Company is targetting 25% revenue on core revenue which is around 800 Cr. So, after 2 years, you can model revenue to be around 1200-1300 Cr
2 Likes
Thanks Yogesh. After 2 years if they have been able to grow at 25% cagr as they say, with 1250 Cr revenue, the EPS comes down to ~44.
The cases then are:
15 PE: 528
20 PE: 880
25 PE: 1100
If we believe them & they grow for 4 years from here at 25% cagr, with revenue growing close to 2200, EPS might be somewhere close to 95. Then the cases would be as follows:
15 PE: 1500
20 PE: 2000
25 PE: 2500
Even at 17-18 TTM PE, there is not enough margin of safety it seems.
4 Likes
Last 3 years company has made very good development in terms of contracts and waste to energy plant but no change in top-line since last 3 years. Can the 25% CAGR guidance be believed?
3 Likes
Great question. Itâs not easy to believe them but 3 things we can compare.
- If we look at the whole recycling, waste processing industry, almost everyone is growing at 20% plus.
- If we look at the developed world, the waste management companies have grown a lot over the years. Especially in the US, there are good businesses which are way bigger than AWHCL & even today at the size of 300 times of Antony Waste, still growing at >10%. Which means these businesses can grow really well & make money for shareholders.
- In India opportunity size is huge & there is tremendous optionality as well.
Of course there are risks & we canât ignore them but can they grow? They definitely can. Will they grow? Only time will tell.
3 Likes
Did not understood your thesis. If EPS is close to 100 and a PE of 25 is given. Stock price would be 2500. Current price is close to 700. Itâs 3.5 times jump in next 4 years. From current price CAGR would be 35%+
What margin of safety is not there?
3 Likes
The numbers are optimistic & based on what management is guiding for. So the 25 PE & 25% earnings growth is kind of bull case. 15% sort of earnings growth if happens as there could always be uncertainities plus B2LocalGovernments risk can easily bring the PE to sub 15 levels. Now calculate once for that scenario which could be a bear case & then see if we have enough margin of safety.
3 Likes
I am an investor in this company. My base conviction was based on stickiness/longevity of the business, since contracts are usually long term, push towards clean India and high entry barrier - capex needs.
Now after the latest concall Iâm thinking otherwise, with such low return ratios the growth would not make any sense.
They need bigger project for 25% cagr, which looks doable, but they will also require capex for the same.
Where is this capex going to come from ? Return ratios are so low internal accruals canât support it.
Either equity will be raised which will destroy value for us. or
New loans will be taken which is going to increase interest charges. New assets once moved from cwip, will give higher depreciation charges. Your PBT calculation will shrink.
Iâm still holding it, but the long term prospect doesnât look good. I guess growth of a business with low return ratios cannot create value. Both have to be present.
Might be completely wrong in what Iâm thinking, welcome other views.
8 Likes
Same with me. Not sure if it makes any sense in sitting in a business for long term where return ratios are either going to decline or stay the same at a low level. In this case the management clearly said that ROE will be around 9% which is currently close to 16%. For us to make money, I guess they will have to grow at a much higher rate than 25% for the next 5 years so that dilution and/or debt donât have much impact. I ran some rough calculations for scenarios which could be wrong but still posting here.
A. Equity dilution with 20% revenue cagr :
- Current market capitalization: âš1774 crores
- Current share price: âš621
- Current debt-to-equity ratio: 0.4
- Current interest coverage ratio: 4.5
- Current ROCE: 14%
- Current ROE: 9% (projected)
Bear Case (15% CAGR):
- Revenue growth: 15% CAGR
- Debt-to-equity ratio: 1.0
- Interest coverage ratio: 2.5
- ROCE: 10%
- ROE: 7%
- Share price appreciation: 5-8% CAGR
Base Case (20% CAGR):
- Revenue growth: 20% CAGR
- Debt-to-equity ratio: 0.6
- Interest coverage ratio: 3.5
- ROCE: 14%
- ROE: 9%
- Share price appreciation: 15-18% CAGR
Bull Case (25% CAGR):
- Revenue growth: 25% CAGR
- Debt-to-equity ratio: 0.2
- Interest coverage ratio: 5.5
- ROCE: 16%
- ROE: 10%
- Share price appreciation: 22-25% CAGR
Equity Dilution Case (20% CAGR):
Assuming 10% equity dilution in the next 2 years to fund growth initiatives.
