Antony Waste IPO: A good long-term bet for risk takers, say analysts

Betting on a gush of liquidity and heightened risk appetite, Antony Waste Handling is making a second attempt to go public. The three-day initial public offer (IPO) of the company will open today at a price band of Rs 313-315 per share.

At the upper end of the price band, the solid waste management company expects to raise Rs 300 crore via the This amount, the company says, will be utilised to finance PCMC WTE Project through investment in subsidiaries; to pay-off company’s consolidated borrowings by infusing debt in Subsidiary-AG Enviro; and to meet general corporate purposes.

The issue consists of a fresh issue of shares worth Rs 85 crore and an offer for sale of 68,24,933 equity shares by existing shareholders, and will be available in lots of 47 shares and its multiples thereof.

Under the OFS, Leeds (Mauritius) will sell 13,90,330 equity shares, Tonbridge (Mauritius) will offload 20,85,510 shares, Cambridge (Mauritius) 11,58,667 equity shares; and Guildford (Mauritius) will sell 11,58,667 equity shares, as per the company’s red herring prospectus.

As the sector remains in a nascent stage, analysts see the firm offering decent returns only in the long-term. As per an analysis by Choice Broking, the per capita waste generation in India ranges from 200-600 grams per day, lower than the global average of around 740 grams in 2018. Besides, municipal waste management services in India are controlled by relevant municipal corporations and only 30-35 per cent is managed by professional waste management players.

“Therefore, while the trend toward privatisation is gradual, the central government’s push (through Swachh Bharat Mission and Smart City Mission) may lead to more and more municipalities moving toward privatization in the coming year,” the brokerage wrote in an note.

On a broad-based analysis, the industry is expected to grow at an 8.9 per cent compounded annual growth rate (CAGR) over FY20-25 to reach 115 million tonnes per annum by FY25. Moreover, the domestic MSW management services market, which was at Rs 5,000 crore in FY20, is expected to grow at a 14.4 per cent CAGR to reach at Rs 9,800 crore by FY25.

Therefore, Antony Waste Handling, which is the second largest player in the domestic MSW management sector with a market share of around 9 per cent per cent as of FY20, stands to gain the most, analysts say.

Add to it, increased energy demand and government initiatives are expected to make the waste-to-energy (WTE) market see more PPP based projects. “Antony Waste, through its step-down subsidiary has been awarded a contract for setting up and operating a WTE plant having a capacity of up to 1,000 tonnes per day (TPD) by PCMC, which shows the firm’s long-term growth prospects,” said Choice Broking’s note.

That said, analysts remain cautious on the issue as concerns over economic slowdown and Covid-19 pandemic continue to persist’ government’s lower allocation towards waste management projects; high revenue concentration risk; and project renewal risk.

Financial performance of the company took a hit amid the Covid-19 pandemic. Consolidated top-line declined by 5.1 per cent on a yearly basis in H1FY21. EBITDA and PAT margins, meanwhile, contracted by 538bps and 324bps, respectively to stand at 25 per cent and 9.5 per cent. Analysts now forecast a top-line growth of 9 per cent CAGR over FY20-23 with a 343-bps and 5 bps contraction in the EBITDA and PAT margins, respectively.

Choice Broking has ‘Subscribe with caution’ rating on the issue given the macros of the sector, demanded valuations and concerns on the receivables.

For Keshav Lohati, associate equity analyst at Angel Broking, concerns that if the company is not able to win an existing major contract again, given that the top 5 clients contributed 81.8 per cent of the revenue of the fiscal year 2020, it may impact the financials adversely.

“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 said in a note.

Echoing similar views, analysts at SMC Securities too feel the company’s over-dependence on municipal corporations for business contracts, requirement of high working capital, and limited clientele pose a threat to the business growth. Only high risk-takers, the brokerage says, should subscribe to the issue. It has a ‘neutral’ rating on the stock.

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 the company’s long term growth.

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