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

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of Antony Waste Handling hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta from IIFL Securities Limited. Thank you, and over to you, sir.

Thank you, Varsha, and welcome, everyone, to the results discussion for Antony Waste Handling Cell Limited as well as the future outlook. From the management, we have Mr. Jose Jacobs, Chairman and Managing Director for Antony Waste Handling Cell and Mr. N. G. Subramanian, Group CFO, along with the Investor Relations team. I will hand over to Mr. Jose Jacob for the initial remarks, and post that, we can take the Q&A. Over to you, sir.

Good afternoon, 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 these tough situations. We have uploaded our investor presentation on the stock exchanges and the company website. To start with, I would like to thank our employees for their [ courages ] and dedication towards their work which enabled us to continue our operations smoothly even during second wave of COVID-19, which are much severe than the first wave. The hard work enabled us to deliver highest ever quarterly revenue and EBITDA and net profit, even during challenging quarter. Our economic activity were disrupted due to second wave of COVID-19, we witnessed a little softness in the volumes on a sequential basis. Having said that, with economic activity returning to normalcy, we are presenting recovery in volumes. The sequential improvement in revenue was also aided by price escalation benefit in [ our shipping ] fee. Now moving on to the business performance. Now CMT projects, which is multiple solid waste collection and transportation. In this service, we have 13 ongoing projects in these services. Our municipal solid waste collection and transportation business registered a volume growth of 45% in Q1 FY '22 as compared to Q1 FY '21. However, on a sequential basis, it registered a degrowth of 4%. We continue to add new projects in this business and further focus on increasing our pipeline by bidding for new projects in this segment across municipalities. Municipal solid waste processing projects, that's the second one what we do. We have 2 large ongoing projects, 1 in Kanjurmarg, Mumbai, which has a construction agreement until 2036. Second is Pimpri Chinchwad, Pune another construction agreement until 2040. The volume of this business grew by 34% in Q1 FY '22 as compared to Q1 FY '21. However, all sequential basis it degrew by 3%. Both our sites at Kanjurmarg and Pimpri Chinchwad base [ 2 energy contracts ] continue to perform in line with our expectations. So as you see that we have a record growth in profit in business revenue as well as EBITDA and profit. So this has been very good for our company. And further, I'll go ahead on update on the Pimpri Chinchwad waste to energy that work in progress is progressing at our site as per schedule. The [ seal ] work has already commenced in March 2021, and ancillary work order has been issued. As expected, with the time line commentary to our client, we should have the waste to energy plant fully commissioned on or before March 2023. This is after taking into consideration the time delay due to COVID pandemic-related commercial activity shutdowns. A further update on when actually the project will be fully operational from mid-October. Work has already started and [ the authority ] services to approximately 60% of the city. And during the last quarter, we had announced the new project of biomining our legacy waste in Greater Noida, which is the first time we have [ won ] a legacy base contract for biomining, though we are doing biomining in Kanjurmarg, this is a part of our technology. The mobilization work has already started, and we expect commercial operation to kick off from mid-September. We are seeing good traction in our composting. Customers are accepting our product very well. During quarter Q1 FY '22, our composted waste stood at 4,850 tonnes, which is at a similar volume compared to Q4 FY '21. However, on a year-on-year basis, it registered a growth of more than [ 5 70% ]. We have doubled our material [ tag ] capacity, which was commissioned during Q1 FY '21. So basically, we have increased the capacity of compost production, and there's a good [ land ]. And that is the reason we are seeing this exponential growth. Recently, CRISIL assigned CRISIL A2 for short-term bank facilities and CRISIL BBB+ stable for long-term bank facility of our material subsidiary, Antony Lara Enviro Solutions Private Limited. The improvement in our overall credit rating has led to reductions in our average cost of borrowing at a consolidated level from 12.4% as of March 31, 2020 to 10.6% in Q1 FY '22. So I'll hand over to Mr. Subramanian, our group CFO, and he will take it on further.

