Antony Waste Handling Cell Ltd
NSE:AWHCL

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Antony Waste Handling Cell Ltd
NSE:AWHCL
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Price: 798.3 INR -1.3% Market Closed
Market Cap: 22.7B INR
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Earnings Call Transcript

Earnings Call Transcript
2023-Q3

from 0
Operator

Ladies and gentlemen, good day, and welcome to Antony Waste Handling Cell Limited Q3 and Nine Months FY'23 Earnings Conference Call.This conference call may contain forward-looking statements about the company, which are based on the beliefs, convenience and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. N. G. Subramanian, Group CFO. Thank you, and over to you, sir.

N
NG Subramanian
executive

Thank you. Good afternoon and a very warm welcome to everyone present on the call. Along with me, I have Mr. Mahendra Ananthula, Group President, Operations, Business Development & Diversification and SGA, our investor relations advisers. Our investor presentation is now available on the stock exchanges and also on the company's website.First, I would like to provide some business update. The essential nature of our services are diverse customer base and recurring revenue streams, provide stability to the business. And over a period of time, this has also proved right and comfortable for us. A word on the macro aspect, keeping pace with the green energy focus of the world and reducing its carbon intensity, India has planned big for the green energy sector in this financial budget. The government announced its a few of measures for the initiatives related to the greenfield [Technical Difficulty] coming green mobility, green buildings and even green equipment. The budget further provides for India's government to provide incentives to urban civic worlds to improve the financials and credit worthiness and help them raise funds through municipal bonds. Attempts through property tax governance reforms and ring-fencing user charges on urban infrastructure will enable cities to improve the trade voluminous for municipal bonds. These are very good positive news for the sector at large. Also since India has an ongoing in G20 Presidency, is focused on -- its focus on these parameters bodes well for us.On the quarter's performance, the nature of our services and our diverse customer base has helped us to provide a stable revenue line, and this is reflected in the company's reporting a year-on-year 6% growth in its operating revenue at INR158 crores in the third quarter. This growth being driven partly by organic volume growth in waste processing, along with the steady state of operations in our C&T operations and also rated to some extent by the new Nashik C&T project, which started operations in December 2022. On the MSW, C&T project side, we currently have 15 ongoing projects. The C&T business volume remained flat on a year-on-year basis at 0.4 million tons in third quarter. And as mentioned earlier, our new Nashik C&T has started operation in December '22. This will add to the volumes growth going forward.Coming to the MSW processing side, the total tonnage processed during the quarter increased by 7% to 0.64 million tons at our MSW processing projects, which included Kanjur, Pimpri-Chinchwad and the Greater Noida biomining project. An update on the reuse energy plant at Pimpri-Chinchwad, the project is on track, and we expect the operations to start in Q1 of the next financial year. We would also like to address the key point, which is underlying this quarter's performance. As we are aware, we worked with a lot of municipalities and government agencies in over 14 municipalities to integrated solid waste management solutions. This sometimes increases our receivables challenges. The company under the guidance of its Board has initiated a process of creating a receivable reserve to reflect the nature of our business, which is aimed avoiding comfort to the balance sheet and some cushion there. We have initiated this project by creating a reserve of INR14.2 crores in the quarter. As we go along, we hope to refine this receivable reserve titration based on historical track record of managing receivables and our alternative saving defaults study in this limited space.On a reported basis, the EBITDA is down by 15.4% margin as compared to 21.9% for the same period last year. But on adjusted front, which is considering only core revenues and excluding index adjustment and this expert trade loss provision, the adjusted EBITDA for the quarter would have been 24.8% as compared to 26.3% reflecting almost '21 margin trend.And for more color and on the operations and business outlook, let me invite Mahendra to take over. Mahendra has over 30 years of experience in the urban infrastructure and waste management sector with extensive experience in the areas of corporate strategy, project development, sales and concerning the waste and water urban infrastructure. Prior to Anthony, he was at SUEZ, where he played a strong role in the development of the company's operations. Traditionally, it was purely focused on metropolitan cities. It is now diversified geographically and works also in Tier 1 and Tier 2 cities in India.

