Antony Waste han

CM RATING 40/100
Antony Waste Handling Cell, promoted by Jose Jacob Kallarakal and Shiju Jacob Kallarakal, is one of the top five players in the Indian MSW (municipal solid waste) management industry with an established track record of 17 years, providing full spectrum of MSW services which includes solid waste collection, transportation, processing and disposal services across the country, primarily catering to Indian municipalities. It is among the key players in landfill construction and management sector with in-house expertise for landfill construction along with its management. The company has also entered into the waste-to-energy (WTE) segment which is at the top of the MSW value chain.

It is among the select few who have pioneered in MSW collection and transportation sector. The Company primarily undertakes: (i) MSW collection & transportation(C&T) projects which involve door to door collection of MSW from households, slums, commercial establishments and other bulk-waste generators (community bins) from a designated area through primary collection vehicles like compactors, dumper placers and tippers and transportation of these materials, to the processing facility, transfer station or a landfill disposal site.; (ii) MSW processing projects which involves sorting and segregating the waste received from MSW C&T, followed by composting, recycling, shredding and compressing into RDF, as required; and (iii) mechanized sweeping projects which involve deploying of power sweeping machines, manpower, comprehensive maintenance, consumables, safe disposal of the waste and any other items required for completion of the cleaning operation of the designated areas, through itself and/or its subsidiaries.

As of January 1, 2020, the consolidated fleet consisted of 1,089 vehicles and 6,579 full-time employees.

There were 17 ongoing projects. Of these, 11 are MW C&T projects, four mechanized sweeping projects and two MSW processing including WTE projects.

The company currently operates one of the largest single location waste processing plants in Asia, with a combined capacity of 5,250 tonnes per day (tpd) as on December 31, 2019. The company was awarded Kanjurmarg landfill project by MCGM in the Fiscal 2010. The project involves, inter alia, design, construction, operation and maintenance of integrated waste management facilities on Design, built, own, operate and transfer (DBOOT) basis. It is being undertaken by Antony Lara Enviro Solutions Private Limited (ALESPL), which is a joint-venture between the Company and Lara Central De Tratamento De Residuos Ltd. The Kanjurmarg site in Mumbai is a key success story of scientific landfill in India. It is one of the largest single location waste processing plants in Asia (source: Frost & Sullivan Report). As on December 31, 2019, the site had a bio-reactor landfill, with a capacity of 4,000 tpd, and a sanitary landfill of 250 TPD. Moreover, the site also has a material recovery and compost facility with a capacity of 1,000 tpd. As of December 31, 2019, it had processed approximately 6.17 million tonness of waste at the Kanjurmarg site since FY 2010. As on December 31, 2019, its subsidiary ALESPL has been operating a 0.4-MW landfill gas-to-energy plant at Kanjurmarg facility since the year 2014, which has been upgraded to 1.37 MW with the electricity produced being used for internal consumption.

The company has undertaken or currently undertaking projects in multiple states and Union Territories such as Maharashtra, Uttar Pradesh, Delhi, Karnataka, Rajasthan, Haryana and Punjab. It is currently undertaking projects for the Municipal Corporation of Greater Mumbai (MCGM), the Navi Mumbai Municipal Corporation, the Thane Municipal Corporation, Pimpri Chinchwad Municipal Corporation, the North Delhi Municipal Corporation, the Mangalore Municipal Corporation, New Okhla Industrial Development Authority, Nagpur Municipal Corporation and the Greater Noida Industrial Development Authority. The company is also currently undertaking a project for Jaypee International Sports. In the past, the company has also undertaken projects for Municipal Corporation of Delhi, Municipal Corporation of Gurgaon, Ulhasnagar Municipal Corporation, Amritsar Municipal Corporation, Kalyan Dombivali Municipal Corporation and Jaipur Municipal Corporation. The company will continue to expand into states with high GDP, growing urbanization, high standard of living, favourable geographic and climatic conditions.

