For some companies, 2020 was not a complete waste, especially those going public. One of them is Antony Waste Handling Cell, a municipal solid waste (MSW) management company. 

Municipal waste management might not be a glamorous industry, but with Antony Waste Handling Cell’s IPO already subscribed 2.7 times on the second day of bidding, it is piquing investor interest.

Picking up from a previous attempt

This is Antony Waste Handling Cell’s second attempt at an IPO. In March 2020, right before the benchmark Nifty slipped below 10,000, Antony Waste Handling Cell planned to go public. The first IPO was scheduled between March 4 to 6 and was valued at Rs 206 crore, comprising a Rs 35 crore fresh issue and an offer for sale (OFS) of Rs 171 crore.

On day one, only 9% of its public offering was subscribed. On day two, the issue was subscribed less than 50%. Following the poor showing, the management extended the IPO to March 16, despite receiving Rs 61 crore from anchor investors. The anchor investors included the Massachusetts Institute of Technology (MIT) and the Vantage Equity Fund.

Amid the weak investor response and poor market conditions, and despite extending the IPO and revising the price band, Antony Waste Handling Cell withdrew its public offering on March 16. A week later, the Nifty hit its lowest point in 2020.

Stake sale and record highs

Antony Waste Handling Cell’s share offer opened on December 21 and will close on December 23. The revised IPO size is of Rs 300 crore, divided between a fresh issue of Rs 85 crore and an offer for sale of Rs 215 crore. Its institutional partner, Elliot Capital Management, a New York based hedge fund,  will sell 68 lakh shares in the OFS. The IPO price band is Rs 313-315, against the price band of Rs 295 to Rs 300 in March 2020. Post the IPO, the company will have a market capitalization of Rs 890 crore.

Antony Waste Handling’s promoters are not selling any stake and will hold a 46% stake in the company post the IPO. The company’s institutional partner--Elliot Capital Management--through its controlled entities, will decrease its holding. Prior to the IPO, it held a 48.4% stake in the company. 

Elliot Capital Management will sell a total of 68.2 lakh shares for Rs 215 crore through four Mauritius-based entities. Two entities, Leeds Limited and Tonbridge Limited, will divest their respective 5.4% and 8.1% stake selling 13.9 lakh shares and 20.8 lakh shares respectively. The hedge fund will hold 11.7% of Antony Waste Handling Cell after the IPO, through Cambridge Limited and Guildford Limited.

New project and debt reduction

Out of the Rs 85 crore proceeds from the fresh issue, Rs 40 crore will be used to finance the Pimpri-Chinchwad Municipal Corporation (PCMC) waste-to-energy project (WTE), Rs 38.5 crore to reduce debt and the remaining for general corporate purposes. 

In June 2019, the PCMC allotted six acres of land to the company’s subsidiary, Antony Lara Renewable Energy (ALREPL), and Lars Enviro, an environmental engineering company, for a WTE project at the Moshi garbage depot in Moshi, near Pune. The complete cost of the WTE project is Rs 228 crore, of which Rs 2.4 crore has been incurred till November 2020. The rest of the project will be financed through a Rs 172 crore loan, which ALREPL took in July 2020 from Power Finance Corporation. The loan has a 12.1% interest rate and has to be repaid in June 2022.

Antony Waste Handling Cell will infuse Rs 38.5 crore into its subsidiary AG Enviro Infra Projects to meet working capital needs, fund vehicle loan requirements, and to finance capital expenditure (CAPEX). At the end of September 2020, the subsidiary was sanctioned 12 separate loans worth Rs 125.2 crore, out of which 104.2 crore is outstanding. As of 30 September 2020, Antony Waste Handling Cell’s total debt was Rs 209 crore, with a debt-to-equity ratio of 0.6. The company’s debt-to-equity ratio at the end of March 2018 was 0.9.

Revenue break up

Antony Waste Handling Cell undertakes MSW collection and transportation (C&T) and mechanized sweeping projects. As of November 2020, it has undertaken 25 projects, 18 of which are ongoing in Greater Mumbai, Navi Mumbai, Delhi, Pimpri-Chinchwad, Thane, Mangalore, Jaipur, Amritsar, Nagpur, Varanasi, and Noida. 

The company also undertakes landfill construction and management at Kanjurmarg in Mumbai. This is operated by Antony Lara Enviro Solutions Private Limited (ALESPL), a joint venture between the company and Lara Central De Tratamento De Residuos, a Brazilian waste management company.  

Out of the revenue generated in the six months ended September 2020, collection and transportation of MSW contributed 64%. The second biggest contributor was income from tipping fees, which accounted for 28% of revenue, and the rest is divided between contract revenue, mechanical power, mechanized sweeping projects, and the sale of scraps. 

ALESPL operates the largest domestic WTE project in Mumbai, with a waste processing capacity of 4,000 tonnes. 

