Antony Waste Handling Cell Limited (AWHCL) Earnings Call Transcript & Summary

Hello, everyone. On behalf of Equirus Securities, I welcome you all to 3Q FY '21 Earnings Conference Call of Antony Waste Handling Cell Limited. From the management, we have with us today, Mr. Jose Jacob, Chairman and Managing Director; Mr. Shiju Jacob Kallarakal, Executive Director; and Mr. NG Subramanian, Head of Accounts and Finance. I now hand over the call to Mr. Jose for his opening remarks, post which we can open the call for a Q&A session. Over to you, sir.

Good evening, and a very warm welcome to everyone present on the call. Along with me, I have Mr. Subramanian, Head of Finance and Accounts; and SGA, our investor relations adviser. And I hope and pray that you and your families are safe and healthy and secure in this pandemic season. So we have uploaded our investor presentation on the stock exchange and the company website. Firstly, I would like to welcome our new shareholders and congratulate every shareholder of the company, employees, customers, business partners, investment bankers and others who made our IPO listing successful. We were delighted to see such a strong response of our IPO of 9.52 million equity shares of face value of INR 5 at an issue price of INR 350 per equity share. The breakup of these shares consisting of fresh issue of 2.7 million equity shares and an offer for sale of 6.8 million equity shares. Our shares got listed on BSE Limited and National Stock Exchange of India Limited on January 1, 2021. This is our first conference call and, therefore, I would like to give a brief introduction of our company business and the industry it is catering to, that is, municipal solid waste. When we talk about Indian municipal solid waste as an industry, we are the leading player with an established track record of around 20 years, providing a full spectrum of MSW services, which include solid waste collection, transportation, processing and disposal service across India, majorly catering to municipalities. We are also among the very few players who have pioneered in MSW collection and transportation sector. We have now in-house expertise in landfill construction and its management in a scientific manner. We are focused on the emerging waste management area like waste-to-energy and now, more importantly, in the area of biomining of legacy waste. So now moving on to 3 broad business areas, that is, municipal solid waste collection and transportation projects. So this service involves door-to-door collection of municipal solid waste from households, commercial establishments and other bulk waste generators from a designated area, like [indiscernible] through primary collection vehicles like compactors, dumper placers and tippers and transportation of these materials to the processing facility, transfer stations or landfill disposal sites. These contracts are tendered out by municipal authorities and normally have a tenure of 7 to 10 years. Municipalities invite tenders for either the whole of the city or part of the city. Currently, we have 12 such ongoing projects in the service. As I mentioned, these are typically multi-year contracts, and average outstanding duration of ongoing contracts is approximately 8 years. This contract has in-built price escalation models as a [ fixed ] or linked to components of the Wholesale Price Index or linked to the minimum wages of that particular state, which provides adequate protection for our operating margins. Secondly, we have -- second business is, we have MSW processing projects. So these projects involve sorting and segregation of municipal solid waste within the municipalities. Both these contracts like C&T and MSW per se are mutually exclusive contracts. So they are 2 separate contracts. The work in processing involves composting, recycling, shredding and compressing of the waste into RDF, which is, refuse-derived fuel or generating power from the landfill gas as required. Currently, we have 2 large ongoing projects. Normally, tenure of such contracts last longer, which is around 21 to 25 years. One of our processing projects is at Kanjurmarg, Mumbai, which has a concession period -- agreement until 2036 and the second one is at Pimpri Chinchwad and has a concession agreement until 2040. Third business is contract and other service, which involves mechanized road sweeping with deploying of power sweeping machines, manpower, comprehensive maintenance, consumables, safe disposal of waste required for completion of the cleaning operation of the designated area. We have 4 such ongoing mechanized sweeping projects with an average outstanding duration of approximately 7 years. As of today, we have undertaken more than 25 projects, of which 18 are ongoing projects. During our journey of 2 decades, we started the business with waste collection and transportation and progressed to solid waste management, working with more than 14 municipal corporations. We have come a long way in the field of solid waste management with adoption of latest technology and innovation. By doing this, we have shown that we are not just pioneers in solid waste collection and transportation, but also have enriched experience in municipal solid waste processing. Our Kanjurmarg project is the largest single location-based processing plant across Asia. The project tenure is of 25 years, starting from 2010 until 2036. Bioreactor landfill. So there are -- the technology we have is bioreactor landfill with a capacity of 6,500 tonnes per day and sanitary landfill of 250 tonnes per day. We have a materials recovery and composting facility capacity of 1,000 tonnes per day. Currently, we have a gas-to-energy, where the landfill gas is converted into power of 0.97 megawatts. And we are planning to double this capacity soon. Currently, the power generated is used for captive consumption. Presently, we handle more than 5,000 tonnes of waste per day in Kanjurmarg facility and which is approximately 60% of total waste generated in the city of Mumbai. This project has been designed to handle 7,500 tonnes per day. Since start, we have processed approximately 7.63 million tonnes of waste at this time. For the current fiscal year until January 2021, we have processed around 1.23 million tonnes, which compares against 1.59 million tonnes handled in the whole last year. Now I briefly share a few highlights on the Indian municipal solid waste service industry. The industry size is estimated to be INR 50 billion. Increasing population, higher urbanization would lead to higher per capita waste generation in India. Urbanization, coupled with changing lifestyle patterns, increasing disposable income have paved way for consumerism and have also contributed to higher waste generation in urban India. Over the last 2 years, along this urbanization, we have also seen our industry running more towards technology changes, like mechanized primary waste collection and sweeping, GPS-enabled vehicle and RFID-enabled bin tracking system, et cetera, to bring in more efficiency and transparency. This augurs well for a technology-driven municipal solid waste service player like us. Various initiatives taken by our government, like Swachh Bharat Mission, to keep India clean and focusing on hygiene has led to multifold increase in spending of solid waste management by various municipal corporations. This initiation has taken a new shape in this budget with an allocation of more than INR 1.4 lakh crores over a period of next 5 years towards Urban Swachh Bharat Mission 2. This is expected to drive the Indian municipal solid waste industry towards a more efficient collection, transportation and processing of solid waste. Municipal solid waste generation is expected to grow at a CAGR of 9% from 2020 to 115 million tonnes per annum by fiscal 2025. The municipal solid waste management market, which is currently estimated at INR 5,000 crores in FY 2020, is expected to reach around INR 9,800 crores by FY 2025, a CAGR growth of 14 -- with a CAGR growth of 14.4%. As an organization, we are constantly striving on improving Environment, Social and Governance parameters, which is ESG. We have an ESG policy approved by our Board that identifies focus material areas for reasonable stewardship that impacts our business activities. We see significant tailwinds and are confident that growth momentum will continue through coming period of all our businesses. I now hand over the conference to Mr. Subramanian, Head of Finance.