- Revenue growth: 20% CAGR (boosted by dilution-funded growth)
- Debt-to-equity ratio: 0.5
- Interest coverage ratio: 3.8
- ROCE: 14%
- ROE: 8.5% (diluted)
- Share price appreciation: 13-16% CAGR (reflecting dilution)
Sensitivity Analysis:
| Scenario | 5-Year CAGR | Share Price (âš) |
|---|---|---|
| Equity Dilution Case | 12-15% | 943-1,243 |
| Base Case | 15-18% | 1,153-1,533 |
| Bull Case | 20-23% | 1,533-2,083 |
| Bear Case | 5-8% | 797-943 |
B. Debt funding with 20% revenue cagr:
- Current market capitalization: âš1774 crores
- Current share price: âš621
- Current debt-to-equity ratio: 0.4
- Current interest coverage ratio: 4.5
- Current ROCE: 14%
- Current ROE: 9% (projected)
Bear Case (15% CAGR):
- Revenue growth: 15% CAGR
- Debt-to-equity ratio: 1.5
- Interest coverage ratio: 2.0
- ROCE: 10%
- ROE: 7%
- Share price appreciation: 5-8% CAGR
Base Case (20% CAGR):
- Revenue growth: 20% CAGR
- Debt-to-equity ratio: 1.2
- Interest coverage ratio: 3.0
- ROCE: 14%
- ROE: 9%
- Share price appreciation: 15-18% CAGR
Bull Case (25% CAGR):
- Revenue growth: 25% CAGR
- Debt-to-equity ratio: 0.8
- Interest coverage ratio: 4.5
- ROCE: 16%
- ROE: 10%
- Share price appreciation: 22-25% CAGR
Debt Funding Case (20% CAGR):
Assuming 50% debt funding for growth initiatives.
- Revenue growth: 20% CAGR (boosted by debt-funded growth)
- Debt-to-equity ratio: 1.8
- Interest coverage ratio: 2.5
- ROCE: 14%
- ROE: 8%
- Share price appreciation: 12-15% CAGR (reflecting debt funding)
Sensitivity Analysis:
| Scenario | Share Price (âš) | 5-Year CAGR |
|---|---|---|
| Base Case | 15-18% | 1,153-1,533 |
| Bull Case | 20-23% | 1,533-2,083 |
| Bear Case | 5-8% | 797-943 |
| Debt Funding Case | 12-15% | 943-1,243 |
C. Margin of Safety at todayâs price if 15% cagr is materialized over the next 4 years:
Method 1: Price-to-Earnings (P/E) Ratio
Current P/E: 25-30x (based on âš621 share price and âš25-30 EPS)
Projected P/E (2027): 20-25x (assuming 15% CAGR revenue growth and ROE decline to 9%)
Method 2: Price-to-Book (P/B) Ratio
Current P/B: 3.5-4x (based on âš621 share price and âš175-200 book value per share)
Projected P/B (2027): 2.5-3.5x (assuming 15% CAGR revenue growth and ROE decline to 9%)
Method 3: Discounted Cash Flow (DCF)
Assumptions:
- Revenue growth: 15% CAGR for 4 years
- ROE: 9% (declining from 14%)
- Debt or equity funding: 50% debt, 50% equity
- Cost of capital: 12%
- Terminal growth rate: 5%
DCF-based intrinsic value: âš450-550
Conclusion
Based on these valuation methods, Antony Wasteâs current price (âš621) appears to have limited margin of safety, considering:
- High P/E and P/B ratios.
- Projected decline in ROE.
- Need for debt or equity funding.