Yes. Thank you, Jose, and good afternoon to all. I would like to welcome, again, everyone to this conference call to discuss our first quarter results of fiscal year 2022. As noted in our business update, a broad-based trend on a year-on-year basis to our performance across the board during the reporting period. The total consolidated revenue and adjusted EBITDA has increased by 56.7% and 55.1%, respectively, on a year-on-year basis. The increase primarily reflects continued improvement in pricing and volume growth. The growth being reflective of the spend in commercial activities in the areas where we provide services. The profit before tax for quarter ending June '21 stood at INR 28.3 crores, this compares against INR 12.2 crores in the June 2020 quarter. And the profit before tax margin has also improved to 18.9% during the quarter. Profit after tax at consolidated level stood at INR 22.4 crores for the quarter as compared to INR 11.3 crores in the year ago period. Coming to business-wise performance. The collection and transportation revenue is up by 54% year-on-year at INR 94.7 crores. The growth being on account of increase in total C&T volumes by 45.8% and coupled with an incremental revenue from the new project of Varanasi, which is still not fully operational. On a sequential basis, revenue from C&T is up by 15%. The [ MRF ] processing revenue is up by 45% at INR 36 crores as compared to INR 24.8 crores in the year over quarter, reflective of the improvement of 35% year-on-year in wage processing volumes from our Kanjurmarg and Pimpri Chinchwad waste-to-energy sites combined. These trends are reflected in a trailing 12-month average adjusted EBITDA margin of 27% and helped reported trailing 12-month revenue of INR 535 crores at a consol level. On the balance sheet front, net debt to equity as of June 2021 is 0.1x. The total debt as of June 2021 stood at INR 145 crores and our net worth has improved to INR 473 crores. A word on our receivables. Despite the financial stress due to the pandemic-related expenses and also compounded by declines in property tax collection and other revenue sources drying out, the municipal authorities have reduced their nonplanned expenditures and have prioritized payouts to essential service providers like waste management and primary health care service providers. This is reflected in the improving DSOs. For us, this has improved from a high of 71 days in June 2020 to 56 in June 2021. Once things stabilize, and we are back to conditions similar to pre-COVID times, we expect our receivables to revert to mean historical levels. I would also like to point out the following, as mentioned by Jose, our major subsidiaries, banking agency has credit rating has been assigned as BBB+ by CRISIL. Our weighted average cost of borrowings has come down to 10.6% versus 12.4% in FY '21, and we continue to work on this front. Another highlight of the event is post the quarter end, the company has realized INR 11.19 crores of retention held by our client as per contract terms. These are normally reported as long-term receivables from our clients and a directive from us billing as per tender conditions. In the past, certain sections of the investor community have raised concerns about such reductions and [ have hold ] this development a laser apprehension. That's it from my end, and I will open the floor for Q&A.

[Operator Instructions] The first question is from the line of Faisal Hawa from H.G. Hawa and Company.

Congratulations on a very good set of numbers and a very good recovery. Having executed such a complex project in consumer with the help of a JV partner, do you feel that if any such project comes up of a similar magnitude, we can now do it alone without the JV partner? That's one. And second is, is there some development on the -- any kind of municipalities doing to ensure that a lesser amount of waste goes into the sea and are we trying to develop some solutions for that?

So in waste processing, we have been doing for the past 5, 6 years, our company has reached a stage when we can execute similar projects, even without the support of a JV partner. But waste processing is not really confined to the 1 what we are doing composting technology. That's waste to energy, a different technology and even biogas. So depending upon our clients' requirement, we will look forward whether we go for a JV. If we need a technical assistance or we go all alone, so that is up to waste processing. And second question is, so on ensure waste being generated from municipality, that there's always a long-term plan that the waste generation from city should reduce because of the stress that is added onto the environment. So as of today, we don't see any concrete or substantial changes that are happening in the environment to reduce the inflow of waste or the generation of waste. So Mr. Hawa, on that aspect, the status quo remains.

