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.

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