13 Likes
Hi All,
An update, I have sold out of Antony Waste. Even though the opportunity is huge, donât want growth at the cost of profitablity.
Cheers!
Akshay
4 Likes
One of the things which I have noticed in Antony is, their topline is in an uptrend if one looks from a long term perspective. A pattern which I see is they grow topline by double digits followed by low single digits and again double digits and so on. Growth for FY24 was low single digit and FY25 is likely to be similar. But from 200 odd crores in FY16, they are close to 900 cr in FY25 (referring sales in screener.in).
The risks are that of B2G business in terms of collections delay and disputes, also we know how govt contracts/tenders are won, so that is there. But the industry has a long runway. I am learning to ignore a few bad quarters as in the long term, the benefits may be better.
Edit: I like their idea of venturing in other areas like C&D, vehicle scrap, tyre recycling, I am waiting to see their execution in these areas, as these will derisk the revenues and profits to some extent. .
Disc: Invested
4 Likes
I am as well holding on to the long term, as you said management has also mentioned about the cyclicality nature of acquiring new projects, the industry is huge and potential to grow is huge.
Like EV tow wheeler market is growing exponentially right now, I believe one day EV car sales will also have a explosive growth (they have started competing with IC car pricing). at that point IC cars have to be scarped.
Antony waste handling cell is also considering getting in to EV battery recycling when the right time comes.
Disc: Invested
2 Likes
Few points to note:
- Volume growth from existing project is itself 6-8% per annum. So the idea of growing at 15-18% is plausible.
- Even if they dont get any additional projects, the company is expected to grow at 15-20% as per the management for the next 4-5 years. The management has mentioned in several interviews and con calls that they expect to repay their entire debt in the next 4-5 years.
- The compant generates over 100cr of cash from operating activities. Its credit rating has gradually improved. Therefore, it can generate ample cash and take on debt to invest in any future projects.
- Regarding competition in C&T, its not easy as it seems. Firstly, not all municipalities are financially healthy. So, one has to really pick and choose the projects. Thats where the experience of the management becomes relevant. Recently, as per the concall, the company did not bid for the chennai WTE project due to the Chennai municipalityâs bad reputation. Not just that, AWHCL has a cluster based approach that targets projects nearby existing projects, which helps to reduce costs by increasing operating efficiency.
- If they get a go ahead to build WTE plants at Kanjurmarg from BMC. My guess is, the project could easily generate revenue upwards of 250 cr, as it would be 3-4 times of PCMC.
Right question to ask is what is a good valuation to purchase this stock.
Given these growth prospects, at what price does the stock scream buy.
IMHO, PE of 15 at EPS of FY 24 i.e 450rs is a good buying price.
What do you guys think? Would be happy to discuss valuations.
4 Likes
couldnât agree more. My two cents is - C&T is a cash generating machine which will not stop for 7-8 years as it is contract based and has good barriers of entry. What they do with Waste To Energy is extra cream, which gives optionalities for the future.
D - invested since 250/300 Rs
2 Likes
What are your thoughts its peer Urban enviro waste management? It is an sme
Company with 200cr market cap. It is growing sales and profits 50%+ cagr , available at 19pe and also has positive operating cash flows. I was unable to find any red flags in it, is anyone able to figure out why is it trading at such a cheap valuation compared to its growth? No buy or sell recommendation.
3 Likes
Urban Enviro is too small to get analyst coverage. Hidden Gem? Hidden yes, Gem - time will tell.
Smaller companies are less watched and can get some leeway with regulation. Last I studied the sector, Antony had better PE than Urban Enviro at IPO.
Disclosure - not invested, chose Antony over this. Tracking initiated.
Edit - any view on management?
2 Likes
- Management overpromises and underdelivers. Theyâve guided for 20% growth in core revenue growth for FY25. In H1, it was just 5% and with H2 guidance of 15-16%, its going to be a big miss
- PAT margin is a better metric than EBITDA (EBITDA margin will look great because while depreciation is not accounted for in core EBITDA, revenue gets included in core revenue after project completion). managements PAT guidance is 10.5-11%
- One-offs will be routine, given that contracts involve govt entities.