Very good evening to all the participants. I will share the highlights of our financial performance. This is the second consecutive quarter where we have demonstrated operational flexibility in a very difficult operating environment. We are committed to holding on to operational efficiency and even improving on them and the cost savings as the volumes turn positive again. For Q3 FY '21, the performance on a consolidated basis, the company has reported an operating revenue of INR 118 crores as compared to INR 106 crores in Q2 FY '21, reflecting a growth of 12% on a quarter-on-quarter basis, led by growth in waste collection and processing. When we talk about operating revenues, we talk about MSW collection and transportation revenue and MSW processing revenues here. The total revenue, which includes contract income from construction accounting as per Ind AS 115 and others, which include sale of compost, sales of RDF and sale of scrap, that total revenue has actually increased by 6% to INR 127 crores in Q3 '21 as compared to INR 120 crores in Q2 FY '21. EBITDA is up by 11% sequentially to -- at INR 37 crores versus INR 33 crores earned in Q2 '21, with a margin at 28.6% versus previous quarter's 27.4%. The improvement in margins is driven by consistent and continuous efforts to control our project cost and improve overall operational efficiency. The profit before tax stood at INR 22 crores for Q3 '21 as against INR 18 crores in Q2 '21, which is up by 23% with a PBT margin at 17.1%. Consolidated profit after tax stood at INR 19 crores for Q3 as against INR 18 crores for Q2, which is up by 9% sequentially with a PAT margin at 15.3%. Coming to business-wise performance, the MSW C&T revenue is up by 12% at INR 81 crores. The growth is on account of increase in volume handled, which rose by 8% in Q3 versus Q2 '21. The MSW processing revenue is up by 10% at INR 36 crores as compared to INR 33 crores in Q2. This improvement in waste processing volumes by 11% in Q3 versus Q2 resulted in this growth in this business. On the balance sheet front, our net debt to equity as of 31st December 2020, is 0.5x, an improvement over the 0.6x level as of March 2020. Total consolidated debt on the books as of December 2020 stood at INR 202.8 crores. Cash and bank balances is approximately around INR 40.9 crores, reflecting a net debt level of INR 161.9 crores. Net worth of the consolidated entity is at around INR 336 crores. The current receivable days as of 31st December 2020, stood at 60 days versus 64 as of March 2020. And we shall continue to endeavor to reduce it further. That's all from my end. And now I'm opening the door for Q&A.

