EMS — Q2 FY25 earnings call

Call held 13 Nov 2024

Management summary

EMS Limited reported a strong performance for H1 FY25, driven by increased tender activity and government focus on the water sector. While Q2 growth was moderated by a high base and heavy monsoons, the company's robust un-executed order book of ₹2,345 crores and a massive bid pipeline of ₹6,477 crores underpin a confident outlook. Management expects to maintain its high EBITDA margins and historical growth trajectory, supported by a healthy balance sheet with minimal debt and sufficient internal accruals for current projects.

Highlights

  • H1 FY25 Operating Income stood at ₹435.34 crores, a growth of approximately 41% YoY.

  • H1 FY25 EBITDA was ₹121.84 crores, up 30.25% YoY.

  • H1 FY25 PAT reached ₹86.37 crores, marking a 29.51% YoY increase.

  • Current un-executed order book stands at approximately ₹2,345 crores, providing strong revenue visibility for the next 2-3 years.

  • A robust bid pipeline of ₹6,477 crores is in place, with results for a significant portion expected in the next 2-3 months.

  • Secured a new order worth ~₹700 crores from Kolkata Municipal Corporation, marking entry into West Bengal.

  • Management expressed confidence in maintaining the high Q2 EBITDA margin of 29-30% going forward.

  • Cash flow from operations has turned positive from negative previously, with plans to maintain and improve it further.

Key financials

2 periods

Headline

  • Un-executed Order Book
    ₹2,345 Cr
  • Bid Pipeline
    ₹6,477 Cr

H1

  • Operating Income
    ₹435.34 Cr
    YoY +41%
  • EBITDA
    ₹121.84 Cr
    YoY +30.3%
  • PAT
    ₹86.37 Cr
    YoY +29.5%

What they filed

Q1 FY27: revenue down 34.3%, net profit down 60.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue233 245 270 239 173 −26%200 −18%120 −56%157 −34%
EBITDA69 71 65 54 37 −46%31 −56%18 −72%26 −52%
Net profit50 51 47 38 28 −44%19 −63%6 −87%15 −61%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · going forward · Medium confidence Maintain ~29-30%

    From around 25% today

    So, I think we are confident of maintaining this going forward.

    — Ashish Tomar, Managing Director and CFO

Order Book

  • Bid Pipeline Conversion Order Book · next 2-3 months · High confidence Results for majority of the ₹6,477 crore pipeline to be declared
    I think we should expect the results for the majority of this pipeline to be declared in the coming 2 months-3 months.

    — Ashish Tomar, Managing Director and CFO

  • Order Book Execution Order Book · next 2 years · High confidence Majority of ₹2,350 crore order book to be completed
    The majority of the work would be completed in the coming 2 years, with some work going past that.

    — Ashish Tomar, Managing Director and CFO

Growth

  • Overall Performance (CAGR) Growth · year on year · Low confidence Maintain and improve upon past performance
    I think we would, I can comment that we hope to maintain and improve upon our past performance of CAGR that we have been delivering year on year.

    — Ashish Tomar, Managing Director and CFO

Revenue Mix

  • Sectoral Mix (Water vs Other) Revenue Mix · going forward · High confidence 70-80% from water, 20-30% from other infra
    So, the majority of the business, about 70% to 80% will continue to come from the water side and the rest 20% to 30% may be from other infrastructure sectors, be it power, building or road.

    — Ashish Tomar, Managing Director and CFO

Risks & concerns

  • Seasonality and Monsoon Impact

    medium

    Management confirmed Q2 is the weakest quarter and that heavy monsoons this year led to lost working days and slower execution, impacting Q2 growth.

    Management acknowledged

  • Working Capital Management

    medium

    An analyst highlighted historical suffering in cash flow from operations. Management claims the situation has 'drastically improved' to positive, but this remains a key area to monitor.

    Analyst downplayed

  • Geographical Concentration

    low

    Management stated that the majority of current orders are from Uttarakhand. While they are expanding (e.g., West Bengal), concentration remains a factor.

