On valuation front, Choice Broking also said at a higher price band, Antony Waste was demanding an P/E multiple of 29.6x, which is at a premium to the peer average of 25.3x.
The Rs 203-crore initial public offering (IPO) of Antony Waste Handling Cell opened for subscription on March 4. It is the second public offer of the current year after SBI Cards and Payment Services.
The issue consists of a fresh issue of Rs 35 crore and an offer for sale of up to 57 lakh equity shares by investors Leeds (Mauritius), Tonbridge (Mauritius); Cambridge (Mauritius) and Guildford (Mauritius).
Antony Waste plans to raise Rs 203.15 crore at the lower end of the price band of Rs 295-300 per share. The company successfully raised Rs 60.94 crore from three anchor investors on March 3 at a price of Rs 295 per share, but what should investors do - should they subscribe or avoid?
Majority of brokerages and analysts advised avoiding the issue considering the risk of dependency on the government for projects and revenue volatility in the past.
They feel the timing of the public issue seems incorrect as the behemoth SBI Cards' Rs 10,335 crore IPO will remain open till March 5, and as a result, getting traction could be difficult for Antony Waste.
"Antony Waste Handling Cell is a comparatively smaller IPO compared to the behemoth SBI Cards and due to the time clash, we feel that Antony Waste’s IPO will not get traction. Fundamentally too, this company has delivered poor growth in the past three years. To add to it, it is completely dependent on the government for its revenues as top five of its clients contribute over 90 percent of its revenue. Hence it faces high concentration risk," Nirali Shah, Senior Research Analyst, Samco Securities, told Moneycontrol.
Also Read - Antony Waste Handling Cell IPO to open on Wednesday: 10 key things to know
According to Shah, although Antony Waste has strong potential in the long term, at this point looking at its past record investors should wait before getting into this stock. "Investors can keep this stock in their watchlist and take positions depending on the company’s performance in the future. Hence, Antony Waste Handling is an unsubscribe at the moment," she said.
Prabhudas Lilladher also recommended an avoid rating on Antony Waste IPO given factors such as low revenue (around 7.7 percent CAGR) and PAT (16.5 percent CAGR) growth over FY16-19, highly competitive local markets, national and international players, large dependency on projects from state government authorities primarily municipal corporations (unstable allocation of MSW management) and rich valuation.
Antony Waste is an emerging player providing a full spectrum of Municipal Solid Waste (MSW) management services with a diversified project portfolio across segments, geographies and clientele. It is one of the top five players in the Indian MSW management industry with the resources to handle large-scale projects for municipalities and private players.
At the upper end of the price band, the issue is trading at a P/E of 23.3x FY19 (versus Infra coverage universe has an average of around 19x; however there are no listed peers to facilitate comparison) and an EV/EBITDA of 12.4x as on FY19 earnings, Prabhudas Lilladher said.
On the valuation front, Choice Broking also said at a higher price band, Antony Waste was demanding a P/E multiple of 29.6x (to its restated FY19 EPS of Rs 10.2), which is at a premium to the peer average of 25.3x.
"Despite the sector's favourable outlook, the performance of Antony Waste is not encouraging, which has been marred by stagnant growth and higher receivables. The issue size is below Rs 250 crore, so the listing will take place in 'T' group, thereby eliminating any speculating bets post-listing. Thus, we feel that valuation is stretched and assign an 'avoid' rating for the issue," the brokerage added.
The company primarily undertakes MSW collection and transportation (C&T) projects, MSW processing projects, and mechanised sweeping projects. Its portfolio of 17 ongoing projects as on January 1, 2020, comprised eleven MSW C&T projects, two MSW processing (including WTE) project and four mechanised sweeping projects. All the 17 ongoing projects have started generating revenue.
Antony Waste was unable to perform on topline and bottomline fronts over FY17-19, said Angel Broking. Hence the brokerage believes that concerns regarding the company's financials exist.
"Further, the business involves working capital and receivables risk from municipalities, which restricts future growth opportunities. Despite the lower pre-issue P/E at 10.1x 1HFY2020 annualised earnings (at the upper end of the issue price band), we recommend a neutral rating on the issue," Angel said.
Geojit Securities is the only brokerage that advised subscribing to the issue, only with a long term perspective, given the positive industry outlook and uptick in revenues from FY20.
"At the upper price band of Rs 300, Antony Waste is available at P/E of 10x FY20 (annualised). Valuation looks justified, considering the expected growth in earnings over the next few years," it said.
Waste management remains one of the most pressing issues of the modern world, as improper disposal of waste leads to environmental damage which in turn affects the health of humans. However, waste management provides a significant opportunity for recycling and reusing materials, organic farming and the production of clean energy, the brokerage feels.
The company's MSW collection and transportation business contributed 60 percent and MSW processing 40 percent to its revenue.
Two MSW processing units at Kanjurmarg in Mumbai and Pimpri Chinchwad in Pune are operated by the company. The Pimpri Chinchwad plant, a 14 MW waste-to-energy project, is expected to commence operations from FY22, contributing about Rs 65 crore revenue per year, said Geojit.
The brokerage expects MSW volumes to grow at a CAGR of 5 percent (FY2018-23) from 55 million TPA (tons per annum) to reach 70 million TPA by FY2023.
Revenue grew at a CAGR of 8 percent (FY2016-19) from Rs 227 crore to Rs 284 crore and PAT grew at 6 percent CAGR over the same period. However, the company has already generated revenue of Rs 219 crore during H1FY20, which is up by 54 percent on account of newly received projects.
The company enjoys EBITDA margin of 30 percent with processing segment delivering around 52 percent and T&C segment around 25 percent margin. PAT margin as on H1FY20 stood at 17.3 percent.
"The long-term nature of projects (ranging from 5-25 years) gives visibility for consistent revenue generation in future," said Geojit.
Antony Waste proposed to utilise the fresh issue proceeds towards reduction of the consolidated borrowings of the company by infusing debt in its subsidiary - AG Enviro Infra Projects for repayment / prepayment of a portion of their outstanding indebtedness to the extent of Rs 30 crore.
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