It is among the select few who have pioneered in MSW collection and transportation sector. The Company primarily undertakes: (i) MSW collection & transportation(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. (ii) 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. (iii) 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 itself and/or its subsidiaries.

As of November 15, 2020, the company has a fleet strength of 1,147 vehicles and 7,391 full-time employees on consolidated basis. Ongoing projects as of Nov 15, 2020 were about 18 and of which about 12 are MSW C&T projects, four mechanized sweeping projects and two MSW processing including WTE projects.

The company currently operates one of the largest single location waste processing plants in Asia, with a combined capacity of 5,250 tonnes per day (tpd) as on December 31, 2019. The company was awarded Kanjurmarg landfill project by MCGM in the Fiscal 2010. The project involves, inter alia, design, construction, operation and maintenance of integrated waste management facilities on Design, built, own, operate and transfer (DBOOT) basis. It is being undertaken by Antony Lara Enviro Solutions Private Limited (ALESPL), which is a jointventure between the Company and Lara Central De Tratamento De Residuos Ltd. The Kanjurmarg site in Mumbai is a key success story of scientific landfill in India. It is one of the largest single location waste processing plants in Asia. As on November 15, 2020, the site has a bio-reactor landfill with a capacity of 4,500 tpd, and a sanitary landfill of 250 tpd. Moreover, the site also has a material recovery and compost facility with a capacity of 1,000 TPD. This landfill at present handles around 5000 tons of waste per day. Further, as on November 15, 2020, company's subsidiary ALESPL has been operating a 0.4 MW landfill gas-to-energy plant at Kanjurmarg facility since CY 2014, which has been upgraded to 0.97 MW with effect from June, 2019, with the electricity produced being used for internal consumption. As of November 15, 2020, the company had processed approximately 7.63 million tons (mt) of waste at its Kanjurmarg site since FY2010 and processed approximately one mt of waste during the current fiscal.

The company has undertaken or currently undertaking projects in multiple states and Union Territories such as Maharashtra, Uttar Pradesh, Delhi, Karnataka, Rajasthan, Haryana and Punjab. It is currently undertaking projects for the Municipal Corporation of Greater Mumbai (MCGM), the Navi Mumbai Municipal Corporation, the Thane Municipal Corporation, PimpriChinchwad Municipal Corporation, the North Delhi Municipal Corporation, the Mangalore Municipal Corporation, New Okhla Industrial Development Authority, Nagpur Municipal Corporation and the Greater Noida Industrial Development Authority. The company is also currently undertaking a project for Jaypee International Sports. In the past, the company has also undertaken projects for Municipal Corporation of Delhi, Municipal Corporation of Gurgaon, Ulhasnagar Municipal Corporation, Amritsar Municipal Corporation, KalyanDombivali Municipal Corporation and Jaipur Municipal Corporation. The company will continue to expand into states with high GDP, growing urbanization, high standard of living, favourable geographic and climatic conditions.

The company continues to evaluate bidding with financial and strategic partners for projects and technologies which form a part of MSW management value-chain but are not a part of its core competence. The Company, through its step-down subsidiary ALREP, has been awarded a contract for setting up and operating a WTE plant having a capacity of up to 1,000 tpd by PCMC. Its subsidiary ALESPL has been operating a 0.4 MW landfill gas-to-energy plant at Kanjurmarg facility since the year 2014, which has been upgraded to 1.37 MW with the electricity produced being used for internal consumption. The company intend to continue to bid for commercially viable WTE projects from financially strong municipalities and private players.

The IPO consists of two parts, i.e., offer for sale (OFS) of 68,24,933 equity shares by existing shareholders (PE investors) and fresh issue of equity shares aggregating upto Rs 85 crore. The OFS comprises up to 13,90,330 equity shares by Leeds (Mauritius); up to 20,85,510 equity shares by Tonbridge (Mauritius); up to 11,58,667 equity shares by Cambridge (Mauritius); and up to 21,90,426 equity shares by Guildford (Mauritius). On post issue expanded equity capital (on upper price band) the shareholding of selling shareholders stands at 0% for both Leeds (Mauritius) & Tonbridge (Mauritius) and 6.83% and 12.91%, respectively,for Cambridge (Mauritius) and Guildford (Mauritius).