In the Pune execution of the waste-to-energy project going?

It's going fine. And the civil work is full swing. And by March 2023, it will be operational.

Mr. Faisal, does this answers your question? Hello?

Answers my question.

The next question is from the line of Arun Kejriwal from Kejriwal Research.

Couple of questions. One, between the previous quarter and now, any new tenders that have come up for bidding and where we have participated? And any progress on the same?

So yes, post in the last 4 months, I will not be able to be specific in the last since the last quarter and this quarter. But over the last 4 months, we have seen a flow of contracts from a lot of city state capitals, and we have tendered our opinion and interest for 6 of them. We are still in the discussion stage. A few of them would be like the one 1 in [ Bemini ], they've not been able to provide [ operations ] one of them there are landfill operations over there. There is a new tender for collection and transportation based in Pune. So these are the areas that we are looking at, we are not going into detail in that part.

Fair enough. Second question, sir, on the -- in terms of dividend, has the Board formulated a policy because we have a lot of cash available on the balance sheet. So is there a dividend policy that has been debated and discussed or you are still in the process of finalizing?

So we have a dividend policy which is being debated and finalized, we will be putting it up shortly on our website. So the topic is very much on the table of our discussions. So we will have that out at the earliest, sir.

Okay. And 1 final question, if I can squeeze in. Just to understand from the type of projects that have come up for bidding, what is the flavor you're getting that municipal corporations are back in business, they are still going with the idea of having private contractors? Or now that part of it is done and dusted and they believe that this is not their area of expertise?

See, as I always said, there's a Swachh Bharat program going pan-India level. And there is a lot of awareness in the municipal top bosses that -- and there's marking Swachh Bharat theme who comes and [ views ] certain marks, whether on state level and all that. So the awareness has reached to a level that every municipal corporation wants to perform. And one of the important area is municipal solid waste. So they get a good market and due to which their standard improves. So they want good players and to do which we are getting good opportunities and [ going ] net 10 to [ 58 ] years at pan-India level to have all the risk situation improve. So we as a company is at the right spot, and we feel that this business is going to grow.

[Operator Instructions] The next question is from the line of [ Rohit Ojha ], an individual investor.

Yes. You just mentioned that there is a sales end of this Swachh Bharat and also every municipal corporation wants to get better and we are in the right spot. And from the business model, it appears to be very scalable, there is an opportunity. But in 2010, we had like 10 projects, in 2016 we had 15,and now we have 16. So in the count of projects, we have not really grown at all, I would say, in the last 4-5 years. So when do you think can we hit a number like 30 for example? Is there a road map for this?

Yes, let me take this. So if you look at the past, the kind of contracts that were available were of very small sizes of less than 100 to 200 tonnes. Those are the kind of cities in the past, which are coming off or opening in those contracts. Now we are seeing contracts as of larger size and capacity and complexities that entire cities scores have been given out like the one we do in Noida or in Greater Noida or in Nagpur or PCMC. The entire city or half of the city is now given out as perfect. So we have seen that though the number may remain stagnant, the size of these projects are significantly bigger than what it was in the past. And that is a trend that we are seeing. A lot of cities are still done by the government themselves though that is getting privatized, and they're doing it in large swathes of sizes. So we do expect our number of contracts to increase, but it will not jump from existing 16 to 30 in 4 years or 5 years, it's a gradual increase that will happen. And we are still working on that part.

Okay. My next question is that I saw in the release that you've had a few completed projects, right? So that means that these were projects where we were [ yet ] December probably [ ended ND ] we did not take a renewal. So can you give some comments on what was the reason for not getting those back?

