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

Good evening, and a very warm welcome to everyone present on the call. Along with me, I have Mr. Subramanian, Group CFO; and SGA, our investor relations adviser. I hope and pray that you and your families are safe, healthy and secure in this tough situation. We have uploaded our investor presentation on the stock exchange and the company's website. To dive into our call at the onset, we have facilitated vaccination for all our frontline working staff with a view to give them better immunity. Being an essential service provider, we have been able to continue our services during this tough times and would like to thank all employees for their dedicated efforts. Their hard work has enabled us to report a stable financial and operational performance in a year, which began with unprecedented challenges due to COVID-19, This being our second earnings call, I would like to take -- I would like to start by giving a brief introduction of our company business and then our business highlights for Q4 and FY '21. We are one of the established players in the Indian municipal solid waste management industry with an established track record of around 20 years, providing a full spectrum of MSW services, which is municipal solid waste management, which includes solid waste collection, transportation, processing and disposal services across India, catering to various municipality. We have developed in-house expertise in landfill construction and management in a scientific manner. We are focusing on the emerging waste management area like waste energy as well as biomining. We have presence across 3 broad business areas: municipal solid waste, collection and transportation project. This service involves door-to-door collection of municipal solid waste from households, commercial establishment and other bulk waste generators. From a designated area through primary collection vehicle, we have 13 ongoing projects in this service alone. There are typically multiyear contracts and average outstanding duration of our ongoing contracts is approximately 7 to 8 years. Municipal solid waste processing projects. This involves sorting and segregating the waste received from municipal solid waste through collection and transportation. Where one is expected to generate compost, recycle the waste, shredding and compressing inorganic waste into refuse-derived fuel, as required. We have 2 large ongoing waste processing projects. These have a tenure of 21 to 25 years. Please note that collection and transportation and municipal processing are normally exclusive contracts. One is at Kanjurmarg, Mumbai, which had a concession agreement until 2036. Second is at Pimpri Chinchwad Municipal Cooperation and has a concession agreement until 2040. The third business is contract and other service, which involves mechanized sweeping which involves -- which utilizes power sweeping machines, manpower, comprehensive maintenance, consumables, et cetera. Until now, we have undertaken more than 25 projects, of which 16 are ongoing projects. The company has in FY 2021 bagged 2 new projects, collection and transportation projects in Jhansi Smart City and another biomining project in Greater Noida. They are currently under mobilization, and we expect the same to start generating revenue from October 2021. And as I said, about biomining project in Greater Noida, biomining is mining of legacy waste, which is the first time we are bidding a legacy waste biomining contract. Now I will briefly share a few highlights on the Indian municipal solid waste service industry. As per few industry reports, the municipal solid waste management market is estimated at INR 5,000 crores in FY 2020 and is expected to grow at a CAGR of 14.4% over the next 5 years. Urbanization resulting in changing lifestyle pattern and increasing disposable income has paved way for consumerism and have also contributed to higher waste generation in urban India. Over the last few years, we have also seen our industry leaning towards technological advancement. And this augurs well for our technology-driven municipal solid waste service player like us. Various initiatives taken by our government like Swachh Bharat Mission with an allocation of more than INR 1.4 lakh crores over a period of 5 years towards Urban Swachh Bharat Mission 2 is expected to drive growth in Indian municipal solid waste industry. Due to COVID-19 pandemic, the speed of modernization of waste collection and disposal in our country has hit a road bump, which we feel, given the essential nature of the business, we'll be back on track sooner than later. Coming to our business performance. Our municipal solid waste collection and transportation business registered a volume growth of 2.1% in Q4 FY '21 as compared to Q3 FY '21. There was reduction in volume from continuing projects by 16% year-on-year. That is 12 months of operation in FY '21. Due to business lockdown -- because of business lockdown due to COVID, in this business, we continue to add new projects and further focus on increasing our pipeline by bidding for new projects. So we are bidding for new projects and many projects are in pipeline. For FY '21, we saw a decline in total tonnage handled, excluding those projects with fixed shift and trips by 4.1% year-on-year basis, and this stood at 1.29 million tonnes due -- amid COVID-19 pandemic. However, we believe such decline to be offset going forward from tonnage contribution from our currently new projects, which include Nagpur, Noida and Pimpri Chinchwad. At MSW processing business, volume grew by 2.9% in Q1 FY '21 as compared to Q3 FY '21, whereas the volume decline on annual basis was 2.4%. The decline was a result of a decline in commercial activity due to COVID-19-related lockdown in the beginning part of the year. For FY '21, the total waste process stood at 2.06 million tonnes. A point to note, there's a stark difference in the business tonnage during the second wave of COVID-19 impact on business slowdown as compared to first wave of COVID-19. We are noticing significantly lesser impact in activity, especially in terms of generation of waste from household as compared to the first wave. And even in commercial zone, we have noticed activities, which were completely absent last year. Since April 2021, we have seen sequential improvement in volumes in certain geographies that we operate. Both our sites at Kanjurmarg and Pimpri continues to perform in line with our expectations as the commercial activities are returning to normalcy with easing of lockdown. On new business front, as mentioned earlier, we recently bagged 2 new contracts, one from Jhansi Smart City Limited for door-to-door collection and transportation of municipal solid waste service in the city of Jhansi, and the second from Greater Noida Industrial Development Authority for biomining of one of the old dumpsite. So this, again, I would like to emphasize is one of the first contract the company has bagged in the biomining of legacy waste business. And as I said in the past, legacy waste business pan-India is big and many sites have to be vacated from legacy waste due to the pressure from the ports, NGT and also from the central government. The MSW collection and transportation contract in Jhansi is for the period of 5 years, which is further extendable for 2 years. The total contract price is INR 21 crores per annum. The biomining contract awarded by Greater Noida Industrial Development Authority is for a period of 24 months with an initial contract price of INR 23.75 crores. We expect that revenues from these contracts will start coming in from Q3 and Q4 of current financial year. There are a few business in pipelines, but the timing of submission of the same is uncertain due to the evolving pandemic situation. We continue to focus on contract in newer municipal areas while continuing with our cluster-based approach. Going forward, we see significant tailwinds in our business at various municipal corporations are in planning towards awarding solid waste management contract to efficient third-party players like us. I now hand over the conference to Mr. Subramanian, our Group CFO.