The company continues to evaluate bidding with financial and strategic partners for projects and technologies which form a part of MSW management value-chain but are not a part of its core competence. The Company, through its step-down subsidiary ALREP, has been awarded a contract for setting up and operating a WTE plant having a capacity of up to 1,000 tpd by PCMC. Its subsidiary ALESPL has been operating a 0.4 MW landfill gas-to-energy plant at Kanjurmarg facility since the year 2014, which has been upgraded to 1.37 MW with the electricity produced being used for internal consumption. The company intend to continue to bid for commercially viable WTE projects from financially strong municipalities and private players.

The IPO consists of two parts, i.e., offer for sale (OFS) of 5700000 equity shares by existing share holders (PE investors) and fresh issue of equity shares aggregating upto Rs 35 crore. The OFS of up to 57 lakh equity shares comprises up to 1,390,322 equity shares by Leeds (Mauritius) Ltd; up to 20,85,502 equity shares by Tonbridge (Mauritius) Ltd; up to 7,69,917 equity shares by Cambridge (Mauritius) Ltd; and up to 14,54,259 equity shares by Guildford (Mauritius) Ltd.

The company proposes to utilize the net proceeds (from fresh issue of equity) towards reduction of the consolidated borrowings of the Company by infusing debt in its subsidiary AG Enviro Infra Projects Pvt Ltd for repayment and prepayment of portion of their outstanding indebtedness to the extent of Rs 30 crore and general corporate purposes.

Strengths

In MSW management, the company has demonstrated track-record as a comprehensive service provider equipped with the resources to handle large-scale projects for municipalities as well as private players having undertaken more than 25 projects as of January 1, 2020, of which 17 are ongoing. Its portfolio of 17 ongoing projects as on January 1, 2020, comprised 11 MSW C&T projects, two MSW processing (including WTE) project and four mechanized sweeping projects.

The project portfolio of the company is diversified across services provided, project duration, nature of contracts, counterparties and geographical areas where it operates. Moreover all of the 17 ongoing projects have started generating revenue. For instance of the 11 MSW C&T projects about seven contracts are of the tenure of seven-10 years with contracts expiring at different years ranging from FY 2020 to FY 2029. Balance four contracts that are of short duration of less than one year have been extended. Moreover the contracts are ranging from revenue per trip basis, revenue per day, revenue per tonne basis depending on the contract. Similarly of the mechanized sweeping projects two projects are of long tenure getting over by FY 2023 and the other two are on extension. And the MSW processing projects are of tenure of over 20 years. Further the ongoing projects are in multiple states and UTs such as Maharashtra, Uttar Pradesh, Delhi and Karnataka which are all well urbanized states with relatively better municipal governance.

Currently about 76.47% of current ongoing projects have an escalation clause embedded in the contracts with clients. The company focuses on contracts with pass-through for escalation in certain expenses such as labour and fuel.

Traditionally in India, municipal waste management services have been controlled by relevant municipal corporations with only 30-35% being managed by professional waste management players. While, the trend toward privatization has grown slowly since 2013, it is expected that more and more municipalities will move towards privatisation in coming years with the Central governments push (through Swachh Bharat Mission and Smart City Mission). Construction and maintenance of sanitary landfills is a long-term opportunity in India. Landfills are seen as vital component in the integrated management of solid waste for cities having population more than one million.

Weaknesses

The MSW management industry largely depends on Municipalities of the Country, which outsources this service to private players on competitive tendering basis. The municipalities in India lags in maximizing its own revenue generation through taxes, user and other fees as well as advertisement revenue etc., and consequently on an average generate only 39% of the funds they spend. Hence, Municipalities are highly dependent on state and Central grants and budget allocation to fund civic activities as well as various infrastructural projects. So any adverse changes in municipal policies, expenditures or fund allocations may lead to agreements being restructured or renegotiated or terminated and could materially and adversely affect business, financial condition and results of operation.

MSW Management industry in the country is working capital intensive business. Further typically 5% or more of the contract value is generally withheld by the client as security deposit / performance security and is released only upon the evaluation of the work or the completion date.

