMS Limited (Formally known as M/s EMS Infracon Pvt Ltd) & M/s Singh Enterprises for the purpose of bidding & executing the construction of interception & diversion work of Sewage Treatment Plant of Capacity of 11 MLD along with its operation & maintenance for 15 years for Mokama Town, Bihar.

Any other information: Not Applicable