Thank you, Jose. Very good evening to all the participants. It was said many times last year that 2020 and the beginning of 2021 was a year like no other, for many reasons. It was an incredibly difficult and trying year. Our positive message internally was that great companies use tough times to better themselves and that's what precisely Antony did. I will share the highlights of our financial performance. For Q4 2021, the company reported an operating revenue of INR 120 crores as compared to INR 118 crores in Q3 2021, registering a growth of 2% on a sequential basis. This is on the back of approximately 11% growth that we have reported in Q3. The growth in Q4 was driven by both tonnage collection and handling, which has seen a significant margin improvement from -- on a sequential basis, but on a year-on-year basis, it's been strong. The total revenue including contract and other revenues grew by 9% sequentially to INR 138 crores in Q4 2021 as compared to INR 127 crores in Q3 2021. EBITDA is down by 6% at INR 34 crores during the quarter, with EBITDA margin at 24.7%. The main reason for the decline in margin has been the 15% sequential increase other operating expenses, mainly driven by higher fuel prices. The escalation is simple [ later ], either annually or quarterly or monthly. And hence, that will be a timing issue of the impact and the release coming in. Also, the dip in margin is also due to the ex gratia payment that the management has made to our employees for their efforts taken during these testing times. The profit before tax stood at INR 19 crores for the quarter as against INR 22 crores in Q3 2021. And the profit before tax margin is 13.7% during the quarter. Profit after tax stood at INR 16 crores for the quarter as against INR 19 crores in the previous quarter. Coming to business-wise performance. The municipal solid waste collection and transportation revenue is up by 2% at INR 83 crores as compared to INR 81 crores during the previous quarter. The growth being on account of increase in total MSW C&T volumes by 2.1% as compared to Q3 FY '21. The MSW processing revenue is up by 3% at INR 37 crores as compared to INR 36 crores in the previous quarter. This is reflecting the slight improvement in the waste processing volumes by 2.9%. On an annual basis, our total operating revenue has risen by 7% from INR 402 crores to INR 429 crores. The growth being driven by 11% revenue growth in collection and transportation business, which registered a 4.1% volume. The growth mainly coming from price escalation during the year. We could sustain the overall revenue growth, reflecting these kind of escalation, which is built into our contracts, which is normally in the range of 4% to 8% underlying -- reflecting the underlying inflation of the key cost factors like diesel and wage increases. All the contracts that we have today have escalations. These are either fixed or variable, which keep pace with the changes with the HSE component of WBA or the minimum wages of a particular state. To repeat, 100% of my revenues have escalation. And of this, 57% of my revenues are under variable escalation while 43% have a fixed escalation clause. Of the 43% with fixed escalation, 14% of my revenues are from old contracts, which will roll off over the next 18 to 24 months, and the same will be renewed or replaced under variable escalation format. On the balance sheet front, our net debt to equity as of 31st of March 2021 is 0.3x as compared to 0.5x as of 31st December 2020. Total debt as of March 2021 stood approximately INR 150 crores. This compares against INR 210 crores last year. And our net worth has improved to INR 442 crores versus INR 300 crores last year. The current receivable days as of 31st March 2021, is 59 DSOs as compared to 60 in 31st March 2020, and our endeavor is to maintain this under current circumstances. Despite COVID and the stuff set around the system, we being in the essential services, the corporations and our clients have helped us maintain our operations, and we are in constant communication with our clients in this regard to keep a very acute watch on the receivable position, and that is one of the key strengths and the key fact that the selection of clients is critical. That's it from me. Now I open the floor for Q&A.

[Operator Instructions] The first question is from the line of Depesh from Equirus.

Sir, your other expenses have increased by 22% Y-o-Y. Now we understand the diesel inflation is the main cause. But just wanted to understand, is there anything else apart from that, just like your repair and maintenance cost or your higher outside vehicle hiring thing? Anything -- any one-offs that you want to highlight?

Hi, Depesh. Look, bulk of the increase has been mainly because of fuel prices and the ex gratia that we have provided for in the Q4. Since this was part of the transaction. So we see a dip in my EBITDA margin. There has been 3 factors if you look at it mainly. One is the lower tonnage being processed in my collection -- in my waste processing projects. Because at the beginning part of the year, we have seen a fall in my waste processing by around 10.9% on a year-on-year basis. So that has reflected in a lower EBITDA margin because waste processing carries a higher EBITDA margin for us. Secondly, the diesel fuel prices, which constitutes approximately 18% of my total operating cost, that has increased significantly. It's jumped by around 41% to 39%, depending upon the city that we've seen and we operate in. So that has a pass-on effect, but that comes to a lead time. So timing is one thing that has kind of hit our margins here. And thirdly is the ex gratia that the company has provided to its employees. These are the 3 key factors which has led to it in my EBITDA margins.