[Operator Instructions] The first question is from the line of [ Esha Savla ] from Arya Securities.

I have a couple of questions. My first question is, can you give some idea about MSW industry? And what are the parameters that shows that this industry will grow? And how can you benefit from it?

So I just spoke about the industry. Because of Swachh Bharat pan-India level, there's a huge -- presently, it was -- in the past, it was more conventionally handled. So manual handling was huge and manual handling of waste has to reduce. So another thing is, as I said, municipal solid waste pan-India level is around INR 5,000 crore business. And we believe that in the next 5 years, it will go to INR 9,800 crores. And most of the municipalities are privatizing their operations because there's a pressure from Swachh Bharat Abhiyan, and there's a team which comes from the central government to evaluate their performance, and they are given ranks based on that, and due to which they need to improve the present waste management system. And that is the reason there's a lot of bids coming up pan-India level. [ So it is a good ] opportunity for us.

Okay, sir. Then I wanted to ask you about the Swachh Bharat Mission that was started earlier. So how have we got benefited from that? And also, now in the budget, Urban Swachh Bharat Mission 2 has been announced. So how that would be helping us?

So our business, the municipal solid waste business, has been evolving. And in the past, wherever, collection, transportation or waste processing, we have to bring in our capital 100%. With Swachh Bharat Mission, we are willing to invest around 40% and maybe more also in the future. So that is a good opportunity for us because our [ debt ] will reduce, and our investment for the CapEx -- suppose, if it is INR 50 crores CapEx, around 40% [ is funded by ] the government. And in certain cases, what we have noticed is, like, recently, we won 1 contract, where 100% CapEx -- almost 100% CapEx was funded by the government. So this will definitely help our industry because -- this lost capital has to be put in, which will be supported by Swachh Bharat Mission, where money will be put in such type of projects.

Okay, sir. And my last question would be on the technology front that how well advanced are we? And what is the scope of improvement that you are looking going ahead?

So we believe in bringing the best of ideas and technology in our business. So Kanjurmarg, we brought in bioreactor technology, which is predominantly operational in America. We brought in waste composting technology, where entire material recovery facility was imported from U.S., and even the composting technology, which is a [indiscernible], manual handling is almost negligible, due to which we are producing high-quality compost, and there's a good demand for those composts. And we are selling around close to 2,000 tonnes per month of compost. So we always look out for the best technology, best idea. And our collection and transportation, we have RFID on a bill, which is tagged. We have GPS. We monitor [indiscernible] and we have entire ERP system for a very strong process in our -- in the operations. And all this has benefited. So that is what -- we -- and even waste-to-energy, we have tied up with a company for EPC, who has built around 120 such plants worldwide. And they are running very well. So we always evaluate. And that's our strength. That is the reason we have done well in the last 20 years.