M
Mahendra Ananthula
executive

Thank you, N. G., for the introduction, and good afternoon to you all. At Antony Waste, the business and strategy has been to be the best in C&T and MSW processing sections. And this is exactly what is reflected in the steady growth of our operations over the years. Not to talk about the various contracts that the company has bagged in the new course. Going forward as well, Antony Waste intended to achieve high level of secularity in risk management and create a strong sustainable model. The company is also evaluating strategies to de-risk the business by adding more non-municipal revenue streams. For achieving this, the company has created a strong team to explore the ancillary waste management businesses like the one which the company has bagged recently, in fact, last week, mainly the processing of construction and demolition waste in Mumbai City.This is a new business segment that we have added in our portfolio. We are happy to let you all know about the details of the significant order, which includes collection, transportation, processing and disposal of construction and demolition waste in Mumbai City of 600 tons per day. This 20-year construction contract with BMC is worth INR1,024 crores. That's a little over INR1,000 crores over the 20-year precision period. The sustainable material recovery approach is planned to be used here, which identifies specific C&D materials as commodities that can be reused in new construction projects. This is our first order in this category, and that's why it's a big breakthrough for us. Hence said that such repeat or multiple orders are [indiscernible] to the confidence our clients have in us. We have a head start because we are an integrated solid waste management company and building a stock record -- and a strong track record for the future. Our idea was to implement a several economy-based process will continue with our emphasis on increasing our sale of RDF, compost, concrete, sanitary waste and so on and so forth.Talking a bit more about the secular economy and creating sustainable living conditions for the citizens in the cities that we operate. We started a recycling business in Varanasi from the waste collected there since last one quarter. In this third quarter of the year, the recycling activity has been going well, and the company has effectively recycled about 100 tons at its Varanasi site, preventing this waste from ending up in the local landfill. This is over and above UNESCO defined by the [Indiscernible] and we are very pleased with the rate at which the project is progressing. We intend to do similar projects in all cities, where the company has C&T operations.In addition, keeping with our cluster focused business approach, the company bagged a 7-year mechanical power sweeping contract from the Pimpri-Chinchwad Municipal Corporation. In city, where we already have an ongoing waste to energy and the collection and transportation contract, so in this -- with the power sweeping contract calls for the supply of 4 power sweeping machines and the daily maintenance of about 160 kilometers of road length. During the quarter, the biomining activities have a consumer integrated waste processing sites have progressed very well. Due to the high calorific value of RDF, demand has been strong, resulting in record RDF sales of over 15,000 tons during the quarter. This trend is looking up based on the response we are getting from our clients.And to bode the financial aspect, I will ask N. G. to take over from here. N. G. over to you.

N
NG Subramanian
executive

Thanks, Mahendra. Let me share a highlight of our financial performance. For the third quarter of the financial year ending March 2023, the performance on a consolidated basis, the operating revenue front, the revenue has increased by 6% to INR158 crores as against INR148 crores in the same period last year. For the 9-month period, that is operating revenue stands at INR474 crores, up 12% on a Y-o-Y basis, average INR422 crores for the same period last year. Increased volumes in both processing and C&T services as well as price escalation as just drives the part of the increase in core revenue. And as mentioned earlier, our market C&T project has contributed only for 1 month of the last quarter.On the consolidated EBITDA front, the company has registered a de-growth of 5% to INR34 crores in Q3 FY '23 compared to INR36 crores in Q3 FY '22, with an EBITDA margin being 15.4%. As mentioned at the beginning of the call, if I were to look at adjusted core EBITDA, which is excluding IND AS and ECL provisioning, the consolidated EBITDA would stand at 24.8% and compares 26.3% for the same period last year. In absolute terms, the adjusted core EBITDA could have been INR44 crores as compared to INR42 crores in Q3 '22. For the 9-month period ending December '22, the consolidated EBITDA has registered a growth of 7% to INR129 crores compared to INR120 crores for the same period last year.The profit before taxes for the quarter stood at INR19 crores as against INR23 crores same period last year. And for 9 months, it was INR84 crores versus INR79 crores for the same period last year. Profit after taxes is at INR16 crores versus INR19 crores, and for the 9-month period is INR72 crores versus INR65 crores. On the balance sheet side, our net debt to equity as of 31 December '22 was maintained at on ForEx. The total debt as of 31 December '22 stood at INR342 crores and net debt is at INR254 crores. The average consolidated borrowing cost for the company for the period ending December '22 stands at 9.7%. Our receivable days as of December 31 stands at 61 days, which if adjusted for the initial holding would still be around 66 days, still better on a sequential basis.That's from our end, now we can open the floor for Q&A.

Operator

[Operator Instructions] The first question is from the line of Faisal Hawa from H.G Hawa & Company.

F
Faisal Hawa
analyst

Sir, am I to understand that this INR13 crores to INR14 crores other expenses increase is due to provisioning that we have put for debtor, which may default in the future? So is that the right way to understand? Or is it that we have already -- we have lost the money and it will not be coming. So that's one. Second is, sir, in the construction processing [Technical Difficulty] contract that we have -- do you see a possibility of also processing the materials that we collect as waste and you're making some end products out of it? And if yes, what is the revenue potential for those end products? Third is, what the Union Finance Minister Nirmala Sitharaman also mentioned [Technical Difficulty] in a press conference that a lot of [Technical Difficulty] because of the waste and the lithium gas are being released from the dumping yard. So this may become a very big issue in the future. How is the company addressing it, so that before it becomes a large price issue, we are able to process this methane gas and also the waste on a very [Technical Difficulty] for would happen? And fourth is, sir, where do we stand on the vehicle scrappage policy? Is there something in the budget for us? And do we -- are we going to now go forward with it?

N
NG Subramanian
executive

Thank you, Mr. Hawa. Let me take the first part, and then I can -- then Mahendra can step in for the balance 3 points. Given the nature of our work, with those essential in nature, there is always a time delay in realizing the funds from a few of our plants. The company has offer detailed internal due diligence initiative process of creating a receivable reserve, which is in the nature of expected credit loss in the providing of formable delays in receivables. So what we are saying is this INR14.2 crores is not a write-off. It's just a conservative approach to provisioning this number. Now the reason that has led to us arriving this number is primarily due to factors like delay in getting work orders, delay in getting approval for the work order, delays in getting interdepartmental approval for bill processing and release of funds from pre-agreed some of central channels. So these are factors, which is beyond the company's control stuff in bureaucratic time lines.So the company has actually gone ahead and kind of factored is that a time delay of leasing the funds, so let us make a provision. These are not write-offs. Let me repeat that. These are basically our expecting funds to be released in a particular time zone. This is now getting spread out. So that is why I'm making a provision. These are not write-offs, and we expect to realize this in the forthcoming time. On the other points --

M
Mahendra Ananthula
executive

On the other points, Mr. Hawa, you asked about the C&T contract. So the revenue that we talked about, about INR1,000-odd crores is only from the tipping fees that we are supposed to get from the client. The revenue from the sales, of course, to answer your question directly, I mean, yes, the project is about collection and transportation of C&T waste plus processing into salable products like [Indiscernible], paver blocks, concrete and so on. So the INR1,000-odd crores is only from the tipping fees. The revenue from the processing of this thing is something that is going to be an upside.

