Antony Waste Handling Cell: Business Analysis

Summary

An emerging player in a niche segment of waste collection, transportation and processing, Antony Waste Handling Cell is a play on rising urbanization and the ensuing waste generated due to our carefree lifestyle.

Antony Waste Handling Cell Limited (AWHCL) is a leading player in the Municipal Solid Waste (MSW) industry with an established track record in handling large projects. AWHCL is present across full spectrum of MSW services which includes solid waste collection, transportation, processing and disposal services across the country, primarily catering to Indian municipalities.

AWHCL primarily undertakes:

• MSW C&T projects which involve door to door collection of MSW from households, slums, commercial establishments and other bulk-waste generators (community bins) from a designated area through primary collection vehicles like compactors, dumper placers and tippers and transportation of these materials, to the processing facility, transfer station or a landfill disposal site.
• MSW processing projects which involves sorting and segregating the waste received from MSW C&T, followed by composting, recycling, shredding and compressing into RDF, as required.
• Mechanized sweeping projects which involve deploying of power sweeping machines, manpower, comprehensive maintenance, consumables, safe disposal of the waste and any other items required for completion of the cleaning operation of the designated areas, through ourselves and/or our Subsidiaries.

AWHCL has been operating for over two decades and has undertaken 25+ projects until now. AWHCL started with a simple business of collection and transportation of waste and with time, by adoption of latest technologies and innovations, it transformed the business itself into a complex operation system with the use of technologies in garbage compaction, processing, use of transfer stations, management of sanitary engineered landfills. AWHCL is currently undertaking projects for the Municipal Corporation of Greater Mumbai, the Navi Mumbai Municipal Corporation, the Thane Municipal Corporation, Pimpri Chinchwad Municipal Corporation, the North Delhi Municipal Corporation, the Mangalore Municipal Corporation, New Okhla Industrial Development Authority, Jhansi Smart City Ltd among others.

A Look at the MSW Industry:

The world generates 2.01 billion tonnes of municipal solid waste annually, with 33% of that not managed in an environmentally safe and sound manner. Waste generated per person per day averages 0.74 Kg worldwide. High income countries account for 34% of total MSW generated while their contribution to global population is only 16%.

Municipal waste generation is largely influenced by economic development, local climate, and level of industrialization and public habits. Waste composition in developed countries typically has higher share of inorganic materials such as plastic, aluminium etc. as compared to organic materials. Low-income countries are typically organic waste producers.

Waste Collection & Processing:

Waste collection and processing varies with income level of countries. High income countries have more than 90% waste collection efficiency because of sophisticated and technology driven collection processes. Low-income countries, on the other hand, have less than 50% collection efficiency.

Waste processing also varies with income levels of countries. High income countries tend to favour recycling and Waste-to-Energy (WTE) generation. Low-income countries, predominantly, engage in open dumping. A point to note here is that, globally, around 44% of the total MSW is treated through scientific and controlled landfilling technology.

The Indian waste management services market is in its growth stage aided by favourable government policies and environmental consciousness. Growing urbanisation, influx of rural populations to towns, rising per capita income and improving standard of living has made it extremely important for the government to focus on MSW management. The government coming out with Swachh Bharat Mission and Smart City Mission, among other schemes, has provided necessary tailwinds to the industry.

Aided by the above initiatives, the Indian MSW management market is set to double from 5000 crores in 2020 to 9800 crores in 2025.

Municipal Solid Waste Management Value Chain:

Municipal Solid Waste management (MSWM) starts with generation of waste at source, followed by collection & transportation, storage, treatment and disposal.

• Waste segregation is one of the most important steps. It involves separation of organic waste from recyclables and inert materials. Organic waste and recyclables are then transported to a waste processing facility. Inerts and other types of waste are sent to landfills/open dumpsites for final disposal.
• Waste processing facilities produce compost from organic matter and refuse-derived fuel (RDF) from recyclable materials. RDF is used as a fuel source in cement kilns or other facilities where boilers are used to burn RDF as fuel and generate power. Rejects from compost, RDF and waste-to-energy plants are eventually sent to landfills.
• Composting is the most widely used processing techniques in India. This because of high content of bio-degradable waste in India’s municipal waste and second is the relatively low capex required to setup such waste processing plants as compared to gasification, pyrolysis or incineration plants. In most Indian cities, share of organic waste is typically more than 50% which makes composting the first choice for Municipal Corporations.
• Biomethanation refers to anaerobic fermentation of bio-degradable waste in an enclosed space. Waste segregation is of utmost importance for success of a biomethanation plant, since this technology is not suitable for mixed waste.
• Refuse Derived Fuel (RDF) refers to residual dry combustible fraction of municipal solid waste such as leather, paper, textile, rubber, non-recyclable plastic etc. RDF can be used as fuel in cement kilns and other energy intensive processes.
• Scientific Landfills – Untreated open-dumping of waste has triggered serious land availability issues hence, scientific landfill construction is of utmost importance. There is an opportunity in converting traditional landfills into professionally manged scientific landfills.
• Waste-to-Energy – WTE is an emerging area in India wherein MSW is treated and used to generate energy.