The company proposes to utilize the net proceeds (from fresh issue of equity) towards 1) part financing for PCMC WTE project through investment in its subsidiaries, AG Enviro and/or ALESPL. 2) Reduction of the consolidated borrowings of the company and subsidiary by infusing debt in its subsidiary AG Enviro Infra Projects for repayment/prepayment of portion of their outstanding indebtedness and general corporate purposes.

Of the project cost of Rs 228.27 crore of PCMC WTE Project, the company intends to part finance through an investment of Rs 40 crore from the issue proceed in its subsidiaries, AG Enviro and/or ALESPL. The balance issue proceed of Rs 38.5 crore will be used for reduction of consolidated borrowing of the company.

Strengths

The company, in MSW management, has demonstrated track-record as a comprehensive service provider equipped with the resources to handle large-scale projects for municipalities as well as private players. The company provides full spectrum of MSW services which includes solid waste collection, transportation, processing and disposal services across the country. The company has so far undertaken more than 25 projects successfully as of November 15, 2020.

Currently, the company has 18 ongoing projects and of which about 12 are MSW C&T projects, four mechanized sweeping projects and two MSW processing including WTE projects. And all these 18 ongoing projects are currently revenue generating. Moreover, the current project portfolio is diverse in-terms of project duration, nature of contracts, counterparties as well as geographical areas where it operates apart from kind of service offered. For example, as of November 15, 2020, five of the ongoing projects clustered around the MMR and another six ongoing projects clustered around NCR regions. Its project contracts have different time periods, and thus expire at different times, thus giving it a staggered revenue stream. Further, the average duration (considering the extensions, which have already been provided in the ordinary course of business) of the ongoing MSW C&T projects, Mechanized Sweeping projects and MSW Processing projects are 7.7 years, 7 years and 23 years, respectively.

Currently about 77.78% of current ongoing projects have an escalation clause embedded in the contracts with clients for escalation in expenses towards materials, labour, equipment/vehicles expense and other material inputs. The company focuses on contracts with pass-through for escalation in certain expenses such as labour and fuel.

Traditionally in India, municipal waste management services have been controlled by relevant municipal corporations with only 30-35% being managed by professional waste management players. While the trend toward privatization has grown slowly since CY 2013, it is expected that more and more municipalities will move towards privatisation in coming years with the Central government's push (through Swachh Bharat Mission and Smart City Mission). Construction and maintenance of sanitary landfills is a long-term opportunity in India. Landfills are a vital component in the integrated management of solid waste for cities having population more than one million. The MSW Management market is estimated at Rs 50,000 million for FY2020 and is expected to reach Rs 98,000 million by FY2025 at a CAGR of 14.4%. MSW generation is expected to grow at a CAGR of 8.9% (FY2020-25) to reach 115.00 mt per annum by FY 2025.

Weaknesses

The MSW management industry largely depends on municipalities of the Country, which outsource this service to private players on a competitive tendering basis. The municipalities in India lag in maximizing own revenue generation through taxes, user fees and other fees as well as advertisement revenues and, consequently, on an average generate only 39% of the funds they spend. Hence, municipalities are highly dependent on state and Central grants and budget allocation to fund civic activities as well as various infrastructural projects. So, any adverse changes in municipal policies, expenditures or fund allocations may lead to agreements being restructured or renegotiated or terminated and could materially and adversely affect business, financial condition, and results of operation.