F
Faisal Hawa
analyst

Okay. No. But what may be the revenue that we are expecting in processing this waste -- is there a plan for it?

N
NG Subramanian
executive

This is what -- yes. So we have done a recent study, I mean, of this segment. What we have figured out is that this is a new segment that we are trying to create. As of now, we feel in the coming year, in the next 1 or 2 years, the revenue from this should be about add to another maybe 10-odd percent. Although going forward, the future is very bright. You can expect about 10% additional revenue from this end product sale.

M
Mahendra Ananthula
executive

So for example, let's say, in a particular year, our revenue from receiving fees is INR100 crores, so we can get maybe another INR10 crores from sale of finished products processed.

N
NG Subramanian
executive

So that INR10 crores would be very margin accretive. So it is marginal. That's what we start by saying it's marginal for the time being, but the demand is picking up. And going forward, we expect it to go up. I mean, today, we cannot give you a number in terms of how it will be -- how much will it be in the next 5 years. But in the next 1 or 2 years, we expect to be definitely more than 10%, additional 10% from what we have reported. And so our feasibility of the project when we bid also is -- only on the basis of revenue from cost increase. So that's purely an upside.

M
Mahendra Ananthula
executive

Okay. So on your question of vehicle scrapping business, I mean, that's a very interesting question. I mean this is something which is a subject, which is very close to our heart. We have made decent progress. And by the end of this financial year, definitely, we should be in a very, very advanced stage of announcing to the market about our first vehicle scrapping facility, the revenue from which we expect to accrue from FY'25 onwards.

F
Faisal Hawa
analyst

So we will announce in the next financial year and or this financial year?

N
NG Subramanian
executive

So let's say, by -- let's say, in a year from now, that is maybe January, February '24, we'll be announcing our plan. And then we'll be implementing it followed by -- yes, followed by revenue accrual from maybe March -- mid June or July of FY '24.

F
Faisal Hawa
analyst

So and -- about my question of the waste and the methane gas really affected the [Indiscernible] of the City, so my pointed question is that if not forbid with any untoward incident happened. And then we get blamed for it, it could put the entire business at risk. So are we taking any ball putting steps to really address this before any kind of less coverage or negative feedback comes in?

M
Mahendra Ananthula
executive

So Mr. Hawa in the landfill that we operate, which is basically the Kanjur facility, we have a mechanism wherein we expect the methane and we generate power out of it. So the buildup of methane and that leading to the event that we have seen in Deonar is not a possibility at our side. But problems like with other landfills, which are not treated, they are actually dumping grounds. So what they are saying is very true. But in the site that is controlled and operated by Anthony Waste Group, this is not an issue because we are tapping the methane, we are extracting it, and we are generating forward of the same.

Operator

Thank you. The next question is from the line of Neerav Dalal from Maybank IBG Research.

N
Neerav Dalal
analyst

A couple of questions, first, on the construction and evolution waste contract, so --

Operator

Mr. Dalal, sorry to interrupt you.

N
Neerav Dalal
analyst

Yes. Now is it audible?

Operator

Yes, sir.

N
Neerav Dalal
analyst

Yes. Okay. So this is regarding the C&T waste contract from Mumbai City for 600 tons per day. Just wanted to understand how will be the revenue trajectory of this, we're talking about INR1,146 crores over 20 years. So would it be equal? Or I believe this would be based on the tonnage that we pick up every day. So some information in terms of how the revenue recognition here will happen. And a related question would be -- what would be the CapEx requirements for this contract and going ahead as we look at processing of this waste. So what are the CapEx requirements here? Where will it be done and things on that?

N
NG Subramanian
executive

Right. So thanks for your question. As for the C&T, that investments is for this project, the CapEx requirement for this project is about INR50-odd crores, which is what we'll be doing for both the companies, C&T modules as well as the processing plant. Both of that we will be implementing in the year 1 sales. Okay? And as far as the revenue is concerned, as I said earlier, that the primary revenue stream for us is the tipping fee. So 600 tons per day times the tipping rate is what will be the revenue. And as for the contract, we are entitled for an annual escalation. So that will further add. So [Indiscernible] will increase the future revenue. One is the organic growth of the quantity, the tonnage and the escalated tipping fees.

N
Neerav Dalal
analyst

So just to stick in to this. The 600 tons would be the optimum rate -- optimum waste that we would be carrying, right? So it will be gradual over the period.

N
NG Subramanian
executive

So 600 CPT is actually the client estimate as per the tender and even the small district study that we did at the time of bidding. And we have no reasons to believe that it will be significantly higher or lower than 600 CPT. So for the time being, we can continue with 600 CPT as a number to assume our future revenue predictions for year 1.