Understood. Sir, on the timing part, you spoke about that 57% of your contracts are variable and 43% are fixed contract -- escalation clauses. If you can give a sense how many, what percentage of contracts have quarterly, monthly and half yearly price revision mechanism, mainly I'm asking this because the diesel prices have continued to increase in April, May and June. So what is your broad outlook on the 1Q and the first half margin going forward?

So normally, my annual margins come in, in the form of 60% of my revenue have an annual escalation clause as compared to a monthly and quarterly constitute around 15% each. The balance, 13% is a half yearly escalation for us.

Okay. So there can be a decline in the first quarter and the first half also, right, because the diesel continues to increase?

Yes. So a couple of factors that have led to a fall in margin, not just the fuel price increase, but also the declining tonnage. Normal tonnage includes during the period of monsoon and also the part of my third quarter. So right now I'm in the cusp of my increase in tonnage and also my escalation will kick in. So we believe the current and the margins in the first half is normally significantly better than the margins in my second half. Of course, assuming the fuel price has been steady through this period.

Right, sir. And also, how many of your contracts currently will be on extension because I understand during the extension period, you're not able to take any price hike, right?

Yes. I would say around 8% of my revenue are under extension, and these are now being tendered by the government. The paperworks has already started through the various corporations. It's because of COVID that they have not been able to roll it out. We are in constant communication with the corporations, and they have -- after the second wave, they have already initiated action on that front. So we expect some movement in that area shortly.

Understood. Understood. And sir, you spoke about the volume impact in this lockdown that it is better than the last year. But if you can just highlight sequentially, how is it like from the fourth quarter of FY '21, if you look at first quarter FY '22, how much dip are you expecting in the volumes going forward?

So I, actually -- so it's not at a consol level, but if you look at different regions, we have seen a different -- marked difference in the way the local economies have worked. We have operations in MMR region. We have operation in the NCR region. And we also have operations in Nagpur and Pimpri Chinchwad, for example. We have generally seen the western regions have performed significantly better than the northern region in this aspect.

Okay. Okay. And sir, any -- are your clients paying you on time? Because I understand that they are dealing with a lot of health care issues, right? So are there any receivable issues that you've seen?

No. Actually, if you look at the first wave and the second wave, our receivables have actually remained steady. The government, corporations have actually given a priority on the essential services and kind of drawn revenue from other departments. So the unplanned expenditures have been controlled by various corporations. We have not seen any significant stress in our current receivables, which is what the numbers are reflecting. Having said that, we are in constant communication with all our corporations, all our clients, and we are in touch with them because this is something which is very crucial for our own working capital lines.

Right. And lastly, sir, if you can just give a guidance on the CapEx on the gross debt outlook for FY '22.

On the CapEx over the next 2 years, we expect our Pimpri Chinchwad waste-to-energy project to be set up which would represent approximately around INR 200 crores of CapEx over the next 2 years. And we also foresee a CapEx of around INR 20 crores to INR 30 crores for our other processing contract. We do not foresee any significant CapEx at our collection and transportation operations. The CapEx at C&T will be triggered only if we bag new contracts. And the contracts, as Jose has mentioned, the one in Jhansi, the entire CapEx has been taken care by the corporation here. So it's not a -- it's an asset-light model in that scenario.

As to the gross debt, how much debt you are expecting...

I would be expecting around INR 170 crores to around INR 180 crores of the -- on a gross debt basis over the next 2 years.

Okay. Understood, understood. And mostly, it will be the FY '23, right, because, FY '22 it may not be...

Yes, it will be having a lag effect. It will start at Q4 FY '22 and the bulk of it will be in FY '23.

Understood. So sir, the Jhansi and the Greater Noida contract that you have recently bagged, I understand they are asset light in nature, so the municipality will be doing most of the CapEx for you. So what kind of EBITDA margins will you -- will that be in line with the existing contracts or they will be materially lower than those contracts?

In case of Jhansi, the CapEx is reimbursed or it's been funded by the corporation, so the margins will be in line because it's on a different revenue model. It's not on tonnage. It's on the number of households and units that we collect from. So the metrics will be different. In Greater Noida, the CapEx has been done by the company, and it's a first of its kind biomining. So to be honest, the margins, what we're targeting should be in line with our historical trends of waste processing, and that is what we are working.

The next question is from the line of Faisal Hawa from H.G. Hawa and Co.

So my question is that, since we want to have a pan-India kind of presence in waste management. Adjusting to the cultural differences between each of the municipalities and even the difference in working style will be a tough ask. So how are you actually doing it phasage management-wise because management will have a certain bandwidth and they've been used to working in Bombay and surrounding. And secondly, do we have any kind of a progress report on the Pimpri plant that we were going to convert waste to electricity?

So regarding -- as you said, the cultural differences. Now what's happening is pan-India level, the garbage collection and transportation is done in a very, very traditional way. So it is not modernized. So many of the municipality want an operator who can modernize the existing system from the traditional method where manual handling is there and open dumps and all that. Another thing is the existing labors in such conditions, they are not taken care of, they don't have protective gears, and they are not -- they don't have proper medical care. They are not paid provident fund and ESIC because this business is not very organized people who are doing this. So when we go there, when we win the contract, first thing is we are getting modern equipments, and existing people who are all there, the workers and everybody, we are -- we will be providing the best of safety gears. We are going to provide them all the facilities. So all this thing is coming as a goodwill and better living conditions, better operational conditions for the workers as well as the management of the municipality. So the municipality is very happy to receive us. If you say that we are coming, they like it because they are seeing what we are doing. So this work wherever we are going, we are going with a more modern method of operation, not with the same traditional way. So the competition is not much. And eventually we'll recruit the local people. We don't take anybody -- so if we go to UP, we'll recruit the local people, we advertise in the local newspaper. So entire management staff except for 1 or 2 to guide them and our team goes there for first 2, 3 months for getting the operation in place, and we train our people. And afterwards, the local, the people who are locally from that area, they manage the show. So that is it. And I think second, Faisal, I couldn't hear properly. Can you repeat it?