The contribution of top five clients that stood at89.8% in FY 2017 increased to 90.8% in FY2018 and further to 93.7 in FY2019. But it came down to 81.76% in FY20 and further down to 77.55% in H1FY2021. The share of contribution to revenue by top five clients though on decline reflecting broad basing of revenue it is still high at over 75%.

The MSW management industry in the country is highly competitive with approximately 20-30 participants offering various services. Some of the MSM services and segments are not technology intensive and, thus, many infrastructure and environment services companies are present in this market. Logistics companies are also present in this market providing only transportation and fleet management services.

The MSW management industry in the country is working capital intensive business. Further, typically 5% or more of the contract value is generally withheld by the client as security deposit / performance security and is released only upon the evaluation of the work or the completion date. The working capital as a percentage of total revenue was 10.87%, 14.34%, 18.22% and 42.19% for FY2018, FY2019, FY2020, and for the six-month period ended September 30, 2020, respectively. The trade receivables of the company for FY 2020 and for H1FY 2021 was Rs 113.033 crore and Rs 110.067 crore, respectively.

Of the 17 ongoing projects as on January 1, 2020, there are two MSW processing (including WTE) projects and the company does not have any experience in executing a WTE project. The WTE project has been recently awarded to the company.

AG Enviro, the subsidiary of the company, during the FY2019 had two instances of defaults, each of less than 30 days in respect of its borrowings from ICICI Bank and Kotak Mahindra Bank, which were subsequently repaid. In addition, certain loans require the cash inflows from projects to be deposited in escrow accounts opened with lenders and the proceeds to be utilized in a manner as agreed between such lender and the company.

Closure/partial closure of commercial activities due to the COVID-19 pandemic has resulted in significant decline in MSW tonnage for the company. So, in contracts where the company is paid as per MSW collected got a hit. The company has made applications to various municipal authorities with respect to the compensation to be received for the period under lockdown. While MCGM has passed an order to make payments on the minimum average tonnage for certain period in case of actual tonnage collection being lower than the minimum average tonnage subject to certain conditions, there can be no assurance that other municipalities will also pass such an order.

As per the financials reported in prospectus, consolidated revenues were sluggish and net profit came down during FY 2017 to FY 2019.

Pledged 100% of the promoter's (Antony Waste Handling Cell Limited and Lara Central De Tratemento De ResiduosLtda) shareholding in Antony Lara Enviro Solutions Private Limited, subsidiary of holding company.

Valuation

Consolidated revenues of the company for FY 2020 were up by strong 59% to Rs 450.51 crore on the back of commencement of work on new projects won and increase in scale of operations. Higher sales together with 100 bps expansion in operating profit margin (OPM) to 27.9%, the operating profit was up by sharp 65% to Rs 125.56 crore. After accounting for lower other income, higher interest and higher depreciation, the PBT was up by 79% to Rs 85.17 crore. With EO expense being Rs 3.22 crore compared to nil in corresponding previous period, the PBT after EO was up by 72% to Rs 81.96 crore. With taxation stand higher by 53% to Rs 19.88 crore, the PAT was up by 79% to Rs 62.08 crore. Eventually, net profit after minority interest was up by 54% to Rs 42.28 crore with 54% increase in minority interest to 19.79 crore.

For the six months ended September 2020, which had the impact of COVID-19 pandemic, the consolidated revenue was Rs 207.39 crore, a fall of 8% on an annualised basis. With the OPM at 25%, operating profit was Rs 51.89 crore, a fall of 17% on an annualised basis. Eventually, Pat after MI was Rs 19.64 crore, a fall of 7% on an annualized basis.

The company originally come out with an IPO in March 2020, with an offer price of Rs 295-300, but withdrew and has now come again with a higher offer price of Rs 313-315.

For FY2020, the consolidated EPS on post issue equity was Rs 15.8. The TTM EPS for the period ended September 30, 2020, was Rs 13. The upper price band of Rs 315 discounts the FY20 and TTM EPS by 19.9 times and 24.2 times, respectively. There is no other comparable listed company.

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