N
Neerav Dalal
analyst

Correct. And the revenues would start in from next year? How should one look at from the April-June quarter? Or how should one look at?

N
NG Subramanian
executive

So Neerav, we have a mobilization period of 12 months, one. And second is the construction there activity normally is a seasonal in nature. So during those months of monsoon, the C&T activity kind of drops and then it picks up during the festive season and drought season. So this 600 CPT is an approximate number over a period of time, one, for the financial year, for example, 12 months period. And secondly, the tender also allows us to plan for a 20% to 25% access to be managed. So the facility would be increased to purpose 600 tons plus 25%, but the daily tonnage will swing depending upon the market conditions and the seasonal factors.

N
Neerav Dalal
analyst

Correct. And just very quickly on -- staying on this, so the builders or the sites, so you would be contacting them or how will this work happen because there will be multiple sites across --

N
NG Subramanian
executive

So normally, what happens in this section is each local ward offices, so when a building is getting redeveloped or anything they need to get the local ward office approval. That's how the process of flow of information will happen? Where in a particular ward officer in charge of -- the builder gets in touch with such people and they kind of make an estimate of the total tonnage that like to become, and they'll make the builders get in touch with us, and we are supposed to pick up the waste and weigh it at the weighbridge, give a certificate that this is a tonnage that we will shift from that particular site. So that's how each player's view -- there is a responsibility? So is there any -- what do you say, any excess or necessiency, he needs to be answered to the corporation view based on the estimates.

N
Neerav Dalal
analyst

Got that. And just generally, in terms of the contracting, how is the visibility that you have? What are the number of contracts that you have bid for? And in the C&D, what movement are you looking at? Are there other regions where such similar contracts are coming out?

N
NG Subramanian
executive

I mean there are a few projects in the pipeline. I mean nothing gone on the base -- they're still in a drop stage in order fees, but most of the metropolitan cities are the first one to be of the block, and then they are contracting tenders.

N
Neerav Dalal
analyst

So that's on the C&D, but generally, in terms of our C&T business waste?

N
NG Subramanian
executive

So the C&T business, I mean, notably, I would point out 2 specific tenders, which are some of our tenders are coming to an end. So those definitely are going to come up. So those are the ones which are our first priority in terms of focus areas. But then apart from that, there are a few more cities, especially in the south zone that we are trying to target. Today, we cannot talk about specific cities, but I mean -- broadly, I can say, something in the south zone is looking promising.

N
Neerav Dalal
analyst

Got that. I'll come back in the queue if I have more questions.

Operator

Thank you. The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

D
Dixit Doshi
analyst

Sir, I have a question on our Slide #22 of the presentation. Just wanted to understand about the accounting, so if I go on to Slide 22, the current quarter EBITDA, you have mentioned is around INR34.3 crores. If I add back the provisions, which we have done is INR14 crores. So the EBITDA could be INR48 crores. And our core EBITDA is INR30 crore. So is my understanding right that the project business have the EBITDA of INR18.6 crores?

N
NG Subramanian
executive

So no -- so the IND AS accounting part, the contract and other also includes revenue from power sweeping and sale of -- scrap over there. So this would not be the right way of looking it because that's a decent amount of money sticking there. So I would say, all the contract and others of INR64.6 crores of revenue line, around INR48 crores would be my contract revenue purely, the balance being my sale of RDF, sale of composite and sale of scrap and revenue from my power sweeping contracts.

D
Dixit Doshi
analyst

Okay. And similarly, for the 9 months, how much it would be out of INR192 crore?

N
NG Subramanian
executive

I would say, it would be around INR168 crores would be my contract revenue there.

D
Dixit Doshi
analyst

INR168 crore? Okay. So for 9 months, there would be an EBITDA of around INR30 crores from the project?

N
NG Subramanian
executive

Yes, for 9 months, yes, because the EBITDA margins in the project level is basically a book entry that we have, which is calculated at the project somewhere of around 10.2%. So we -- it's just a number that is plugging based on the CapEx that we have done for Pimpri-Chinchwad and the Kanjur projects.

M
Mahendra Ananthula
executive

Okay. So just to understand, so let's say, once this project starts from next year onwards, let's say, the project revenue will not be there. So this INR30 crore EBITDA will no longer be there from next year? So what happens is that from the contract section, the revenue goes up, the project expenses also goes up, one. Second is, then you'll see the revenue from core operations starting, and that will add to my emerge on the processing line item. So what you see at INR129.7 crores that will increase by the processing component, which is going to come from those sites.

D
Dixit Doshi
analyst

Okay. Now just to understand. So currently, we have 4 projects, I think, which are going to come up. One is PCMC, Nashik has already started, something in Kanjurmarg, NDMC also, right?

N
NG Subramanian
executive

Sorry, can you repeat that question, please?

D
Dixit Doshi
analyst

So I think 4 new projects are going to give us the revenue from, let's say, this quarter or next year. So one is PCMC, the Pimpri-Chinchwad? The second is Nashik, which already has started, then something is going to come from NDMC and Kanjurmarg as well?

