Antony Waste Handling Cell IPO opens today: Should you subscribe?

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Antony Waste Handling Cell, one of the leaders in municipal solid waste management companies, opened its initial public offering for subscription on December 21 with a price band at Rs 313-315 per share.

The offer consists of a fresh issue of Rs 85 crore and an offer for sale of 68,24,933 equity shares by existing shareholders. The company will utilise fresh issue proceeds for part-financing for waste-to-energy project at Pimpri Chinchwad through investment in its subsidiaries; reduction of consolidated borrowings; and general corporate purposes, while the offer for sale money will go to selling shareholders Leeds (Mauritius), Tonbridge (Mauritius), Cambridge (Mauritius) and Guildford (Mauritius).

Given the dependency on municipal authorities for substantial proportion of revenue and limited number of customers for major part of revenue, the concerns on receivables from municipalities, and valuations, brokerages recommended the issue only for high risk investors.

Antony Waste Handling Cell intends to capitalise on the growth opportunities in the MSW management sector by continued focus on bidding for MSW projects. "It is dependent on municipal authorities for a substantial proportion of its business and revenue. Also it is dependent on a limited number of customers for a significant portion of its revenue. The loss of any of its major customer due to any adverse development or significant reduction in business from its major customer may adversely affect its business," SMC said.

Moreover, "the major portion of the issue is offer for sale. Only Rs 85 crore will come to the company raised through fresh issue. A high risk taker may opt the issue," the brokerage said.

Incorporated in 2001, Antony Waste Handling Cell offers a full spectrum of municipal solid waste (MSW) services i.e. solid waste collection, processing, transportation, and its disposal across the country. The company's key business operations include MSW C&T, MSW processing, and mechanized sweeping project.

The company has a portfolio of 18 ongoing projects as of November 15, 2020, which comprises 12 MSW collection and transportation (C&T) projects, two MSW processing project and four mechanised sweeping projects.

Antony Waste Handling Cell IPO: 10 key things to know before subscribing the issue.

The Municipal Corporation of Greater Mumbai, the Navi Mumbai Municipal Corporation, the Thane Municipal Corporation, Pimpri Chinchwad Municipal Corporation, the North Delhi Municipal Corporation, the Mangaluru Municipal Corporation, New Okhla Industrial Development Authority, Nagpur Municipal Corporation and the Greater Noida Industrial Development Authority are among 18 projects company handle.

In the municipal solid waste management industry, there are on listed peers having similar business operations like Antony Waste. Hence, Choice Broking has taken global peers for valuation benchmarking.

At the higher price band of Rs 315 per share, "the company's share is valued at a P/E multiple of 26.1x (to its restated TTM EPS of Rs. 12.1), which is at discount to the peer average of 32.7x. One of its global peers, Waste Management Inc. has acquired Advanced Disposal Services Inc. at an enterprise value of $4.9 billion. The deal was valued at EV/sales multiple of 3x and EV/EBITDA multiple of 12.1x. Considering these transaction multiples, the valuation demanded by Antony Waste seems to be attractive," said the brokerage.

But considering the macros of the sector, demanded valuations and concerns on the receivables, Choice Broking assigned a ‘subscribe with caution’ rating for the issue.

Antony Waste Handling Cell believes that its established track record of more than 19 years in executing solid waste projects, scale of operations, diversified geographic presence, vertical integration and strong position in the MSW management sector enables it to identify and win new contracts.

It has consistently invested in its fleet of vehicles. As of November 15, 2020, it owns a fleet of 1,147 vehicles, of which 969 were equipped with GPS technology, which allows to operate its projects efficiently.

Prabhudas Lilladher recommended subscribe rating on Antony Waste Handling Cell IPO issue on a near term basis as it sees reasonable listing gains given strong market sentiment and enormous outperformance of the recent public issues, but it also remained cautious on company's long term growth based on factors like large dependency on projects from State government authorities primarily Municipal Corporations (unstable budget allocation for MSW management), highly competitive market (with presence of local, national and global players), untested and still emerging business model, huge capex required for growth and rich valuation (19.6x FY20 EPS versus PL Infra coverage universe at an average of around 12x).

On the back of new project addition, Antony Waste has reported a robust set of numbers over FY17-20. During the period, it reported a 17.8 percent CAGR rise in consolidated revenue to Rs 450.51 crore in FY20. EBITDA increased by 24.7 percent CAGR to Rs 125.56 crore in FY20. EBITDA margin expanded by 437bps over the period to stood at 27.9 percent in FY20.

Moreover, with 92.7 percent CAGR rise in tax expenses, the company reported an 8.9 percent CAGR rise in consolidated PAT of Rs 42.28 crore in FY20, but PAT margin contracted by 247bps during the period to stood at 9.4 percent in FY20.

Due to COVID-19 pandemic, performance of the company was impacted. Consolidated topline declined by 5.1 percent YoY in first half of FY21. EBITDA and PAT margins contracted by 538bps and 324bps, respectively, to stand at 25 percent and 9.5 percent.

Based on conservative quick estimate, Choice Broking is forecasting a topline growth of 9 percent CAGR over FY20-23 with 343bps and 5bps contraction in the EBITDA and PAT margins.

"For Antony Waste Handling Cell to grow its business it needs to win new contracts from municipalities. The top 5 clients contributed 81.8 percent of the revenue of the fiscal year 2020. So in the future if a company is not able to win an existing major contract again, it will impact the financials adversely," Keshav Lahoti, Associate Equity Analyst at Angel Broking said.

Further, "the business involves receivables risk from municipalities, which restricts the future growth opportunities. Financial conditions may be adversely affected if new municipal solid waste projects are not awarded to the company. So considering the valuation of P/E of 11.5x on FY20 basis (at the upper price band), we recommend neutral rating on the issue," he added.

In March 2020, Antony Waste had launched its IPO of around Rs 200 crore, but due to tepid investor response and extremely weak markets, the IPO failed to get sail through.

Due to higher demanded valuations and higher receivables (30 percent of the topline), Choice Broking said it had recommended an 'avoid' rating for the earlier issue.

Based on TTM financials, total receivables stood at 25 percent of the topline, which is still a concerns considering the fiscal positions of the municipal corporations in the post-pandemic period, the brokerage feels.