- valuations at 25x PE are not expensive. stock price growth from here on will likely be
commensurate with earnings growth as scope for re-rating is minimal
6 Likes
Antony Waste Handling Ltd -
Q2 results and concall highlights -
Revenues - 227 vs 230 cr, down 1 pc
EBITDA - 49 vs 56 cr, down 14 pc ( margins @ 21 vs 25 pc )
PAT - 15 vs 32 cr ( due sharp jump in interest and depreciation costs )
Company is the second largest SWM ( Solid waste management ) player in India with > 20 yrs of experience in this space. Currently working on 24 projects across India. Company only targets municipalities with strong financials to reduce / minimise the counter party risks
Company operates the largest single location ( @ Kanjurmarg ) waste processing plant in Asia for Greater Mumbai Municipal Corporation. The project tenure is 2010-36 ( 26 yrs ). It handles 5800 MT of waste / day. It has a capacity to handle upto 7500 MT of waste / day
The Kanjurmarg facility has the capacity to produce RDF ( reusable derived fuel - from waste ) with a gross calorific value of 4k cal/gm. Company sells this RDF to cement and steel companies
The Kanjurmarg facility also produces and sells compost. Company sold a record 4k MT of compost made at this facility in Q2 FY 25
Company also operates Maharashtraâs first Integrated Waste to Energy project @ Pimpri Chinchwad. The project involves pre-composting, composting, power generation and landfill management. The tenure of this project is from 2019 to 2040. It processes 1000 MT of solid waste / day. Company also has an agreement to sell energy @ Rs 5/unit with Pimpri-Chinchwad municipal corporation ( upto 14 MW ). The land for this project ( 30 acres ) was provided by the PCMC
Currently operational projects ( a total of 24 projects ) include -
Collection and Transportation Projects for - Greater Noida, JP International Sports complex, Jhansi, Mumbai, Borivali, Dhalsar, Nagpur, Nashik, Nai Mumbai, Noida, North Delhi, Panvel, Pimpri - Chinchwad, Thane and Varanasi
Mechanised Sweeping projects for - Greater Noida, Nagpur, Navi Mumbai, Pimpri Chinchwad
Construction and Demolition waste management project for - Mumbai
Breakup of FY 24 revenues -
Collection and Transportation of MSW - 62 pc. Involves door to door collection via primary collection vehicles, transportation to landfill sites. Currently, 16 of such projects are ongoing. Avg age of these contracts is 7.7 yrs
MSW processing - 23 pc. Currently 4 of these contracts are ongoing. Avg age of these contracts is 23 yrs
Contracts and Others - 15 pc. Contract revenues are realised arising from IND-AS treatment of Capex incurrent @ DEBOOT projects. Currently, 2 DEBOOT and 5 mechanical sweeping projects are on. Others - include revenues from sale of scrap etc
Current fleet of vehicles operated by the company @ 2300 vehicles. These include - Small tippers, Compactors, Dumpers, Power Sweeping machines, Big Tippers, Drain Stilt machines and Hook Loaders
Municipal Solid Waste Management ( MSWM ) industry in India is expected to double in next 5 yrs
Companyâs construction and demolition waste management site has commenced operations in Q2. Companyâs bio-mining project ( awarded by CIDCO - City and Industrial development corporation of Maharashtra ) near Taloja is also showing steady ramp up
Companyâs waste to energy project is now operating @ 71 pc load factor vs Industry avg of 60 pc. By next year, company expects the load factor to improve to 75 pc for this project
In Q2, company handled - 1.19 million MT of solid waste, up 3 pc YoY, Sold 30.5k MT of RDF, up 5 pc and sold 4k MT of compost, up 82 pc YoY
Softer performance in Q2 is partially due to extended monsoons because of which company could not operate their construction and demolition waste management business optimally. This business should ramp up in H2
The jump in interest and depreciation costs is because of commercial launch of waste to energy plant and demolition waste projects
Gross Debt @ 397 cr, Cash on Books @ 82 cr resulting in net Debt of 315 cr. Avg cost of debt @ 9.6 pc
In H1, Panvel MC contract contributed to 17 cr of revenues, PCMC waste to energy added 23 cr and 5 cr were added by PCMC power sweeping