My second question is this Pimpri Chinchwad, we are going to set up a plant to convert waste to electricity. What is the progress of that project? And are we making tangible strides towards getting it operational in 2022?

So Pimpri Chinchwad waste-to-energy project is in 2 parts on a COD-1 and another is COD-2. COD-1 is we have started receiving the waste and we have processing in organic fractions are converted into compost. So that is completed and that is running more than, I think, 1 year or something. And we are charging our tipping fee and for which there's some revenue coming in. As far as power generation, that COD-2 work -- construction work is going on, and it should take around 16 to 18 months to complete.

Faisal, just to add on that, the civil work has already started. We already made advances to the bulk manufacturers for all the fabrication parts to be shipped in. These being COVID times, everybody would need some firm orders in hand before they start the work and also because of these locking, unlocking policies, there is a decent bit of confusion that's happening on the layout and the form of project rollouts. But having said that, the civil work has started, And the team there is very confident that they will be able to complete the construction in the allotted time.

Sir, if you could allow me a third question. Since we are -- we have MIT as a shareholder in our company, are we trying to take any kind of initiative to develop some new age technologies that may be in their research lab, that we could absorb and process into our waste or into our business model to create new materials or something like that?

Faisal, right now, we are in touch, not with MIT, but with IIT Bombay to that angle. So yes, we are in constant touch. We take their help in understanding how waste can be processed better, more efficiently. And the carbon footprint can be it captured, reducing the greenhouse effect, can we tap the excess greenhouse that has been release from these kind of waste processing activities. So for example, in Kanjurmarg, we extract the entire methane that has been generated at our site and we are generating forward to the tune of around 0.97 megawatts. So that is one of the steps that we have done, and we are also understanding how the waste decomposes under very focused environment so that we can roll out similar projects across the country. To answer to your question, yes, we have reached out to the academic front and for better technology and to help us guide in resource extraction [ populace ], but it's not with MIT, but IIT Bombay.

And what is our research and development spend per year?

So our research and development spend would not be very significant at this stage. It would be less than INR 1 crore. But there are certain areas that the management has earmarked in the RDF technology, about pelletization and everything, making it more efficiently driven. So that has been earmarked. The company wanted to spend more, but because of COVID and all the uncertainties, there has been a slight lull in that, but the work is very much on the cards. Once things stabilize, and we have a clearer visibility of how future shapes would be, this is one area that the management has clearly indicated to work on.

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

A couple of questions. Firstly, if you can list out a few projects where you are bidding right now in terms of C&T, which can come up and similarly if there is anything which is coming up on the processing side as well?

He's talking with you [indiscernible].

Yes. So we are bidding in a few corporations for setting up our transportation -- collection and transportation and waste processing. So most of these bids are under preparation, we have appointed the consultant, and we are in the process of bidding. And hopefully, if everything goes fine. We may win in coming months.

Okay. So -- but is there -- so you had earlier highlighted that your capacity is to take INR 50 crores worth of annual projects. Do you think that sort of win is possible in this year, given where the tenders are right now?

So definitely, Anupam, we are definitely working with the corporations, but on the timing is something which none of the corporations are able to commit because of the evolving pandemic situation where the talks of the third wave is also on cards. So we have definitely in talks with a lot of corporation and few of the corporations the talk is on at a senior -- at a very advanced level. But the timing and recognition of the same is depending on a lot of moving variables, which the corporation are not able to put a finger on today.

Right. Understand. Secondly, as I understand, your contracts which are in extension do not have price escalation. But is there not a provision at all that given the sharp increase in fuel prices, which you have seen that, that can be reimbursed at all? Or will it always be fixed price during extensions?

So Anupam, these are very client-specific requests. So the company has raised these issues with the clients. And they have mentioned that they will get back to us after a corporate due diligence because these are public money. So before -- it's not a unilateral decision of a department, so they need to get a consensus from the general body of the corporation. So like, for example, in the Municipal Corporation of Bombay, they have allowed us to billed us as for the minimum tonnage, which was experienced during the February 2020 period despite the decline in tonnages. Now based on a similar recommendation by a corporation, other corporations are also taking it up positively. Now -- so these things take time, and we definitely expect some relief in that area.

Okay. And just lastly, I wanted to understand what is the status of the increase in stake in the Lara -- [indiscernible] stake from the Lara entity for your Pune C&T and Mumbai project, which was supposed to happen. What is the status as of now?

Lara's stake currently, it's still at 36%. We expect that to be reduced to 27% shortly. The reason is there's a delay because of certain documents that needs to be received from the company, which is registered in São Paulo, Brazil. Because of the local conditions, they have not been able to get the same documents attested by the Indian Council over there. So once the documents are attested by the legal Indian Council in Brazil, the same will be needed over here to open the demat account. We expect the entire exercise to be done by September 2021.

September 2021. So just to clarify one thing, before it happens, the economic interest remains -- your economic interest remains at equity until it happens, right?

Yes.

The next question is from the line of Bijal Bakhai from Amit Jasani Financial Services.

Tell me, sir, do we have a dividend policy, payout policy for the shareholders? Because you have not declared any dividend for the current year.

