The Rs 300-crore initial public offering (IPO) of the municipal solid waste services provider Antony Waste Handling Cell opened for subscription today. The company has fixed the price band at Rs 313-315 per share for the issue which closes on December 23.
In March 2020, Antony Waste had launched its IPO of around Rs 200 crore, but due to tepid investor response and extremely weak markets, the IPO failed to get sail through.
The company proposes to utilise the fresh proceeds of the issue for part-financing for the waste-to-energy project at Pimpri Chinchwad through investment in its subsidiaries, reduction of consolidated borrowings of the company d general corporate purposes.
The offer consists of a fresh issue of Rs 85 crore and an offer for sale of 68,24,933 equity shares by existing shareholders.
Most brokerages advise caution on the IPO and suggest only high-risk investors invest in it on the back of dependency on municipal authorities for a major portion of the revenue.
Here’s what brokerages say:
As per the brokerage, the firm is looking to capitalise on the growth opportunities in the municipal solid waste (MSW) management sector by continued focus on bidding for such projects.
“It is dependent on municipal authorities for a substantial proportion of its business and revenue. Also, it is dependent on a limited number of customers for a significant portion of its revenue. The loss of any of its major customers due to any adverse development or significant reduction in business from its major customer may adversely affect its business,” the brokerage advises.
A high-risk taker may opt for the issue, it added.
“At the higher price band of Rs 315 per share, the company’s share is valued at a P/E multiple of 26.1x, which is at discount to the peer average of 32.7x. One of its global peers, Waste Management Inc. has acquired Advanced Disposal Services Inc. at an enterprise value of $4.9 billion. Considering these transaction multiples, the valuation demanded by Antony Waste seems to be attractive,” noted the brokerage.
However, it added that considering the macros of the sector, valuations, and concerns on the receivables, the brokerage has a ‘subscribe with caution’ rating for the issue.
The brokerage recommends subscribing to the issue on a near term basis. It believes the firm may see reasonable listing gains given strong market sentiment and enormous outperformance of the recent public issues.
However, the brokerage is cautious on its long term growth on the back of large dependency on projects from State government, unstable budget allocation for MSW management, highly competitive market (with the presence of local, national and global players), and still emerging business model.
“For Antony Waste Handling Cell to grow its business it needs to win new contracts from municipalities. The top 5 clients contributed 81.8 percent of the revenue of the fiscal year 2020. So in the future if a company is not able to win an existing major contract again, it will impact the financials adversely,” noted the brokerage.
Further, “the business involves receivables risk from municipalities, which restricts future growth opportunities. Financial conditions may be adversely affected if new municipal solid waste projects are not awarded to the company. So considering the valuation of P/E of 11.5x on FY20 basis (at the upper price band), we recommend Neutral rating on the issue,” it added.
Geojit Financial Servcies
The brokerage recommends subscribing to the issue from a long-term perspective on the back of attractive valuation, healthy margins, improving revenue generation and the increasing relevance of waste management.
“Antony Waste Handling Cell Ltd (AWHCL) is one of the top five players in the Indian Municipal Solid Waste (MSW) management industry providing services across the country with an established track record of more than 19 years,” Geojot noted.
The long-term nature of projects (ranging from 5-25 years) gives visibility for consistent revenue generation in the future, however, dependency on municipal orders can impact its working capital cycle, it added.
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