IPO Spot: Antony Waste Handling Cell Limited

IPO Detail

Antony Waste Handling Cell (AWH), the second largest player in the Indian municipal solid waste (MSW) management industry, will open for subscription of its ₹300.0 Cr IPO on December 21, after an unsuccessful attempt to tap the primary market earlier this year. The offer for ~95,23,345 shares of ₹5 each, fixed between a price band of ₹313-₹315 per share, will include a fresh issue of ₹85.0 Cr and an offer for sale to the tune of ~₹215 Cr(at the upper end of the price band). On December 18, 2020, the company raised ₹90.0 Cr from anchor investors, thereby reducing the total offer size to 66,66,343 equity shares.

The proceeds from the fresh issue will be used to partly finance the waste-to-energy project at Pimpri Chinchwad through investment in its subsidiaries, AG Enviro and/or ALESPL, reduction of consolidated borrowings, and general corporate purposes.

Business Overview

AWH has 19 years of track record in the Indian MSW management, providing a full spectrum of MSW services which includes solid waste collection, transportation, processing and disposal services across the country, primarily catering to Indian municipalities. The company counts itself as one of the top five players in the Indian MSW management industry, and among the select few players who have pioneered in both MSW collection and transportation sector. The company's key business operations include MSW C&T, MSW processing and mechanized sweeping project. As of November 15, 2020, the company has undertaken more than 25 projects, of which 18 are on-going. These on-going projects comprised 12 MSW C&T projects, two MSW processing (including WTE) projects and four mechanized sweeping projects. All the 18 on-going projects have started generating revenue.

AWH 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.

The company continues to evaluate bidding with financial and strategic partners for projects and technologies which form a part of the MSW management value-chain but are not a part of its core competence. AWH, through its step-down subsidiary ALREP, has been awarded a contract for setting up and operating a Waste-to-Energy (WTE) plant having a capacity of up to 1,000 tpd.

Financials

On the financial front, AWH witnessed a robust top line growth of ~CAGR 60% between FY2018 and FY2020, the revenue stood at ₹464.6 Cr in FY2020, up from ₹290.8 Cr in FY 2018. In the past three years, the EBITDA margin grew by 100 bps while the operating margin remained stable. Having a stable cost structure helped the company to grow its PAT from ₹39.9 Cr to ₹62.1 Cr, resulting in a CAGR of 55%. AWH exhibited a volatile trend in RoNW, mainly due to the dilution of its equity base; however, the average RoNW for the past three years remained at a healthy level of 20.7%.

On annualizing the half yearly performance, it appears the company is set to witness a drop in their top-line as well as bottom-line. But this is mainly due to the COVID-induced lockdown, as the company MSW tonnage has seen a significant decline due to the closure / partial closure of commercial activities.

Valuation

ASH operates in a high growth industry; the overall market growth for the MSW services is expected to grow at 14.4% for the next five years. The company’s 19 years of established track record, vertical integration and strong position in the MSW management sector enables it to identify and win new projects.

On the valuation front, the company has priced the issue at 11.5x at its FY20 earning (post-issue basis). On the basis of FY21 earnings, the issue is priced at 15.3x. Based on its FY20 NAV, the issue is priced at a P/B of 2.8x, while on FY21 NAV the issue is priced at 2.8x. While the company has no listed peers, looking at the prima facie valuation the issue appears to be under-price. Considering the future potential of the sector and valuation comfort, investors can enter with a long-term time horizon.

Disclaimer: The views expressed in the reports reflect my (analyst) personal views about the topic covered. Opinions contained in the report represent the analyst’s present opinion only - at the time report is prepared - and may be subject to change without notice. The report is not a recommendation to buy or sell the following securities and no liability whatsoever is accepted for any direct or indirect loss or expense arising from the use of the report. Kindly do your own due diligence before taking any position in a security. The report shall not be used for any unlawful or unauthorized purposes.  The report is prepared for information purposes only and not for publication and re-distribution. Any logo used on the blog is for identification purposes only.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

 IPO Spot: Mrs. Bectors Food Specialties Ltd.

IPO details

Mrs. Bectors Food Specialties Ltd. (MBFSL), one of the leading players in the premium bakery segment and a supplier to quick-service restaurants like Burger King, is set to commence its ₹540.5 Cr IPO on December 15, 2020, for three days. The offer, which comprises of a fresh issue of ₹40.5 Cr and an offer for sale of ₹500 Cr by existing shareholders, is set at a price band of ₹286 - ₹288 per share. SBI Capital Markets, ICICI Securities, and IIFL Securities are the book running lead managers to the offer.

The proceeds from the fresh issue will be utilized towards financing the expansion of the company’s Rajpura manufacturing plant, a project that is estimated to cost ₹40.5 million.