For the six months ended September 2020, revenues were Rs 207.4 crore, a drop of 5% against the year-ago period. The drop in revenue was due to lower MSW collected from shops that were closed during the lockdown. During H1FY21, the company was awarded a seven-year MSW C&T project in Varanasi which is expected to boost revenues. Net profit for the period ended September 2020, was Rs 29 crore.

Antony Waste Handling Cell’s earnings per share (EPS) for FY20 was Rs 24.2. Taking the upper IPO price band of Rs 315, its price to earnings (PE) stands at 13 times the FY20 earnings. 

New projects drive FY20 performance

In FY20, Antony Waste Handling Cell generated Rs 450.5 crore in revenue, a rise of 59% over the previous year. Revenues between FY18 and FY19 rose marginally by 2.7%. The revenue growth in FY20 was driven by new MSW C&T projects approved in Nagpur, Noida, and Pimpri-Chinchwad. These new projects also lowered the revenue reliance on its top-5 customers. For the six months ended September 2020, top-5 customers contributed 77.5% of revenue, down from 93.7% at the end of FY19. 

Earnings before interest, taxes, depreciation, and amortization (EBITDA) for FY20 was Rs 125.6 crore, a rise of 64.8% against the previous year. The company’s EBITDA has been consistently growing. In FY17, FY18, and FY19, the company reported EBITDA of Rs 64.8 crore, Rs 69.7 crore, and Rs 76.2 crore respectively.

In FY20, it recorded net profits of Rs 62.1 crore, a jump of 79% from the previous year. This came on the back of 13% YoY fall in net profits in FY19. The company has maintained a profit margin of between 12% to 15% over the past three financial years.

As of September 30, 2020, Antony Waste Handling Cell’s non-current trade receivables included long outstanding receivables of Rs 13.5 crore due from various municipal corporations. In the six months between March to September 2020, the dues were not paid by the municipal corporations. However, this is down from Rs 28.5 crore in long outstanding receivables at the end of FY19. The management considers this amount recoverable. 

The company’s auditor has qualified its audit report on the financials for H1FY21, regarding the carrying amount of receivables in the balance sheet for the six months period ended 30 September 2020. 

The company claims that long-pending receivables of Rs 13.5 crore due from various municipal corporations are recoverable in their entirety. However, the auditor in their report said that there isn’t enough evidence available to corroborate that fact. The auditor also said in their report for the period ended March 31, 2020 that the company does not have adequate internal financial controls with respect to assessment of loss allowances of receivables. This impacts earning estimates, and could lead to misstatement of the loss allowances, trade receivables, profits, and reserves and surplus.

Not a wasteful market

For a company engaged in city waste management the most important factors are population and urbanization, of which India has plenty. India’s current population is 135 crore and is estimated to grow at a compounded annual growth rate (CAGR) of 1.07% till 2025. In 2019, 34.5% of India’s population resided in urban towns and cities, from 27.9% in 2001. 

With 30.9 billion tonnes of waste produced globally the global waste management market is worth Rs 23.2 lakh crore in 2020. The Indian market is worth Rs 50,000 crore in 2020 and is expected to grow at a CAGR of 14.4% till FY25, driven by urban population growth, the participation of the private sector, and evolving consumption patterns.

According to market research firm Frost & Sullivan, Indians generated 7.5 crore tonnes per annum (TPA) of municipal solid waste (MSW) in 2020. The production of MSW is expected to grow at a CAGR of 8.9% between FY20 to FY25. The Indian MSW market in 2020 is worth Rs 50,000 crore and is expected to grow to Rs 90,000 crore by FY25, a CAGR of 14.4%. This growth will be absorbed mainly by the top-5 MSW management companies - Ramky Enviro Engineers, BVG India, Metrro Waste Handling, A2Z Green Waste Management, and Antony Waste Handling Cell.

Expanding projects and rising revenues

The waste management industry is worth Rs 50,000 crore, and Antony Waste Handling Cell is among the top-5 players in the space. Its major foothold remains in Maharashtra, where it has ongoing MSW C&T projects in Thane, Navi Mumbai, Pimpri-Chinchwad, Nagpur, and Greater Mumbai. Extending beyond the state, it has focused on C&T projects in Uttar Pradesh and New Delhi, commencing 5 projects since 2018, and one project in Mangalore, beginning in 2015. 

This expansion, especially in the recent Noida, Nagpur, and Pimpri-Chinchwad projects has contributed to the 59% jump in revenues from FY19 to FY20. The recently approved Varanasi project is likely to drive FY21 numbers as well. Expansion has also allowed the company to decrease its reliance on Maharashtra. 

Antony Waste Handling Cell before its IPO raised Rs 90 crore from anchor investors. For the second time, MIT participated in the anchor round, taking 44.4% of the anchor allotments, and its welfare fund, 238 Plan Associates, took 11.1%. SBI Mutual Fund took 38.9% of the allotment across seven schemes and Tata AIG General Insurance took the remaining 5.5%.