This matter has been discussed at our Board, and they have -- they will be formulating a dividend distribution policy shortly. It's something that the Board will decide and get back to you before the AGM.

But nothing to be declared for financial year '21 -- 2021?

See, this is something will be -- that will be decided by the Board and they will look at the conditions that is prevalent in the economy and the health of the company and the kind of future projects that the company is bidding for. I'm sure the Board will take all the viewpoints from all stakeholders and arrive at a decision.

The next question is from the line of [ Nisha Desai ] from [ NM Securities ].

Sir, do we expect any additional CapEx at consumer? And what would be our maintenance CapEx?

So the CapEx that we foresee at our consumer side will not be over and above the INR 20 crores to INR 30 crores that we anticipate over the next 2 years. We don't see any bid beyond that. We don't have any maintenance CapEx in our collection and transportation business, whatever money that we spend is OpEx out in my collection and transportation business. We don't build on creating higher book asset at my collection and transportation business.

The next question is from the line of [ Manik Malhotra ], independent investor.

Am I audible?

Loud and clear.

I just wanted to ask you 2 questions on the fee side. So I just wanted to know whether our -- whole fleet runs on diesel? Or do we have small tippers which are running on CNG fee?

So bulk of my machines, the compactors run on diesel because the road conditions that end up at the dumping ground or the landfills are not great, and you need a lot of power. And CNGs are not equipped with those kind of engines today. So I would say a bulk of my machines are run on diesel. But we have a few vehicles, which do the primary collections, which are CNG-based. Our interaction is always ongoing with manufacturers like Ashok Leyland and Tata to see whether future CNG machines will have enough and more adequate power to help the vehicles climb landfill kind of situations. To answer your question, yes, I would say around 6% of my total vehicles are CNG, but 94% are still on running on fossil fuels. There's a constant attempt by the company to shift from diesel to CNG. We have tried using electrical vehicles. We have few sample pilot ones running around, but unfortunately, the operating people are finding it slightly difficult when it comes to load carrying and load distribution.

Okay. And one more question. This you have mentioned in your prospectus that around a -- lot of your fleet is having GPS for efficiency. So how is it going now? Are you doing anything tech-driven for efficiency or for this route efficiency for picking up the waste. Anything oversight?

So we -- due to pandemic, what we are looking at is how to optimize our routes. So we are constantly working on the routes. And since our vehicle is fitted with GPS, we can monitor the movement of vehicles and the collection of the waste in particular route if it's less. We can keep on changing the route. So that we keep on doing. Now because of this pandemic, in the past, we never faced something like this. One particular route we used to collect suppose X amount of garbage, it was fixed for the next -- and with a firm escalation. Now with pandemic, our team and we have geared up to keep on improving or changing the route plan on a regular basis. Since we -- and since all our vehicles are fitted with IT system and GPS monitoring everything, it will become very easy for us to modernize our current route plans.

We'll take the next question line of [ Ankan Jain ], individual investor.

Hope all you and your family are safe and secure.

Thanks for your wishes, and we hope the same at your end.

Sir, I have questions project-wise. The first one is about the consumer. So we are currently running the 5,000 or 5,300 tonnage per day

Please use the handset mode. The audio is not clear from line. The current participant has left the question queue. We'll take the question from the line of Keshav from RakSan Investors.

Sir, if we consider the Jhansi order in which you don't have to make any capital expense. So do we also have similar contracts from other municipalities running in which they procure the assets and we do the operations there?

Yes. We are doing in Varanasi now where the entire CapEx except for our sweeping machine is funded by the municipality. So -- and in the past, we had bid even for a road sweeping contract, where the machine is funded by the municipality. So because of Swachh Bharat Abhiyan and all that, there's a lot of fund in the central government to fund the CapEx for even waste processing apart from collection and transport, which is a good news for a company like us.

So sir, like you said in the beginning of the call that the margins would be similar to your processing business otherwise. So -- but your tax translation would be superior, right, for these orders?

So we were talking about collection and transportation. Jhansi is a collection and transportation business and not a waste processing project. So the collection and transportation margins are normally lower than our waste processing businesses.

Okay. So sir, like if we see, consider the C&T segment only and for -- if you compare the Jhansi order, so do we have superior IRR for these?

IRR is superior because of very negligible CapEx if you look at it in that sense. If you look at on a mathematical modeling point of view, yes, the IRRs will be significantly better as the CapEx requirement is almost margin as compared to a similar sized project if the entire CapEx has to be put. And also, the tipping fee changes. So what normally happens in -- these are basically like a cost-plus model that we work on. So if the CapEx is there, then the tipping fee, that's the rate per tonne that you charge to the corporation, is different as compared to otherwise when the CapEx is done by the corporation themselves. But yes, it gives us a significantly more flexibility when you are in a position to tell the corporation the number of vehicles that you want, and you can add a buffer zone to it as well.

Okay. Sir, and these projects have similar receivable cycles as the other projects?

Yes. They are very similar to the existing collection and transportation contracts. And this particular one is a 5-year contract, which can be extended by 2 further years.

Okay. So sir, if you combine the 2 recent wins, one is the biomining order and the Jhansi order, they totaled to about 50 -- roughly INR 50 crores worth of contracts. So they would be realized this in FY '22 or...

Not the entire financial -- not the entire 12-month revenue. We are expecting Jhansi to start providing revenue from October 2021, and Varanasi will be fully fledged by September 2021. Greater Noida 2 will start off 100% by October 2021. So the second half of my current year should see revenues from all these 3 contracts. For 6 months, that would be.