[Operator Instructions] The next question is from the line of Anurag Goyal from Ampersand.

I just wanted to understand. As you mentioned that currently, you're working on 18 sites, so is the -- are there any pipeline for the new sites that's under bidding or contracting?

So next 12 months, we are very excited because a lot is coming up in all the A-rated municipalities. And as you said -- as you know because of the pressure from the central government and this evaluation of all the municipalities, and to get better ranking, all these municipalities have floated tenders, and we are confident that we'll be getting a good share on this business. And we just don't go and bid. We do proper due diligence of the corporation. We check their finances. And if the money is there, then only we bid. And we always look to a criteria of 20% return on equity. And based on that, we bid so that we keep the company safe, and we make a good amount of profit.

And typically, what is the -- in terms of yes, what is the duration of the contract?

Duration is approximately 8 years, which is when we will do collection and transport of municipal solid waste from house to house. And waste processing is typically from 21 to 25 years.

Okay. Okay. So this Kanjurmarg side, we have for longer duration?

Yes. We have Kanjurmarg and Pimpri Chinchwad also.

Just to add on that, waste processing projects are normally, as Jose mentioned, of a really long duration of 20 to 25 years, as the entire city's or the bulk of the city's waste gets processed at a single location. So that is why the tenure is longer. For collection and transportation, it averages from 7 to 10 years. That's what the life of an asset is, and that's how it's been tendered currently.

Okay. And another question is, sir, if you see, so all the municipalities normally who gives this contract, they already have contract either to you or someone else, right? So since the -- the period of the contract is 7 to 8 years minimum, so normally, what is the period history in which this contract comes for renewal? Like every year, 10 proposals across India or 15 or 20 kind of renewals or the bidding comes in the -- this thing...

So I will tell you one thing. About 75% of municipal solid waste in India is not scientifically processed. It is just openly dumped, 75% of entire Indian waste. And this has to be done -- all this has to be done scientifically. And therefore, a lot of centers are going to come in the next 10 to 12 years. So there'll be -- we may not wait for somebody to renew all of it. So there's a huge opportunity in waste processing side. And in -- as far as collection and transportation, many municipalities are collecting and transporting in a very conventional way. Like, they used to use garbage dumpers with manual labor and all that. So they are also in the process of privatization and modernizing their existing systems. So there is an opportunity. And recently, we won 1 or 2 of the contracts where -- about 7, 8 months back, where the municipality has not privatized. They had small, small operators, but they went for a modest system. So there's a lot of modernization happening in pan-India level.

Okay. Got it. And normally, any contract that you got, so what is the payback period and how much amount that you need to invest to execute that project?

Yes. So it depends upon each and every project because the tender would specify the kind of work. So it will be very difficult to kind of give a thumb rule to that extent. But for example, the collection and transportation can be purely primary collection and transportation to the disposal site, a door-to-door collection to a disposal site. The tender can also include road sweeping as part of the tendering. So normally what we see for collection and transportation is fixed asset turn of around 1 to 1.25x is what we have seen historically. So that is the kind of a CapEx that needs to be done. These projects are of 7 to 10 years. So after that, there is no need to put incremental CapEx, unless and until the tonnage increases around 25% to 30% over and above the estimated levels.

Okay. Understood. And on -- in the presentation, Page -- Slide #27, you mentioned revenue from operations based on the current projects. And you had given financial year '22, '23, '24, but the numbers were missing.