M
Mahendra Ananthula
executive

So the first 3 points are right, we have incremental revenue coming from Nashik, the incremental revenue of PCMC's waste to energy in the next year and the NDMC contract would be ramped up completely, which is actually ramped up from February 15 onwards. So we should be having that completely in our place. The Kanjur facility would be part of my enhanced with processing of fresh waste. So it's an ongoing project that not only incremental revenue significantly from my sweeping section, but that will be implemented with sales of RDF and composite. But having said that, these sale of byproducts, we don't enjoy the same margins that I have in my processing site.

D
Dixit Doshi
analyst

Okay. And can you just give me the -- so let's say, once all these projects start, the annual revenue potential from PCMC and Nashik and NDMC?

M
Mahendra Ananthula
executive

We normally don't comment about site specific numbers, but it will be fair to assume that the annualized number or [indiscernible] of affairs based on budgetary allocations from the corporation, we will be looking at around INR82 crores or INR95 crores annualized contribution. Comfortably, I mean I'm not even including NDMC at 100% scheme. So IND AS will contribute around INR95 crores of revenue. So we should be locking up around INR130 crores, INR140 crores of revenue on that side. And that is our conservative numbers over year.

D
Dixit Doshi
analyst

Okay. And so just to conclude, so Nashik has already started, PCMC, you said from Q1 FY '24, and NDMC from when?

M
Mahendra Ananthula
executive

NDMC should start from Jan or February, we always field them on our entire site. We are gaining confirmation from the client to confirm the same. So once that is done, we will have 100% come signoff on that part. And you will -- Kanjurmarg will have incremental revenue from field of RDF and composite, I think these are all seasonal elements. So that will come as and when it comes.

D
Dixit Doshi
analyst

Okay. Now one more question on the -- where this PCMC project -- Pune project, so I was just going through our past con call. So just to understand, so the CapEx for this Pune project is INR250 crores, of which approx INR50 crores, we will be getting the grant and INR100 crores, INR110 crores, we will be taking debt and let's say, INR40 crores, INR50 crores would be through internal accruals. And it was mentioned that this can generate INR65 crores of peak revenue top line. And if I assume, let's say, 40% EBITDA margin also, then it's around INR25 crore EBITDA with around INR10 crores of amortization and INR10 crores of interest, then we will be hardly earning like INR4 crores, INR5 crores. So the ROE will be in the single-digit in this project. Is it a fair understanding?

N
NG Subramanian
executive

Mr. Doshi, there are 2 assumptions that can improve on the current -- the numbers that we are seeing is based on very conservative system. Anthony has never executed a waste to energy project in its lifetime. So we have been very conservative and trying to be safe so that we at least cover our base numbers and costs, one. Second is, the PLF that we assumed when we are arriving at the revenue line, it's around 75% PLF, going to the track record that we have seen in similar plans set up by [Technical Difficulty] we can be as high as 85%, and we can even touch 95% during the parts of the project life. Third, more importantly, there is also keeping key component, which is linked to the escalation. So over the last 2 years, we have seen a significant spike in the cost of fuel and labor costs. So that will also add to our topline EBIT. So these are 3 positive factors, which can improve the written dynamics. But yes, the point is, why did we bid so competitively, is something that we wanted to work with a client who is strong to pay you on time. The revenue is range. My exposure to the state electricity both are zero. My client is [indiscernible] which is simply change to municipal corporation pays my revenue. So these are the conditions that we put it forward. The CapEx is something which we didn't negotiate and compromise on. So we went with [indiscernible] goes on and reset. So we are paying top dollar for the CapEx. So the return that we're seeing is for not taking any risk here. Going forward, this will improve when we are able to indigenize certain parts of the construction, and we are able to understand the dynamics of running waste to energy plant. Today, we don't want to compromise on quality and on serviceability and we don't want to take chances yet. So these are the numbers that is what we have on the drawing book. But we will revisit this once the plant starts.

D
Dixit Doshi
analyst

Okay. And just last one question. After this provision, how much would be currently more than 1 year old receivable?

N
NG Subramanian
executive

I think currently more than 1 year old receivables would be less than around INR40-odd crores, but these are all due as and when the project closure happens. So the tendering term clearly state, there is a retention money, which is retained by the plant and the release at the end of the project lines. So those would be more than 1 year, which is the case with most of our contracts in this scenario.

D
Dixit Doshi
analyst

Let's say, out of INR40 crores, if we exclude the retention money, then the disputed amount or the delayed payment would --

N
NG Subramanian
executive

That is INR8 crores Okay. Okay.

D
Dixit Doshi
analyst

INR8 crore?

N
NG Subramanian
executive

Yes.

Operator

The next question is from the line of Manav Vijay from Deep Financial Consultants.

M
Manav Vijay
analyst

First of all, on the provision that we have made of around INR14 crores or so, if you can tell us in our history so far, how much amount we have written off?

N
NG Subramanian
executive

So we have not written off any money historically. These are the dues which is delayed for us because there are changes in the administrators. So in most of the corporations, let it be the BMC, Nagpur, Pimpri Chinchwad or even Navi Mumbai, Thane for example, Delhi, we don't have standing committees at these places, which can pass the budgetary approvals, which can move out on these norms. So that is a delay because the very structure of organization is not there. So unless and until this standing committee is elected and they are able to vote and pass the budgetary spend, these things are getting delayed. And that is the reason why we've taken a provision. So we have not taken any write-off. These are getting delayed for factors which neither the people in control of the corporation able to do it nor is the company able to swing it because the people who are supposed to approve these documents are not in place.

