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00:00We are joined by Ashish Thoma, who is the Managing Director at EMS Limited, who joins us now.
00:04Welcome to the show, Mr. Thoma.
00:06You know, my first question to you is, you know, with Bode's approval of raising 400 crores as QIP,
00:12what is your plan with respect to deploying these funds?
00:16I believe that this will be majorly used for working capital,
00:19but are there any other areas that you'll be using these funds for?
00:22Yeah, good morning and thank you for having me.
00:25Yes, you're absolutely correct. We plan to use this as working capital.
00:32So the majority of the funds raised will be used for the working capital only.
00:38Hi Ashish, Anushi joining in here.
00:40So you've mentioned that your working capital cycle, you'll expect an improvement.
00:44Can you quantify what is the sort of improvement that you're looking for?
00:48And also, are we looking for any future such a fundraising opportunities
00:53as there are some large scale HAM projects also that you're looking at?
00:56So what's the update on this one?
00:59Yeah, so the need for this fundraising was because of the unexpected growth
01:08that we experienced in the last financial year.
01:12From almost 450 crores to, we were able to achieve a turnover of around 720 crores.
01:18And for this year also, we expect a growth of around 30%.
01:24So because of the nature of the business is such that are almost 10 to 15%
01:28of our working capital is stuck as a tension with the employer,
01:33which is government bodies in our cases.
01:36So to fund the growth and to encash the opportunities that are present in the market,
01:42we will have to raise this capital.
01:47Mr. Tomar, just with regard to your commentary on government
01:53or rather some bit of your receivables locked up with the government,
01:57do you expect a release of that anytime soon?
02:00Is that at all a concern for you that this may get delayed at all?
02:05No, this retention money is released after the completion of the project,
02:13which is typically around three years is the average project completion time
02:19in the water sector.
02:21And this working capital crunch that comes up in this business is due to the,
02:28you can say the fast pace growth that we have been experiencing.
02:36Because if we maintain our revenues at a constant,
02:40then this is not a concern.
02:43But as we are growing at a rapid pace,
02:47so the working capital is stuck with the employer.
02:52And any reason why you would opt for equity over debt?
02:57Because you're largely debt free as well.
03:00Yes, yes, yes.
03:02We are currently debt free.
03:05The only debt we have is around 50 crores that was raised to fund a ham project
03:12that was executed by us.
03:14So if it's temporary, Mr. Tomar, why not opt for debt?
03:17So we are more comfortable with the equity.
03:22Sure, understand.
03:24Okay, and Mr. Tomar, so when and how much in terms of quantum
03:29will get released as the government starts releasing some of those receivables to you?
03:34How quickly do you expect that to start coming?
03:36And what's the kind of quantum?
03:39So it is a continuous cycle.
03:42So if, for example, this year, the retention money would be released,
03:49would be for a project that was completed,
03:53the retention that was held up over a period of last three years.
03:58So that retention will be released this year.
04:01And next year would be the previous three years.
04:07So there is a gap of growth due to which this retention keeps on increasing.
04:17All right.
04:18Mr. Tomar, you know, this Adi Ganga project of 681 crore
04:23is one of your biggest tenders till date.
04:25So I want to understand what are the kind of execution timelines
04:28for this particular project?
04:29Will it happen in phases?
04:30Will it happen in one go?
04:31Give us some details on that.
04:34Yeah, the completion timeline is three years.
04:38It's a typical completion timeline for this kind of project.
04:41And it will be taken up in one go and not in phases.
04:46Mr. Tomar, you mentioned in our last conversation
04:50that there would be no compromise on margins.
04:52Now that you're shifting focus to the road EPC side of business,
04:56have you seen a lack of conversion of these orders
04:59because of the type of margin profile that you command,
05:02which is in the range of 24% to 26%?
05:04I want to understand what are the current developments
05:06that are happening in the road EPC projects?
05:09Are we seeing some conversions?
05:11Let's even talk about the Ayodhya one especially.
05:14What's the update on you?
05:15What's the kind of margin guidance that we should be looking for FY25
05:18and going ahead for next two, three years as well?
05:22So currently we do not have any road projects.
05:25We did bid for around a couple of projects
05:29in the ham sector for the road works.
05:32But considering the growth margins that we were expecting,
05:38we were not able to secure the projects at those margins.
05:43Right now, the most of our order book is in water sector only.
05:48Mr. Tomar, given the fact that you're expecting a higher margin,
05:52would you, and therefore possibly not,
05:55one of the reasons why you're not winning these projects,
05:57would you look to dilute margins at any point?
06:01No, sir. We are not looking to dilute margins at any point.
06:04I remember you had given us the same commentary
06:06just a couple of months back,
06:08but I'm just trying to egg you on to try and understand
06:10if that position has changed.
06:12No, sir. No. It remains the same.
06:14Understood. So you will continue to be patient
06:16with regard to the projects you bid for,
06:18and you will continue to have the margins
06:20that you are looking for if at all you get these projects.
06:24And if not, what?
06:27No, sir. I think there is enough work in the market.
06:30The country is growing at a rapid pace.
06:33That will need a contribution of all the EPC players
06:38that can pitch in.
06:41So I think there is enough scope for everybody
06:43to get working on their own rates.
06:46Okay. Mr. Tomar, even one of the important points
06:48that you mentioned was that the diversification
06:51that we are seeing in this road EPC business
06:53was because of limited room of growth
06:56in the water EPC business.
06:58I want to understand what is the pipeline of opportunity
07:01in water EPC versus the road EPC business?
07:04What is the current pipeline looking for the HAM projects
07:07that you've mentioned?
07:09And what is the success ratio that you're seeing
07:11in the water EPC side of the business?
07:15Considering the market size, I can give you a rough estimate
07:19that almost I think 8 to 9 lakh crores worth of projects
07:24need to be executed in water sector
07:26in the urban areas of country only.
07:29If we keep the rural areas aside for a moment,
07:34then this is the quantum of work that needs to be carried out
07:37in urban sector.
07:39So I think there's a huge potential for water sector going forward.
07:44And considering the targets given out by the government,
07:48I think this work will be carried out in timeline
07:52of next 8 to 10 years.
07:56All right. And Mr. Tomar, your bidding pipeline
07:58currently exceeds 4,000 crores.
08:01So I want to understand that there might be more biddings
08:03that you've undertaken and that might be in both road EPC
08:08as well as the water segment.
08:09So I want to understand that if the success ratio is 10 to 15%,
08:13what kind of key projects you're expecting
08:16in this particular quarter and for FY25 overall?
08:21So currently our bidding pipeline is at 3,000 crores.
08:28Around 1,000 crores worth of projects has been opened,
08:33out of which we have been able to convert this KMC project
08:38into an order.
08:40And out of the remaining 3,000 odd crores,
08:45we are hopeful and keeping our fingers crossed.
08:49And Mr. Tomar, the final question is on the competition side
08:52now that you're entering into the road EPC.
08:55What is the kind of margin profile that you expect here
08:58with the kind of competition that is already present?
09:01Don't you expect a dilution on this front as you move forward?
09:06No, because in the government sector,
09:09there's a bidding capacity for each and every player.
09:12So one player cannot take up all the work in the market.
09:16So I think we'll be patient and wait for our turn.
09:19All right. Well, Mr. Tomar, thank you so much
09:21for giving us those insights on EMS Limited
09:23and thank you so much for taking our time
09:25and speaking with us at NDTV Profit.