Over 85% of the revenue of the company comes from a handful of clients. The top five clients of the company has accounted/contributed about 89.79% in FY 2017, 90.78% in FY 2018, 93.70% in FY 2019 and 84.92% in H1 of FY 2020.

Of the 17 ongoing projects as on January 1, 2020, there are two MSW processing (including WTE) projects and the company does not have any past experience in executing a WTE project. The WTE project has been recently awarded to the company.

The MSW management industry in the country is highly competitive with approximately 20-30 participants offering various services. Some of the MSM services and segments are not technology intensive and, thus, many infrastructure and environment services companies are present in this market. Logistics companies are also present in this market providing only transportation and fleet management services.

As per the financials reported in prospectus, consolidated revenues were sluggish and net profit came down during FY 2017 to FY 2019.

Valuation

Consolidated revenues of the company for the fiscal ended March 31, 2019, were up by 3% to Rs 283.69 crore and operating profit was up by 9% to Rs 76.18 crore facilitated by higher sales as well as 160 bps expansion in the operating profit margins (OPM) to 26.9%. Howeve, PBT was down by 2% to Rs 47.68 crore, hit largely by higher depreciation, which was up by 44% to Rs 18.33 crore. After accounting for higher taxation, which was up by 49% to Rs 13.26 crore, profit after tax (Pat) was down by 14% to Rs 34.42 crore. With minority interest (MI) lower by 31% to Rs 7.26 crore, the fall at net profit attributed to owners moderated to stand at 8% to Rs 27.16 crore.

Consolidated revenues for the six months period ended Sep 2019 was Rs 218.62 crore, a growth of 54% on an annualized basis. With the OPM at 30.4%, operating profit was Rs 66.47 crore. Eventually, Pat after MI was Rs 27.78, a jump of 105% on an annualized basis.

The consolidated EPS on post issue equity for FY 2019 was Rs 10.1. The offer price of Rs 295-300 discounts the FY 2019 EPS on post-IPO equity by 29.2-29.7 times. There is no other comparable listed company.

Anthony Waste Handling Cell: Issue Highlights

Fresh Issue (in Rs. Crore) 35
Offer for sale (in Rs. Crore)
in Upper price band 171.0
in Lower Price Band 168.2
Price band (Rs.)
Upper 300
Lower 295
Post-issue equity (Rs crore)
in Upper price band 13.38
in Lower Price Band 13.39
Post-issue promoter (including promoter group) stake (%)
in Upper price band 48.87
in Lower Price Band 48.84
Minimum Bid (in nos.) 50
Issue Open Date 04-03-2020
Issue Close Date 06-03-2020
Listing BSE, NSE
Rating ?40/100

?Anthony Waste Handling Cell: Consolidated Financials

1909 (6) 1903 (12) 1803 (12) 1703 (12)
Sales 218.62 283.69 276.14 275.77
OPM (%) 30.4 26.9 25.3 23.5
OP 66.47 76.18 69.75 64.81
Other income 7.00 14.83 14.64 15.44
PBIDT 73.47 91.01 84.39 80.24
Interest 13.92 24.99 22.89 25.29
PBDT 59.55 66.01 61.50 54.95
Depreciation 10.58 18.33 12.71 11.14
PBT 48.97 47.68 48.79 43.82
EO Exp 0.00 0.00 0.00 0.00
PBT after EO 48.97 47.68 48.79 43.82
Tax 11.12 13.26 8.90 2.78
PAT 37.84 34.42 39.88 41.04
Minority Interest 10.06 7.26 10.48 8.34
Net profit 27.78 27.16 29.41 32.70
EPS (Rs)* 20.7 10.1 11.0 12.2
EPS (Rs)** 20.8 10.1 11.0 12.2
* on post issue equity on Lower price band of Rs 13.39 crore. Face Value: Rs 5
** on post issue equity on Upper price band of Rs 13.38 crore. Face Value: Rs 5
EPS is calculated after excluding EO and relevant tax
# EPS can not be annualised due to seasonality in operations
Figures in Rs crore
Source: Capitaline databases

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