Business Overview

MBFSL was originally founded by Mrs. Rajni Bector using her original recipes. The company now manufactures and markets a wide range of biscuits and bakery products under the brands ‘Mrs. Bector’s Cremica’ and ‘English Oven’ through its six manufacturing facilities - Phillaur and Rajpura (Punjab), Tahliwal (Himachal Pradesh), Greater Noida (Uttar Pradesh), Khopoli (Maharashtra), and Bengaluru (Karnataka). It also manufactures ‘Oreo’ biscuits and ‘Chocobakes’ cookies on a contract basis for Mondelez India Foods Pvt. Ltd.

The company’s products are supplied to retail consumers in 26 states in India and exported to 64 countries in 6 continents with the help of a strong distribution network of 196 super-stockists and 748 distributors through 458,000 retail outlets and 4,422 preferred outlets. With 384 SKUs under its product portfolio, Cremica stands among the market leaders in the premium and mid-premium segment in Punjab, Himachal Pradesh, Jammu & Kashmir, and Ladakh; English Oven, on the other hand, is one of the largest selling brands in the premium bakery segment in Delhi NCR, Mumbai and Bengaluru with 118 SKUs. Along with being the largest supplier of buns to several QSR chains including Burger King India Ltd., Connaught Plaza Restaurants Pvt. Ltd., Hardcastle Restaurants Pvt. Ltd., and Yum! Restaurants (India) Pvt. Ltd., MBFSL also manufactures and sells a variety of bakery and frozen products to cloud kitchens such as Rebel Foods Pvt. Ltd., multiplexes such as PVR Ltd., and certain hotels, restaurants, and cafés. The company is also one of the largest suppliers of biscuits to Canteen Stores Department of Government of India (CSD) supplying in 33 locations across India and an approved and listed supplier for Indian Railways having a strong presence across Railway Station Canteens and their stores in North India.

MBSFL is one of the leading exporters of biscuits from India, with ~12% share of the Indian biscuit export market in CY2019, contributing >50% by value of biscuit exports from India to countries like South Africa and Uganda and >25% by value of biscuit exports from India to Canada.

As part of the company’s strategies going forward, MBFSL will focus on growth in the premium biscuits and bakery segment to improve margins, while continuing to expand its product portfolio within the existing segments and also include a more nutritious range of biscuits. The company also seeks to increase the capacities of its manufacturing facilities by installing new, automated, and product specific equipment which will further allow it to capitalize on growth opportunities and cater to the casual dining restaurant business segment, the hotel, restaurant, and café business segment and institutional customers. BFSL also plans to increase its presence in select export markets such as South, Central, and North America, the MENA region, and Australasia.

Financials

MBFSL recorded ₹762 Cr revenue in FY2020, rising at an average rate of a mere 5% from ₹693.37 Cr in FY2018; however, gross margin grew by ~200 bps to 46.54%, highest in its peer category. The company posted a disappointing EBITDA/PAT of 4.2% / -8.0% during the same period. For this static performance, the management blamed the capacity expansion it undertook during FY2018-FY2020. Nonetheless, this expansion aided performance during the H1FY2020; benefited from the utilization of expanded capacity the company posted a top-line growth of 18.2% compare to H1FY2019, while the bottom-line grew almost 3x to ₹38.8 Cr. On annualizing first half result, FY2021 Revenue/PAT comes at ₹862.0 Cr / ₹77.8 Cr i.e. growth of 13.1% / 155%. And, with more capacity expansion underway the company seems confident about its future performance.

MBFSL return ratio, compared to its peers, has been a tad lower. In past 3 years, it has posted an average RoNW/ROCE of 12.0% / 15.53% compared to Britannia’s return of 29.9% / 44.9%. But, this gap is set to narrow in FY2021 as  RoNW is likely to increase to 20.2%, based on annualized numbers.

Over the past three years, MBFSL has seen a gradual improvement in its free cash flow, which stood at ₹66.7 Cr in FY2020 against negative ₹71.5 Cr in FY2018. This all points to the strong financial health of the company.

Note: RONW for half-yearly is on an annualized basis

Market Distribution

Valuation

The company has planned to penetrate new geographies and expand its product base which gives some comfort with regards to future growth. On the other hand, risks such as stiff competition, and focus on premium category consumers could hinder penetration in rural and semi-urban areas.

On the basis of FY2020 numbers, the issue appears to be fully priced in at a PE of 55.7x; however, on the basis of FY2021 earnings, the issue is priced at 21.8x, a deep discount to the average forward P/E of 57x in its peer category. Given the recent frenzy in the primary market coupled with the valuation comfort, investors could subscribe to the issue for listing gains, while risk-savvy investors can enter with a long term perspective.

Disclaimer: The views expressed in the reports reflect my (analyst) personal views about the topic covered. Opinions contained in the report represent the analyst’s present opinion only - at the time report is prepared - and may be subject to change without notice. The report is not a recommendation to buy or sell the following securities and no liability whatsoever is accepted for any direct or indirect loss or expense arising from the use of the report. Kindly do your own due diligence before taking any position in a security. The report shall not be used for any unlawful or unauthorized purposes.  The report is prepared for information purposes only and not for publication and re-distribution. Any logo used on the blog is for identification purposes only.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”