In the past, there were certain contracts that the company was doing like the cities of Poonamalle, Tambaram, Jaipur. And these were sub-economical sizes for us. Now that we're looking at a completely modernized fleet of operations and their [ efficacy mounts ]. So if the tonnage is less than 100 or 150 tonnes, I'm not able to completely utilize my [ fixed ] assets and have a fantastic [ geodesic dome ], which will help me have a higher operating leverage. So if I were to address a small portion of these markets today, this would be a very high cost to the local operators. So we would not be in a sweet spot. So that is one of the reasons why we are avoiding small cities. We are looking at large cities and the business potential in the large cities is significantly higher because less than 70% of the state capitals are privatized. So a, they are financially better off than smaller cities. And b, the size of the [ bond price ] is something that makes our returns and financial asset turn and the [ treatment that's done ] profitable.

Okay. And there have been cases where we have that we probably didn't win those contracts, historically, what has been the reason for not winning those contracts, is it possible for you to give some?

Sorry. Can you repeat that question? Your voice is very feeble.

So in past, have there been cases where we have bid but not won the contract. And what were the top reasons for not winning this contract?

So as you are aware, it is not necessary we have to win all the bids. But we have competition from companies. There are 2, 3 quality players. But our strike rate has always been good because our pricing is competitive. And we in the early players we have better chances to price a bid on a competitive side. So that is our strength.

And we also have very firm pricing discipline when we bid for these contracts because approximately 60% of my expense of total operating expense is labor and fuel. So there are very little headroom that I have for going around with a project at low cost just to win the contract. So we have a very stringent financial modeling and the financial discipline when we bid for those contracts. So in scenarios where we would not have backed the contract, it's basically is below our threshold limit of comfort.

Understood. And sir, my last question is that, do we see our margins sitting or crossing even 30% sometime now with normalization and the pricing benefits coming back. So when do you think we can exactly -- [ we saw growth ] in FY '20, I guess. So can you comment?

So the factor of EBITDA is driven by the product mix that we have. We have processing and we have C&T. So as and when we see a higher mix of processing coming into my portfolio, my margins would be better [ and that time we ] will move [ outwards ].

Okay. Thank you for explaining all these -- and leading PC [ instan ] I'd just like to say that I have seen some differences here.

[Operator Instructions] The next question is from the line of Anupam Gupta from IIFL Securities Limited.

Hello?

Yes.

Yes. So sir, on the opening remarks, you mentioned that the Varanasi and the Greater Noida project will come up over this quarter and September for the Greater Noida project. Is the Nagpur project fully ramped up or is still in the phase of ramp-up at this point in time?

Nagpur is already 100% active. I think you're talking about Varanasi.

No. So I was asking -- so Nagpur is the market which you had started last year.

Operational since December 2019 onwards, so Nagpur is completely operational for us. As Jose mentioned, Greater Noida biomining by end of September or mid-October, we'll have [ all those ] active is happening at full fledge at Greater Noida and in Varanasi.

Okay. Okay. I understand. And sir, secondly, I just wanted clarity on the proposed increase in shareholding, which you had to do in both the processing contracts. What are the status as of now there?

Also, the same thing will be completed by 30th of September, we have received almost all the documents and the same has been given to the bankers. So we will have the proportionate shareholding changes from 30th of September onwards.

Okay. Shareholding from -- so second half [ of it then ].

The next question is from the line of [ Rajesh Kumar ], an individual investor.

Am I audible?

Yes.

Hope you and your family, workers family, everybody is safe and healthy.

Yes. Yes, thank you, and the same to you.

Sir, my first question is, you have -- you mentioned in the RHP that Indian municipality solid waste is around INR 5,000 crore potential. Just wanted to note, does it cover all the Tier 1, Tier 2 cities only? Or does it have any limitation on the solid waste produced per day?

Sir, so this data is part of the study done from various sources, wherein the budgetary allocation of a lot of municipal corporations, which were available has been taken and that forms the basis for this. So this INR 5,000 crores is all inclusive of Tier 1, Tier 2, Tier 3 cities, we have disclosed these numbers under the budgetary provision under the fiscal norms.