M
Manav Vijay
analyst

Okay. And going forward, do we -- so should we factor in any more provisions? Or this is -- or should we consider this INR14 crores as one-off?

N
NG Subramanian
executive

So this was discussed in our Board multiple times to have a methodology to approach this expected credit flow, as we call it. I mean that is -- in the past, we were very client-specific, very project specific. But that's not the right way when you're looking at multiple clients, we have around 19 municipal corporation that we bought. So we need to adopt a methodology. So we are looking at a natural study to be done in this aspect, especially in the absence of the probability of default risk of municipalities in this area. We are not able to come out with a clear plan, but we are reaching out to experts who can quantify this, maybe 1% or 0.5% of the revenue should be set aside, that is something that we're talking about.But how to arrive at that ratio is something that we are looking at exports to provide that data to us. So what we understand today is based on our -- this delay, it's a onetime, it's never in the history of a BMC for example, the last 180 years of its existence, has the budget in passed by the administrator alone. So this is only quite in the history that's happened. I mean, similarly, this kind of events, we don't expect to repeat frequently. So we believe this could be a one-off thing, but we will keep revisiting whether we need to rationalize this, whether we need to quantify this, whether we need to have a study to prove this and have a methodology to support us.

M
Manav Vijay
analyst

Okay. Fair enough. Now moving to the next question of basically this new project that we have got of C&T. So now the processing of this waste will be happening at the Kanjurmarg or the BMC is going to give you another piece of land for this?

M
Mahendra Ananthula
executive

No, this is not at Kanjurmarg. This is going to be a different site.

N
NG Subramanian
executive

This is entirely in the western zone. So we will be locating a site in the western zone, the western some of the area, where we'll be possessing will be taken care of. It will be away from the residential zones.

M
Manav Vijay
analyst

Okay. And then basically BMC released this contract. So was it only one single contract of 600 TPD or they were actually multiple contracts and you -- and actually, Antony got only one contract?

N
NG Subramanian
executive

There were 2 packages. One was for the western suburbs, the other one was the eastern suburbs. We bid for both. We were -- we won western suburbs. So there were 2 packages.

M
Manav Vijay
analyst

Is it possible to share who got the eastern suburb project?

N
NG Subramanian
executive

I'm sorry?

M
Manav Vijay
analyst

Is it possible to share the name of the company got eastern zone project?

N
NG Subramanian
executive

Metro.

M
Mahendra Ananthula
executive

Metro Waste.

N
NG Subramanian
executive

It's a Delhi-based company called Metro Waste.

M
Manav Vijay
analyst

Okay. Fair enough. My next question is on the NDMC project that we had won last year. So now you just mentioned that from the month of February, I would say, from this month only, the full ramp up will happen. So -- and it was close to, I mean, INR1,000 crore project for a 10-year. So from quarter 1 onwards, or, let's say, for FY '24, we should build a revenue of around INR95 crores to INR100 crores?

N
NG Subramanian
executive

Yes, that will be a safe assumption because part of the CapEx was supposed to be procured by the corporation and hand it over to us. So there was a time delay over that part. And once the entire assets have been given, we also built our required asset base. So we have already communicated to the client that these are in place. So please allow us to grant the COD. So we believe we should be in a position to ramp up the entire facility officially from the month of February onwards.

M
Manav Vijay
analyst

Okay. My last question to you, so every con call, we talk about almost a 20 to 25 kind of percent a sales growth every year. So the variation in the quarter can certainly happen. Now this year, in 9 months, we are running very low in terms of the sales growth. And I think we have some 5%, 6% kind of a growth is what we have been able to do ex of the contract revenue. Now you believe that quarter 4, you will be in a position to catch up or you will fall short?

N
NG Subramanian
executive

So we never told that we will be growing at 25% year-on-year every year. We told about 25% CAGR book because the nature of business that we have, the growth is lumpy. And for the 9-month period, I mean, we are already reporting a core revenue growth of 12%. It's not 8% or less than that 1%. And second is, over the last 3 quarters, the company has been bagging contracts, let it with the power sweeping contracts in Pimpri Chinchwad or the Nagpur and now C&T contracts. So the company has been bagging contracts. Now the nature of business is it takes us almost 6 to 9 months or even 1 year to mobilize the asset and start reporting the revenue. So the time of bagging the contract or signing an LOA and the revenue recognition is a time part of it. So we are still confident of reporting a CAGR growth of 25% over 3 to 4 years. It is not going to happen 25% year-on-year. It will be a lumpy growth. It will be a staggered growth -- more of a step up growth. It's not a linear growth for us.

M
Mahendra Ananthula
executive

I think you should probably look at the way the EPC companies or the construction companies worked at. I mean they are dependent on the government tenders. And there are many peers when there are hardly any tenders then come to trying when the market is full of tenders. So the EPC companies win a lot of contracts and which has a capturing effect on the future revenue in a few years overnight when they start including those contracts. So we are in a similar business. I mean dependent on the government for the tenders because of the multiple reasons which you're probably aware of. I mean projects often get delayed. But sooner or later, they happen. And that's how our growth is never a full cost.

Operator

The next question is from the line of Richard D'souza from SBI Mutual Fund.