Okay. And the combined potential revenues are combined of these 3 contracts put together?

So let me give you the thing. So what happens is if you look at my current order book, which is all the contracts that I've bagged till date, signed and mobilizing. Everything put together. At 100% normalcy, the company expects its core revenues to improve by approximately 18% to 20% year-on-year. But please note that these numbers that I talk about are core operating revenues from shipping fees. My project revenues will be recognized as per the Ind AS accounting norms as and when we execute the CapEx at our ongoing PCMC waste-to-energy project and any other incremental CapEx that I incur at my Kanjur waste processing site. These are one-off revenue recognition as per the project accounting rules. So I request that the core operating revenue would be around 18% to 20% add to that any other CapEx-driven revenue will be sitting as a contract income in my books of accounts in this year and the next.

The next question is from the line of Depesh from Equirus.

Jose sir, any study you're doing or anything under consideration for the biomedical waste, which has become a very big problem nowadays?

See, biomedical waste presently, we are not looking into it because we are getting huge opportunities presently from municipal solid waste. The thing with biomedical waste is a -- the size is much of a smaller size and it is from city to city. So presently, we are finding a lot of opportunity in municipal solid waste, which is our core business.

Okay. So biomedical will not come under the municipalities?

No. No, that is a different business where we need to have 2 type of operations, incineration and autoclaving of recycled waste. So there are 2 different operations.

Got it. And sir, given your planned INR 200 crores to INR 250 crores CapEx for the next 2 years, just want to understand what kind of bandwidth do you have to bid for any upcoming projects. Any debt-to-equity or debt-to-EBITDA targets you have in mind beyond which you will not go?

Depesh, currently my debt-to-equity is around 0.3. And even after the fully drawn down of CapEx and debt related to my waste-to-energy project and everything, my debt-to-equity will be in the range of around 0.6 to 0.65 at the peak. So the company has a very healthy balance sheet at today's debt. We are also talking to various banks reducing our existing interest cost by around 100 to 125 bps. So our headroom to borrow money for incremental business is still adequate, and the company is -- can grow, if the opportunity provides and it meets our financial requirement. There won't be any additional stress in my balance sheet. My cash flow from operation is around INR 110-odd crores. We foresee the same to be sustainable, and these are during COVID times. So we believe the same cash flows to be available, and that can help us fuel our future growth of around 20%, 25% CAGR, as Jose mentioned.

And lastly, sir, sorry to harp on this, but how many contracts have seen price revision since January of this year?

Sorry, I didn't get that. How many contracts?

Have seen a price revision since January of this year.

Price revision, there has been only one, which was in Kanjurmarg, which is due on March 6 of every year. So for that, that's the only contract that we got the price revision. Everything else falls after June-July.

After June-July.

So normally, what we have seen historically is after the fiscal year ends, that's when most of the corporations award new contracts. So normally, the new contracts come in, in the month of May, June, July, thereabouts. So that's how the cycle runs after the budgetary allocation and everything is done.

Okay. So after June-July only the revisions will happen, so till then, okay. Sir, nothing special you can do because this is unprecedented time, right, the oil prices going up like anything. So that's why steel companies are passing on the price to the auto companies and all. So can't you just talk to the municipalities that you are not able to work under such margin pressures?

We have already applied for minimum wage and for minimum tonnage increases request to the corporation for contracts. And this is as per the contract and is also over and above the contract requirement. But having said that, Depesh, the corporations have been making their payment on time regardless of the stress they might be facing internally. So we are in talks. We are talking to them, and we're also raising these issues because rise in diesel and fuel prices doesn't even -- it's not only a problem for companies like Antony Waste, but also for employees who work in these kind of corporations. So it's a matter which is well thought, well spoken and well raised at various levels. We would -- see, the newer contracts have an escalation, which is quarterly, like the ones that we have in PCMC and in Nagpur. So the newer contracts that the company is bidding for have these metrics of escalation even on a monthly basis. So that is one of the ways that the corporation will address this problem in future. But for existing contracts, the only redressal option that the company has is to request the various departments, which, in turn, will request the corporation finance departments for any additional scope for funds being released to the department.

Got it, sir. And when the volumes will come back, they will kind of reduce the margin percentage, that'll also help.

Definitely. The margins, we have already seen a slight improvement in our tonnages over the last 3 months since March 2021 onwards. We are seeing improvement on a sequential basis. We pray that the unlocking speed and everything continues through the year, and we are not hit with any adverse surprises.

The next question is from the line of Faisal Hawa from H.G. Hawa and Co.

Are you taking any steps to cut down on the pilferage that happens at the stage of collection by employees in the dry waste because that's where we lose price. We lose on the tipping fee as well as we lose on the economic value of the dry waste. So most of the dry waste is pilfered at the end of the collection itself. So can we do something to really cut down on that?

Actually, Mr. Hawa, when we talk about waste processing per se, the driving revenue for the company's tonnage, the kind of, and the sale of recyclables and what you're talking about is sale of your recyclables and scrap is very marginal to our business, not more than 1% to 1.5% of my revenue is from sale of plastics and other recyclables. So the pilferages actually doesn't bother us per se. But our revenue is purely driven by the tonnage and that's of more material importance for us. And our operations are not hit by these kind of minor pilferages.

No, but studies show that dry waste is almost 30% to 35% of the total waste collected in a city...

Yes. What we are saying is dry waste...

Recyclable waste.