Investment Arguments:

Growth Market, Ample Opportunities

The MSW management industry is in its growth stage in India and is expected to double in size from 5000 crores in 2020 to 9800 crores in 2025. Municipal waste generation is set to increase from 75 million TPA in 2020 to 115 million TPA in 2025. Currently, only 25% of MSW is processed in India while government has set a target of achieving 100% processing of MSW. Government reforms like Swachh Bharat Mission, Smart City Drive along with other favourable policies are also beneficial for AWHCL. This presents ample opportunities for an established company like AWHCL. Rising urbanisation and improvement in standard of living are some of the factors that will drive the MSW management market in times to come.

Strong Track Record of Project Execution with Focus on Efficient Operations

AWHCL undertakes specialized MSW C&T projects, MSW Processing projects and mechanized sweeping projects for municipalities and private players. AWHCL has undertaken more than 25 projects and thus has the capability to handle large-scale projects for municipalities and private players. Presence along the full spectrum of MSW management from collection to processing and disposal puts AWHCL in a sweet spot to bid for larger projects. Experience, credentials & financial strength makes AWHCL eligible to bid for most projects in MSW sector.

AWHCL currently has a fleet of 1754 vehicles, most fitted with GPS. Active monitoring of fleet leads to their optimal usage ensuring efficient operations and cost controls.

Cluster Based Approach to Aid Growth

AWHCL has followed a cluster-based approach in bidding for projects. The company currently has 5 ongoing projects in MMR region and 6 ongoing projects in NCR. AWHCL will continue to focus on bidding projects in new states in clusters to increase profitability and efficiency. AWHCL plans to pursue a broad range of projects in urban or semi-urban areas with limited counter-party risks and healthy operating margins. Varied timelines across projects also provides a staggered revenue stream to AWHCL.

Emerging Waste Management Area Provides Opportunity to Move Up the Value Chain

MSW based WTE and E-waste recycling are emerging waste management areas in India. The Indian waste-to-energy market is in its nascent stage and holds huge potential in the long run. With increasing energy demand and government initiatives, waste-to-energy market is anticipated to see more PPP (Public Private Partnership) based projects.  With assured raw material and a power off-take agreement, the business offers limited risks and will help in improving predictability of AWHCL’s cash-flows.

Processing projects involve sorting & segregating waste received from MSW C&T, followed by composting, recycling, shredding and compressing into RDF. Revenue calculation is based on Per hectare/ Km/ hour. 

Kanjurmarg Project - The company's Kanjurmarg project handles 5,300 TPD of MSW with capacity of handling ~7,500 TPD of MSW. The site is handling 60% of the waste generated in Mumbai. 

Pimpri-Chinchwad Project - The project involves segregation and recovery of municipal waste, processing compost and producing energy which will be sold to PCMC at Rs. 5 / unit.

Financials

Sales/EBITDA/PAT has clocked a CAGR of 22%/16%/23% respectively in the last 5 years. EBITDA margin contracted in FY22 due to wage hikes and higher fuel costs which the company couldn't pass on time to the municipal corporations. Stable state EBITDA margins for the company should be ~25%. 

Debt/Equity ratio at 0.4x is comfortable with interest coverage of 6x. The company has taken some debt to fund the capex for PCMC WTE project. The company has been delivering consistent double digits ROE/ROCE with FY22 figure at 16%/19% respectively. 

Risks

As the company deals with municipal corporations, there is always a chance of delays in payments, difficulty in passing cost escalations among other things. Last year, Income Tax department conducted searches at the company and while nothing has come out of the search since then, it continues to be an overhang on the stock.