R
Richard D’souza
analyst

Am I audible?

N
NG Subramanian
executive

Yes, slightly meek.

Operator

Sir, your audio is slightly muffled. Please use the handset now.

R
Richard D’souza
analyst

Just a minute. Is this better?

Operator

Please go ahead.

R
Richard D’souza
analyst

Just a couple of questions from my side. One is you were talking of those provisions for -- of about INR14 crores. So just a bookkeeping question, what was the exact provision for the third quarter because you are mentioning it both for INR14 crores for the quarter and the 9 months?

N
NG Subramanian
executive

The entire amount of INR14.2 crores is for Q3, Richard. It's not over Q1 and Q2 and Q3. It's only for Q3.

R
Richard D’souza
analyst

Okay. It's only for Q3 because your statement in the presentation was saying it was for Q3 and for 9 months, so I thought this INR14 crores was for 9 months kind of something, yes. And even if you strip that out and calculate your core operating margins, your core operating margins seem to be under pressure. Now why is that the case? While your revenues have been growing at a handsome clip, but your margins seem to be under pressure, is my understanding right?

N
NG Subramanian
executive

Two factors that have led to that, Richard, there's a margin fall year-on-year basis on core operating sections by around 160-odd bps. The 2 factors being the higher transportation costs associated with shipment of RDF from our Kanjur site. And second is we have kind of written off all our startup expenses at the Nashik project. Since the Nashik project happened in the last month of the third quarter, instead of capitalizing and trying to make it a deferred revenue expenditure, we kind of wrote it out updates. And most of the cement companies are almost 400 to 800 kilometers away from the Kanjur side. So the initial part of RDF sales, the transportation has a higher chunk of the cost. And it's been a neutral to a negative EBITDA business in the past, the things have improved now.

M
Mahendra Ananthula
executive

Also because -- especially for the RDF business, I mean, we are in the growth phase. We are actually trying to make sure the cement companies actually get used to our RDFs and switch over from conventional coal to RDF on sustainable basis. So this has been -- especially this year has been the phase for and probably in the next year, we'll have to spend a lot of time and energy and patience on acquiring customers.

R
Richard D’souza
analyst

Yes. But just to level set, I mean RDF as an alternative fuel for cement companies seems to be quite profitable for them because the energy costs had gone up quite a bit. But what you're saying is that they are not willing to pay the increased transportation cost or anything like that. So it is beneficial for them?

M
Mahendra Ananthula
executive

I mean that's true, and then the cost of coal definitely has gone up and so on. But what it so happened that the cement companies are very, very tough guys to negotiate with. And so while they are negotiating with us, they are negotiating half, okay? So they're not easy to give us a top -- a high rate just because the core prices have gone up. So it's a never-ending battle, I mean, we will continue to -- but the good thing is that as compared to last year, our realization, net realization first half of RDF has gone up significantly. That's a positive sign.

N
NG Subramanian
executive

And to add to that, Richard, historically, what has happened is the cement companies were receiving RDFs, it was more like a wet mixed garbage, which has not gone well in most of the cement companies. So they are very skeptical about the quality and the sustainability of the supply of RDF. So that has been one of the main concerns in the past, which we, over the last 2 quarters, 3 quarters, having able to address them by consistently supplying them well shredded and relatively less damp RDF, which is what has been a positive for us. So as Mahendra was saying, from a significant negative zone, we are now not only in the neutral, but in a positive zone when it comes to pricing for the company.

M
Mahendra Ananthula
executive

Yes. And also to add, so one of the things that we are now talking to cement companies about is to benchmark the corrected value of RDF vis-a-vis the coal. So on a thermal equivalent -- so we are trying to price our product on thermal equivalent basis. So that's the strategy that we want to adapt and adopt and going forward.

R
Richard D’souza
analyst

Okay. So just to break this 160 bps further, I mean, what would you attribute it to this increased transportation cost? And what would be the write-off of start-up expense?

N
NG Subramanian
executive

So I would say the bulk of this impact would be my transportation cost because I actually would be around more than 150. This would be my from transportation. The start-up cost of Nashik is not as significant as the transportation cost. The third quarter, we saw a record shipment of RDF, which we couldn't budget in our plan. So we couldn't have it tied up to the appropriate logistics and to supply 15,000 tonnes, so that we could benefit from the pricing.

R
Richard D’souza
analyst

Okay. And one last question for me. There have been talks basically of some large contracts being coming up somewhere in Delhi region in Ghazipur and other places where there's a methane emissions and all that and the existing contract was -- I mean, it had ended. So any news on those particular contracts? Or are they up for bidding because with the Delhi elections, municipality elections being over, are they again up for bid? Or there is still some time...

N
NG Subramanian
executive

So not yet because if you -- you probably are aware that Infinity had a change, I mean, in terms of -- earlier, there are 3 different corporations. The unification of the 3 different corporations to 1 common entity, it's something which happened middle of last year -- middle of this year, 6 months ago or so and then came these elections in which there is a significant change of guard. So the project is still in the drawing board stage, and they have not yet come up with. We are following the project closely. As and when it comes up, we would be one of the seniors for this.

Operator

[Operator Instructions] The next question is from the line of [ Ravi Lodka from Agrawal Investments ].