So recyclable waste tonnage is very low. So there are dry waste like textiles and broken plastics and broken things, which has no recyclable value. So any PET bottles we find, any some sort of [ tins ] and all that, we will take. But that rate is waste is very marginal, that's what our calculation is. But we get a lot of dry waste, which is shredded and convert into refuse-derived fuel. So which is about 30%, which is we are getting. The recycle waste mainly getting -- the pilferage which we have no control. It is a municipalities -- from households that we collect there could be some [indiscernible ] and all taking it away. But overall, what we have notice is the dry waste still constitute 30% and is there. Recyclable, which has a market value is -- and still we are getting this. About 1% to 2% still is coming to our plants. But going forward, it may reduce because there are less ragpickers nowadays in Mumbai compared to what we used to see in the past, so that's what is...

The next question is from the line of [ Ankan Jain ], individual investor.

Sorry, sir, my line got disconnected last time. What I was asking was about Kanjurmarg. Currently, we are running at 5,300 tonnes per day. So when this will go to 7,500 tonnes per day as per the contract?

So there is a gradual step-up as per the contract, and this will be taken up gradually. So there is a step-up mechanism. We normally don't comment on project-specific information, but this is as per the tender norm. So there is an incremental shift that happens every 3 or 4 years.

Okay. Sir, but there were -- we had read somewhere this IIT and other NGOs were doing some study about the impact there. Is it linked to anything to that report or anything?

Sorry, that report would be shared by -- with the Bombay High Court. I mean that's not been shared with the company per se. So I think it should be there on the justice department's website. That has not been shared with the company.

No, agree. But that, whatever the report findings is nowhere connected to increasing the capacity?

No, no, no. That has nothing to do with the increase in the capacity because the zone and the areas that have been earmarked for the waste processing at Kanjurmarg is earmarked for 7,500 tonnes per day. So that area is sacrosanct and the corporation has no comment on this.

Okay. Sir, I just wanted to know, you have mentioned -- you mentioned that around INR 20 crores to INR 30 crores need to be spent as CapEx there for this project during the next 2 years. Once that is done, is there any more CapEx to be done at this project?

Not immediately. There will always be some maintenance CapEx for our material recovery facility and our composting yard, but that will be very insignificant as to the CapEx that we have already done today. It will be in the range of around 1% to 2% of the existing gross book, I would say.

Okay. Okay. Sir, is there any provision for you in the agreement to go upper 7,500 tonnes also or is 7,500 tonnes per day final?

More than 7,500 tonnes, no. It's as per contract, 7,500 tonnes.

7,000 tonnes.

Mentions that up to 7,500 tonnes per day is what the project is envisage at in today's world. Future, we are not able to comment, but the project is technically designed to process 7,500 tonnes per day.

Okay. Fair enough. Sir, now at the Pimpri project, after this investment of INR 200-odd crores for the waste to heat energy, is there any other CapEx needs to be done in this project?

No. After this CapEx is done, the plant is up and running. After that, there is no incremental CapEx required.

Okay. Sir, as per the current time schedule for the Varanasi, have we received the work order for the remaining 4 zones?

Yes, we have received the work order for the remaining 4 zones. The work has already started in surveying those areas. So we expect the survey to be completed shortly. And that is why we have mentioned that the revenue from Varanasi should also kick in fully from September 2021 onwards.

September, okay. Sir, is this project agreement is also for 7 years?

Sorry, I didn't get the last question.

This project, this agreement, is it for 5 years or 7 years?

Varanasi is for 7 years.

7 years, okay. Sir, in this financial year, the compost volume has gone up by more than 100% or so. Any particular reason, sir?

So we have expanded our compost generation capacity, where we doubled the maturity pad in 2019. So that came up for operations in mid of the last year. So if you see in Q2 and Q3, we have seen a sequential growth in the tonnage. And now I'm able to process significantly more tonnage and able to sell that same to our vendors. So this is one of the reasons why increase in capacity, full utilization of the same and also ability to get buyers for my compost. These are all the 3 factors which has led to me doubling my sale of compost in the current financial year.

Okay. Sir, this is -- what I want to know is sustainable for the coming years also?

Yes, this is sustainable for my coming year, and we are actually working at improving the quality and also increasing the capacity if it's possible during the dry season.

Okay. Sir, just wanted to know how much revenue this generates, sir?

It's very marginal. It's less than 1%. As I said, our sale of compost and sale of recyclables together constitute less than 1% to 1.5% of my total operating revenue. So these are bonuses, as I would say.

Okay. Fair enough. Sir, my last question is about the notes you have mentioned the Note 5 and 6 regarding some pending dues from municipal corporation, about that INR 8.06 crores and all that, whatever the numbers. I just want to know since how long these payments are pending?

These have been pending for more than 3 years. So the certain disputes and certain redressal forums have to be completed. We expected all these actions to be completed by 2020 -- 2019, 2020, but due to COVID and all the things, all these discussions and actions and court proceedings have been put on a back burner by various jurisdictions. So that is one of the reasons why we have not been able to get this acted upon. But having said that, we have recognized and worked with certain corporations like Ulhasnagar and Bhiwandi, which has come out for a settlement, and we have already worked with them. Not all corporations have gone on hibernation mode. Few corporations are still working on this zone. We expect to work on the other clients during the current financial year and try to find a resolution as fast as possible.

Sir, this amount INR 8.05 crores was earlier INR 13.5 crores as on September when you had come out with DRHP. Is that is the correct amount? Earlier it was INR 13.5 crores now it has come down to INR 8 crores, correct?

