Listing gains peg up valuation for Antony Waste Handling Cell

Investors who got allotment in the IPO of Antony Waste Handling Cell (Antony) witnessed an auspicious start for the year 2021. The company, which is engaged in collection, transportation, and management of Municipal Solid Waste (MSW), made a sterling debut in the stock market on Friday, at ₹430 a piece — up 37 per cent from its offer price of ₹315. Further, the stock inched up another 15 per cent intra day and touched a high of ₹492.75. It is now trading at around ₹450.

At the issue price, the company was valued at about 14.4 times its FY20 earnings and at an enterprise value of about 6.8 times its FY20 EBITDA.

Post the listing gains, the stock now trades at about 21 times its FY20 earnings (enterprise value of 9.7 times its FY20 EBITDA). Given its good revenue visibility and healthy profit margins (that are likely to sustain), long-term investors can continue to hold the stock at the current valuations. Investors who wish to freshly accumulate the stock now, are however, advised to wait for corrections, given the run up.

The stock is only for investors with high risk appetite. This is because of key risks such as the small cap nature of the stock (current market capitalisation is at about ₹1,300 crore) and dependence on Municipal budgetary allocations for its receivables (resulting in stretched working capital cycle).

Market rally helped

The company had first offered its shares to public in March, which saw tepid investor interest. Hence, the company had to withdraw its offer then. Besides the weak market conditions, the company’s fundamentals were saddled by weak revenue growth (from FY17 to FY19) and long pending receivables.

In December, the company came with a revised offer price (up 5 per cent from the price offered in March) and enhanced fresh issue size (₹50 crore higher than previous offer), in a bid to cash-in the current buoyancy in equity markets.

Besides, the company also won three new projects (in Pimpri-Chinchwad, Noida and Nagpur) in 2018-19, that began generating revenues in FY20, as a result, the company’s top line spiked by 59 per cent (Y-o-Y) in FY20, to ₹451 crore.

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The long-term nature of the company’s projects (average tenure of 7-8 years; 23 years in the case of MSW processing), coupled with the built-in escalation clauses (in about 77.8 per cent contracts), provide both revenue visibility and scope for sustained margins, going ahead.

That apart, given the Centre’s thrust on its flagship projects such as Swachh Bharat Mission, could provide further fillip to the Municipal solid waste processing industry. The Centre has devised a new ranking system for Municipalities under the Swachh Bharat Mission, based on their cleanliness quotient.

Also, the company has shown improvement in collections of long-pending receivables (considered recoverable) from Municipal corporations — brought down to ₹13.5 crore in FY20 (just 3 per cent of revenues), from ₹28.5 crore in FY19.

All these seem to have augured well with investors. Both retail and HNI investors subscribed the issue (in December) by more than 15 times. The IPO size was about ₹300 crore comprising both a fresh issue of ₹85 crore and shares offered for sale by Mauritius-based private equity firms Leeds, Tonbridge, Cambridge and Guildford.