    Management acknowledged

Areas of evasion (1)

  • Providing a specific full-year revenue target for FY25.

Q&A highlights

1 direct, 1 evasive
Rationale for acquiring a paper business/land Partial
We have been maintaining that we are only going after the land part and we are not interested in running any industry... The banks do prefer collateral to be in shape of property. So that is why we have to go in for such arrangements.

Reveals a key strategic decision to acquire land via NCLT primarily for collateral security to support future borrowing, not for operational diversification, clarifying a potentially confusing move for investors.

Asked by Dinesh

Guidance for FY25 revenue, specifically hitting ₹1,000 crores Evasive
Sir, I will not be able to comment on a specific number, but I think I can comfortably say that we are going to maintain the trajectory that we will be delivering.

Management's refusal to commit to a specific full-year revenue target, despite strong H1 growth and a robust order book, indicates a degree of caution and a preference for providing directional rather than hard numerical guidance on the top line.

Asked by Hrishit Jhaveri

Discrepancy between low consolidated growth (11%) and strong standalone performance Direct
So, in the consolidated figures, the figures are only of the SPVs that have been floated by us for specific tenders. So, these figures, I think the majority of our business comes from EPC market only. And some of the projects, they require formation of specific SPVs... So, they affect the consolidated figures, but I think if you are to take the standalone figures, they are good.

This clarifies a key point for investors that the headline consolidated growth number can be misleading due to the accounting of SPVs, and that the core EPC business performance is much stronger.

Asked by Dinesh

2 min read 5 chapters

Detailed narrative

H1 FY25 Financial Performance

EMS reported a strong financial performance for the first half of FY25. Operating income grew by approximately 41% YoY to ₹435.34 crores. This top-line growth translated into an EBITDA of ₹121.84 crores (up 30.25% YoY) and a Profit After Tax (PAT) of ₹86.37 crores (up 29.51% YoY). While the consolidated revenue growth for Q2 was a more modest 11%, management attributed this to a high base and significant monsoon-related disruptions, noting that standalone performance was stronger.

Order Book and Bid Pipeline Provide Strong Visibility

The company's future revenue is well-supported by a current un-executed order book of approximately ₹2,345 crores, which is scheduled for execution over the next 2-3 years. More significantly, EMS has a massive bid pipeline of ₹6,477 crores, with management expecting results for a majority of these bids within the next 2-3 months. During the quarter, the company secured a major sewerage project worth ~₹700 crores from the Kolkata Municipal Corporation, marking its entry into West Bengal.

Sustaining High Profitability

A key highlight of the quarter was the high EBITDA margin, which stood at 29-30%. When questioned, management expressed confidence in their ability to maintain this level of profitability going forward, allowing for minor fluctuations of 1-2%. This suggests strong execution capabilities and cost control on their projects. The company typically bids for projects in the ₹200 crore to ₹500 crore range, which constitutes about 90% of their focus area.

Strategic Capital Management and Funding

EMS maintains a lean balance sheet with its only significant debt related to a HAM project. Management stated that current internal accruals are sufficient to meet the cash flow requirements for the existing order book and bid projects. Fundraising via the previously approved QIP has no fixed timeline and would only be considered if the company secures large HAM projects. In a strategic move to enhance its borrowing capacity, the company is acquiring a land parcel through the NCLT process, which will be used as collateral, as banks prefer property-backed security.

Business Outlook and Diversification

Management anticipates a stronger H2 FY25, following a slowdown in H1 due to general elections and heavy monsoons, aligning with the company's typical seasonality of a 40% (H1) / 60% (H2) revenue split. The core focus remains the water sector, which is expected to contribute 70-80% of the business. The remaining 20-30% will come from other infrastructure sectors like power, building, and roads, a mix the company has maintained since its inception. The company is also actively looking to hire an independent CFO to strengthen its management team.

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