In the past, in 2019, this amount outstanding and qualified was INR 28.5 crores, and we have been constantly talking with our customers and clients and explaining to the reasons why there has been a dispute. After effective redressals, this amount has now -- from the collections that has been made and exceptions, and everything has been made by the client. This amount today stands at only INR 8.05 crores from different municipal corporations. It's not a single corporation. There are multiple corporations involved here.

Correct. Sir, my last question, again, pertains to the same note. Sir, you have mentioned that in the other financial assets under current subheading, there is INR 74.45 crores is there in the balance sheet.

Right.

All these amounts pertain to minimum wages outstanding solely?

No, no, no. It's not just pertaining to minimum wages. There is also a retention money involved there. There is also -- see, as far as tender conditions, we need to provide for certain receivables, which will be paid by the corporation at the end of the contract. So there is approximately around INR 31 crores as retention money, which is good money from my existing clients, which will be refunded to me at the end of the contract. Approximately around INR 9.2 crores is the minimum wage reimbursement, which is expected from one of my other customers who is currently processing the same. And the minimum wage issue is around INR 42 crores, which is still there. So that is how the breakup is. Bulk of my money is under retention and reimbursement awaited from my clients.

Okay. So that means the receivables would be INR 89.1 crores plus this INR 40 crores something. This is the major amounts, which are receivables from the corporation, correct?

Yes. This -- though it's not current receivables. These are long-term receivables because this is payable to the company at the end of the contract. If it's been a 1-year contract, then it will be realized within the 1 year. If it's a 5-year contract or a 7-year contract, accordingly, the same gets released to us at the end of the project life.

The next question is from the line of [ Manik Malhotra ] individual investor.

Yes. Actually, my line got connected. I just wanted to ask one follow-up question, that I'm just looking at the projects on which we are working. So when a tender comes, so do you focus on tenders which are coming from the same existing project site of the same state? Or are you focusing on the states where you are not working right now? So I just wanted to -- I'm just asking this, I just wanted to know whether you are working on clustering strategy, like you're making clusters and then to improve the efficiency. So I'm just asking this question.

So the idea is first thing is we only build tenders in those municipalities for, A, is that they should -- the tender should be of international standard, which is made by some top 4 or 5 consultants in the country, where there is complete modernization because our company believes in technology and new system to be implemented in waste collection as per Solid Waste Management Rules 2016. That is one strategy. Wherever any municipality comes up with this type of bid, we are open and we bid. And second is cluster. So then we always like to win contract nearby cities because what we notice is when 1 city comes with a modern type of waste collection and transportation and processing of waste, the neighboring city also would like to implement similar type of contract. So when those tenders come, we try to win that because our overhead becomes on the lower side, we can manage the operation much easier. So that is the reason we look at cluster-based approach. But any part of India, we are open to bid provided it fulfills our requirement to bid. At the same time, municipalities, financial helpers also we check what is the credibility and how our money can be saved -- protected in wherein -- after execution, our payment should be on time and all that. So on base of all these due diligences, we -- then we analyze and then we bid.

Ladies and gentlemen, we will take the last question from the line of [ Ankan Jain ], individual investor.

Sir, I had only 2 questions. One is this Pimpri project with the capacity is 1,000 tonnes per day. Is there any provision to increase the capacity in future?

The plan in this case is waste-to-energy designed for 1,000 tonnes per day because -- and 14 megawatts units. So we cannot increase the capacity at the moment for that site.

Okay. Okay. And my second question is we must have already quoted some of the projects during the course of the year. Is it possible to share us only how many number is there in pipeline? How many of that are the waste-to-heat treatment type of thing? Just to understand how big these opportunities is becoming in India.

In the waste-to-energy zone, there are very few, I would say, not more than 2 projects which are up -- under the discussion stage across the country. There is some contracts which has been issued from NTPC for biomethanation work. But most of the work that we are looking at, and that has been issued by various corporations are in the area of waste processing using either...

Yes. So I will just want to clarify one thing. When municipality go for waste processing, they decide this technology they'd prefer. If the municipalities do not have larger land and the land is very expensive. And moreover the municipalities is rich where they can grant some money as for viability gap funding. In such cases, they opt for waste-to-energy projects. And there are municipality who have a little bit more land, land is not expensive. They prefer waste composting methods that is material recovery cum composting. So the technology is selected by the municipality based on the land and in their financial credibility.

Okay. Okay. Sir, what I actually wanted to ask you was, in between C&T and waste processing project, how many are there for us to grab as on date? And what is the revenue generation opportunities of these projects?

So of the pipeline that we are targeting, it's always a mix within waste processing, collection and transportation, because the waste processing project takes around 1.5 to 2 years of mobilization as compared to a 6- to 8-month utilization period for C&T. Your question on the number of projects that the company is bidding or is looking for, I would say that the business development team is looking at around 8 projects as of today. A few of them are in advanced discussion stages with the corporations and consultants on the inputs. So I would say around 8 projects are there on the pipeline for us in the current -- as of today, I would say.

And what would be approximate value of these contract? Total, sir. I don't want individual. Total. Is it something around INR 200 crores?

So they are significantly bigger than those. It should be in the range of around INR 280 crores to INR 340 crores annualized.

Annualized. Correct. Correct. Okay.

As there are no further questions from the participants, I now hand the conference over to Mr. Jose Jacob for closing comments.

So dear participants, we are seeing various municipalities to private -- and municipal solid waste management and come out with contracts for the same, which ensures good growth momentum for us, and we are confident enough to capitalize on these opportunities. I would like to thank you all who participate on our earnings calls. I hope we could address all your queries adequately. And for any further information, please contact SGA, our investor relations adviser. Please take care. Stay safe. Thank you very much.

Thank you.