Yes, because we would like to just go -- because this a very annuity-based model. So when we're talking about revenue, these are the contracts that we already have. The increase in the revenue is from escalation and from tonnage. So we are estimating that these would keep on growing at an incremental pace. So we have just left it at that because these are all actual contracts that we have. These are not any incremental new contracts that we're getting. So these are all on the same numbers.

Irrespective of whether you get the new projects or not?

Yes, irrespective of whether we bag a new contract, this is what my trend line will be.

But -- okay. It's just a [indiscernible] presentation, not the numbers that you have given.

Yes. Yes.

[Operator Instructions] The next question is from the line of [ Arush Oberoi ] from [ Victor Delta Securities ].

I have a couple of questions. So first one is, what are the different geographies that you plan to track now?

So we -- presently, we have in Maharashtra, we have in North. And so we have no problem going pan-India level. And our idea is, when we win a contract, we have a strategy of cluster-based businesses. So we try to win the cities nearby, which will reduce our cost overheads, and that is the strategy we look at. So -- but at the same time, we are open to bid any part of India as long as it fits in our financial due diligence where the municipality is doing well, they're financially funded. And based on those, we go and bid. Otherwise, we have no issue going to any part of India.

Okay. So any new municipalities you're planning to work with?

Yes, there are a few of them in line, and we are going to -- we are looking at that.

Okay. And second is that, any new order to be started in the coming quarters that would add to our revenues?

Currently, we have bid for a couple of contracts. So once we bag a contract -- normally, what happens is, even if we bag a contract, there is a lead time of around 3 to 6 months for mobilization of the assets. So even if we sign a LOA today, it will take 6 months for us to generate the revenue out of it. But yes, we are definitely in talks with a few municipalities. They are in the tendering stage. We have already submitted a few tenders. So once we get awarded some tender, we will definitely be informing you guys on that.

Okay. And how confident are you to bag that -- those orders?

So a decent amount of time and effort is spent by the company when we bid for a contract. So our strike rate is normally higher to that extent because a decent amount of time goes in doing a micro plan study, the road plan of that area, understanding the best judicious mix of assets that needs to be deployed, the potential increase that can be captured. If micro plan to that extent needs to be done, then costing gets worked out. And then we sit and understand the potential for looking at the exigencies of growth in that particular geography and then accordingly we bid. So given the very scientific approach that the company adopts in bidding, our strike rate has been high, and we always approach that method. So if we get a contract at a particular price, we definitely are sure of our margins and return on equities and stuff. If the pricing is not correct, we don't rush into such contracts.

The next question is from the line of Anupam Gupta from IIFL.

A couple of questions. First is, what is the status of the increase in stake for the 2 subsidiaries for Kanjurmarg and PCMC?

Sorry, can you repeat that question, Anupam?

So we were -- the stake in the 2 subsidiaries was going to increase because of the conversion of the...

See, the new Companies Act kind of clearly says that the transfer of shares cannot be done in a physical form. It has to be in Demat. So because of the corporate action, pending documents to be received from our Brazilian partner, this has been kind of delayed by a quarter. And we are expecting the team to visit Bombay in the -- by the end of this month or maybe in the early part of March. So we'll get that thing moving.

Okay. Okay. And secondly, for the PCMC CapEx, what is the revised timeline? I think there was some months delay during this time after the IPO. But what is the timeline for start of CapEx and completion of CapEx?

So Anupam, yesterday, we had a Board meeting wherein the rights issue was completed. So we are moving in the INR 40 crores of the IPO proceeds from Antony Waste to AG Enviro as the equity component and that will be pushing down into the system. And accordingly, we have informed the lenders. So that will be a pro rata disposal of loans and the equity. So the CapEx has already been initiated. The work has already started. It will go full throttle by the end of March onwards. So we expect the timeline of commencement of activity to be around 18 plus 2 months of construction phase. We would be completing our construction by -- in the same time.

Okay. So basically, end of 2022 broadly?

End of '22 and may be mid of '23 actually because that's 18-month construction phase.

