Antony Waste seen as good ESG play: Should you bid for the IPO?

ET Intelligence Group: There are few initial public offers (IPO) of small cap companies that promise robust growth and dominance in a niche segment. These companies are typically attractive to institutional investors seeking to fulfil their Environment Social Governance (ESG) investment mandate. But retail investors should adopt a calibrated approach in investing in niche segment companies and wait for a couple of quarters of financial performance after listing.Antony Waste Handling Cell provides solutions for municipal solid waste. Its IPO in March was withdrawn due to a lack of investment appetite. It is revisiting the primary market with a 45% increase in the issue size and 15% higher price band compared with the March filing. The encouraging response to primary market issues in the current scenario could attract a lot of retail investors for the listing gains.Business Model: Thane-based Antony Waste has been providing municipal waste management (MSW) for the last 19 years. It provides services including solid water collection, transportation, sweeping, processing and disposal across the country. It has been managing the Kanjurmarg landfill site — one of the largest single location processing units in Asia — since 2010. The company has undertaken over 25 projects, of which 18 are ongoing. Its top five clients accounted for 78% of the revenues in the first half of FY20. It has a 9% market share in India’s MSW collection and transportation.Financials: After being range bound between FY17 and FY19, the revenue rose significantly in the last fiscal year with incremental revenue from new projects of Pimpri-Chinchwad and Nagpur. Sales for FY20 rose 59% on-year to ₹450 crore. The operating profit grew annually 25% to ₹139 crore between FY18 and FY20. In the first half of the current fiscal, the company posted revenue of ₹207 crore. The revenue is a function of the waste tonnage transported and tipping fees. The collection of waste accounted for 60% of revenues while tipping fees made up 29%. The balance is contract revenues, mechanised sweeping and scrap sales. 79829130Risks: Payments from municipal corporations are typically at risk as they generated only 39% of the funds they spent. Therefore, they are heavily reliant on budgetary support from government grants. Hence, any decline in allocation of grants will have a material impact on finance. The company’s auditors have raised qualified opinion on the dues from municipal corporations, which the company believes are recoverable. The MSW industry is highly working capital-intensive. The working capital to total revenue was in the range of 10-18% in the last three fiscal years.Valuations: At a higher price band, the asking P/E multiple works out to be 13 times of FY20 earnings and about seven times of EV/Ebitda. The company has no comparable listed peers on Indian bourses.

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