Okay. Okay. Sir, since Antony has its own business financial stringent parameters when bidding for this tender. So keeping those in mind, out of this INR 5,000 crores, how much is for our graph, I mean how much Antony can bid for the business?

So as I said, like today with INR 5,000 crores, we have almost 10% market share, like if we see that. So what we believe is some of the municipalities are yet to prioritize their operations. Some have to modernize. So all of them are floating tenders by appointing top consultants, and we are in the process of building those tender. And we need and modernize the municipal solid waste collection and transportation. So potentials are there, and we can see business out there. But all the INR 5,000 crores bids are not going to come overnight. It will take time and months [ are like ]. So where we are [ coming wide ] we are bidding and we are taking that opportunity to grow our business.

Okay. Sir, in our list of current projects, so I don't see the major southern states, cities like Bangalore, Chennai, Coimbatore, Mysore, Hyderabad or a few other states like Orissa, Rajasthan and so on. So is that these cities are handled by our competitors? Or is there -- these cities are yet to be privatized?

See, in the Southern part, we are already doing in Mangalore. And they are in the process of modernizing. In the southern part of India, in Chennai, there's other bidders who have taken up the contract. And in our Northeast area, we may -- we usually look at -- do a due diligence whether the municipal corporation has a fund. And we believe our strategy also is to have a cluster formation. Suppose we won we win one city, we try to win nearby cities because that reduces our overhead cost and our management costs. So we -- so our strategy has been like that. If we win in one city, we look out for the neighboring city. But at the same time, we look for a good opportunity if any bids are coming up as per our standards, which has been [ talked to by ] top 4, top 5 consultant. And we have quality bidders coming in, then we'll bid for those tenders.

Okay. Sir, next question is, is it a norm that municipalities follow not to have a single win there for both collection and transport as well as the processing of the multiple solid waste? Or as a company, we don't want to have both the contracts?

It depends on the municipality. The problem is like the waste processing contracts are typically 25 years because the capital involved is high and the project [ starts ] to take at least 2.5 years. And PPP collection and transportation is 8 to 10 years. So there's a lot of mismatch. So what happens is a municipality already there's a contract signed for collection and transportation. And at that time, they will -- we cannot wait for the CMT collection transportation tenure to get over to have together the same day. So that is 1 issue. Second thing is the risk municipality thinks that it's giving 1 operator to run the entire operation can be a risk so they [ don't value it ], but at the same time, there are municipality who prefer to use single contract to 1 operator. But majority of the municipalities prefer to have 2 separate contracts.

So it is not the policy of the company, but it is the policies of the respective municipalities.

Absolutely. It is not the policy of the company, it is the municipal conditions.

Okay. Sir, this -- like in C&T contracts, this MSW processing contract periods are also extendable?

Currently, we have not seen any such contracts getting extended because these are normally long-dated contracts, and we have yet to see an operator complete a single large long-durational contract yet. It's only since 2008 have we seen such waste processing contracts being awarded in the country.

So as operator, we are yet to face that situation.

Yes, we have not, because it is a 25-year contract, and we don't know what is going to happen after. We have not seen anybody else.

We haven't seen a complete cycle.

Sir, unlike the C&T and waste processing projects, the biomining projects seem to be short duration projects. So is there any chance that they could also contribute sizable revenues in the near future?

Yes. So we have taken up 1 contract in Greater Noida for biomining and typically these contracts are for 2, 2.5 years. And there are a lot of bids coming around for biomining, a few of them here and there. But we analyze and we see whether it is good to bid or not. And based on those things we bid. So there are -- these are the 3 businesses where revenue can increase.

Okay. Sir, particularly in the case of Greater Noida, we did not have any prior experience. So -- but still, we have won that order. So what are the basis for winning that order?

No. We have an experience. We are in Kanjurmarg project, what we do, it's a biotal [ land ] so there is a biomining experience already because that technology includes biomining.