The next question is from the line of [ Priyanka Singh ] from [ Atidhan Securities ].

I had a couple of questions. So before starting, I would like to thank for a very detailed presentation. It is really very helpful. Coming on the question side, can you share some more details about your Kanjurmarg site? And what is the scope to increase the business activities at this site?

So Kanjurmarg, as I said, we are presently receiving around 5,000 tonnes, and the plant capacity is around 7,000 tonnes. So it can increase. So as years pass by, as per the contract, the waste capacity -- we'll be taking in more waste. So we have 2 technologies there. One in bioreactor landfill, where the waste is put in a cell, and it is decomposed and based on that, we produce landfill gas. And with the landfill gas, presently, we are producing electricity of close to 1 megawatt, which is used for captive consumption. And going forward, we are looking forward to increasing those capacities. If there's excess capacity, we can sell at the rate of the INR 3.50. And as far as 1,000 tonnes -- another 1,000 tonnes, we have a technology where we have metal recovery facility and composting system. So whatever the organic fractions, we convert that into high-quality compost, and it is sold to fertilizer companies like KRIBHCO and RCF. And what we have noticed is there's a lot of demand, and we are planning to increase that capacity, too. So going forward, that's what -- as the waste generation increases, our revenue also will improve.

Just to add a bit of color on that, the revenue matter is on a per-tonne basis for every tonne of waste that enters the Kanjurmarg facility. We charge the corporation on a per-tonne basis. And the revenue from sale of compost, RDF, recyclables are all ancillary and additional -- and adds to our bottom line.

Okay. Got it. And also, can you explain how does this bidding system happen?

So usually, this is a technical and commercial bid. And it is quality-cum-cost-based bidding. So there is ranking and marking for the bidding process. And there's a technical qualification. And only those leaders who have past experience of waste collection, transportation and waste processing is qualified. So there's an entry barrier. And based on that, only those operators who have such experience can bid. And also nowadays, they are giving marking because they want good operators to take up the contract. So it is not purely lowest bidder types. Municipalities are, going forward, to give contracts to companies whose technically #1 and the marking, and based on a certain formula, they will -- they award the contract. So most of these bids are prepared by top 4, top 5 consultants in the country because being a long-term contract, they -- the municipalities prefer awards to have good operators. So that -- so we have a technical bid. First, there is an expression of interest, then there's a technical bid and then thereafter financial bid is opened.

Okay. Got it. Got it. And lastly, when you say that revenue from operations based on current projects will be growing for the next few years, so what would be the reason behind the same? Is it because of the escalation clause or something?

Partly, historically, over the last 20 years, what we have seen is the tonnage increases in a particular geography. For example, in cities like Navi Mumbai and Bombay, there is an organic growth in tonnage that we have noticed over the last couple of years and also the escalation which kicks in. So the escalation is linked to the minimum wage in certain contracts. They're also linked to the [ HSD ] component of the fuel. So those things add to the top line. So it's a combination of organic increase in tonnage plus the escalation that kicks in.

[Operator Instructions] We have the next question from the line of Depesh Kashyap from Equirus Securities.

Sir, your tonnage has improved sequentially, but can you give a guidance like how it is like versus the pre-COVID levels in the Kanjurmarg and in the C&T operations, please?

So Depesh, we'll not be able to give you site-wise performance, but what we have seen is, generally, since June, July onwards, there has been a significant increase in tonnage. And from August onwards, it's almost strongly back. I mean the commercial activity and waste generation from the areas that we serve has improved significantly. Now are we out of the woods? The answer to that is cautious yes. We are still around minus 3% to minus 5% from our pre-COVID levels in certain cities. But we have seen a very good traction from the beginning of this year. So maybe the Q4 would show that we are finally out of the woods.

Okay. And sir, your revenue share of C&T segment has increased in the 9-month period and the processing has come down. So just wanted to understand like what kind of revenue share do you target over the next 2, 3 years?