From next yr onwards, company will start to get revenues from NMMC C&T contract. The CIDCO bio-mining ramp-up should happen in H2 this FY. The CIDCO contract should give them revenues of aprox Rs 4 cr / month
The C&D waste revenue has started flowing to the company only in the month of Aug 24. A ramp up is expected in H2. The C&D waste management revenue should be around 3 cr / month
Looking to clock 15-16 pc growth in Topline in H2 - to
be driven by - Bio Mining ramp-up, ramp up in water to energy project, ramp up in C&D waste management revenues and also sale of some of the recycled material from the C&D division
Future growth drivers ( for next 1-2 yrs ) -
Company is looking @ couple of waste to energy and couple of C&T projects in the Western region
Company is looking to set up another large waste to energy project at their existing Kanjurmarg facility. Have been in discussion with BMC for this hand have submitted their proposals
Have identified land parcel near Mumbai to set up vehicles scrapping facility. Land is expected to be allowed to the post the Maharashtra elections ( they intend to buy this land )
In order to de-risk their business, company is now focussing on the Vehicles Scrapage and waste to energy businesses. However wrt Geographical diversification, company is currently going to maintain its focus on Western India + Delhi NCR
For full FY 25, company is guiding for an EBITDA margin of 22-23 pc. That means, they should be clocking > 25 pc EBITDA margins in H2 on an accelerated revenue ( as guided earlier )
Capex guidance for FY 25, 26, 27 @ 80 cr, 25 cr and 25 cr respectively ( this includes the award of new C&T projects, waste to energy plant at Kanjurmarg )
Taking into account the capex planned over the next few years and the cash flow that the company generates, they intend to be debt free in next 5 yrs
The waste to energy project that the company is looking to set up @ Kanjurmarg is expected to have capacity of 4X that of PCMC project
Company is guiding for a revenue CAGR of 25 pc for next 3-4 yrs ( on the back of ramp up in PCMC project and C&D waste management projects ) with an EBITDA margin profile of around 23 pc !!! ( sounds like aggressive guidance to me. Lets see if they can achieve this )
Current debtor days stand @ 72 days. Company believes that their debtor days should continue to sustain in this broad range of 70-80 days
E-Waste management is another area that company may foray into ( in future ) after the Vehicle scrapping
Company has just come out of a capex heavy phase. They expect their RoE and RoCE to start showing meaningful improvements as these projects ramp up
Company exited Q2 with an oder book in hand of Rs 8300 cr spread over next 12-14 yrs. This order book doesnât include the escalation clauses. Plus there will be added revenues from C&D waste management. This gives them the confidence to give out an aggressive growth guidance
The C&T part of the business is asset light, has higher return ratios at present. But it can potentially invite a lot of competition and competitive price bidding. The waste processing required more upfront capital and technological prowess + the returns are a little back ended. This keeps the competition on the lower side
Disc: hold a small tracking position, evaluating further, will be monitoring companyâs progress, not SEBI registered, biased, not a buy/sell recommendation
7 Likes
If I may add to this pointâŚthey will be debt free provided they stop bagging new projects and the existing projects generate about 125cr cash flows which they will utilize to clear the debt. However, they will not stop bagging new projects (if they do, they cannot grow), and hence they will always have some amount of debt.
3 Likes
Sharing one latest report on Antony waste
I hope you find it useful.
dr.vikas
If we look at this space of waste recycling (all types of waste), may be Antony is the only company that has not done a fund raise. Despite a roaring bull market, easy availability of money and everyone raising capital, Antony for whatever reason has been able to resist the temptation so far.
Disclosure - Invested for last 3-4 years.
8 Likes