U
Unknown Analyst

I want to know, last quarter, nearly 10,000 of RDF and this quarter, nearly 15,000 tonnes of RDF is there. So what will be the future capacity, which company wants to ensure?

M
Mahendra Ananthula
executive

Yes. So for us, production of RDF is not the problem because we definitely can generate or produce as much early as possible as the demand for this thing. So what I mean is the supply is not a constraint. But we are very optimistic that in the next financial year, we will at least double the sales of RDF quantity.

U
Unknown Analyst

Okay. In the last con call, that is of quarter 2, you mentioned that CWIP is due to the Nashik project equipment purchase. It is not giving to the transfer to the corporations, right? So it is to be included in asset, so is my understanding correct?

N
NG Subramanian
executive

Sorry, which project are we talking about?

U
Unknown Analyst

Nashik project.

N
NG Subramanian
executive

Nashik, the asset belongs to the company. We don't have to transfer it to the client here. So these are assets completely belong to the company's book, they will be sitting in your plant and machinery system.

U
Unknown Analyst

So earlier, you told that this is actually included in CWIP. So it is to be converted into asset and machinery?

N
NG Subramanian
executive

Yes. This will be converted into assets in the books of accounts, because we started putting them to use from December. So the balance sheet as of 31st of December onwards, the CWIP will flip into plant and machinery.

U
Unknown Analyst

Okay. I got it. And one last question. If you can give EBITDA margin of each segment in presentation, then this will be quite useful for us.

N
NG Subramanian
executive

I appreciate that [ Mr. Lodka ], but this is slightly commercial importance for us, and it's something that we hold on to it. So we will not be able to disclose segment-wise EBITDA margins.

Operator

Mr. Lodka, may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Bhagwat from Prosperity Wealth Management.

B
Bhagwat Naik
analyst

My question is regarding the income tax demand order received during this quarter. What is the amount of process demand as per the order and company estimate OpEx impact?

N
NG Subramanian
executive

Yes. So we've got an assessment order done for FY 2021, where the total due is payable by the company was around INR12.6 lakhs. The same has been paid under due and the same has been disputed. And we will be contesting the same with CIT office. So the total amount demanded and paid is INR12.68 lakhs for the year. We have not yet received any other assessment order over any other previous years from the income tax authority till now.

B
Bhagwat Naik
analyst

Okay. So demand is INR12.6 lakh you are talking about?

N
NG Subramanian
executive

Yes.

Operator

The next question is from the line of [ Ketan Chheda ], retail investor.

U
Unknown Analyst

From the business updates that you share normally on a quarterly basis, we see that in the past 5 to 6 quarters, there is no increase in the volumes of C&T as well as the MSW succession from the existing projects. Could you throw some light on that now? Why is there no increase in these numbers?

N
NG Subramanian
executive

So what has happened is, over the last couple of quarters, the incremental business has been coming from sites like Varanasi and Jhansi, which are on door-to-door unit counts, so the tonnage doesn't get reflected in the numbers. So despite the fact that you see the core operating revenue from C&T operations increasing, the tonnages doesn't go because we have built not on tonnages or all our sites only on few sites. So the data, which is auditable and that can be shared, it's only for those sites where are dealing is on a tonnage basis. So that is one of the reasons why you see that the total tonnage information is almost flat trajectory despite our operating revenue from C&T increasing. So we see another in the contract visibly senses that bill me on a tonnage basis, I will be able to add that to my reporting number.

U
Unknown Analyst

Okay. The other question is on the EBITDA margins, I mean, there is a trend of the margins going down for the past 3 years. So what is the expectation going forward? Do we look forward to increasing EBITDA margins in the future?

N
NG Subramanian
executive

So [ Ketan ], over the last 3 years, the proportion of revenue from contract, which has a lower margin business has been increasing significantly. So that is one of the key drag on my reported EBITDA margin. So as and when the construction phase of my Pimpri Chinchwad waste management gets completed, I would only after that, will I be able to see an upward swing online margin happening because of the absence of this contract revenue, the same being reflected by increase in actual core processing revenues. So that will be my tipping point, which would be in FY '24 onwards.

U
Unknown Analyst

Okay. Understood. And another question I have is to one of the previous participant's questions on the new projects adding revenues, you mentioned that about INR100 crores to INR120 crores will be added. Did I get that number right?

N
NG Subramanian
executive

Yes. That is right over an annualized number. Now they will not come from Q3 or Q4. They will be an annualized number, which can come either from Q1 end onwards or from Q2 onwards because my Pimpri Chinchwad, for example, though it's -- we are commissioning end of Q1, it will not run at 70% or 80% PLF. We want to start it around 40% PLF. So it's a ramp-up period. So we'll not see the entire 100% of revenue recognition in the very first quarter from that particular site, for example. But on a steady state, after everything being normal, INR160 crore of annualized revenue is what we can expect from these 4 contracts that we have backed.

Operator

[ Mr. Chheda ], may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of [ Harshil Patel ], retail investor.

U
Unknown Analyst

This is [ Rashid] here. So I would like to understand that why we are not presenting segment results? It was very difficult for all of us to understand from which segment we are getting how much margin. That is first question. Second question is on that why we...

Operator

[ Mr. Patel ], sorry to interrupt you, the audio is unclear from your line. Please use...

U
Unknown Analyst

Yes, just a minute. Hold on. Hello?

Operator

Yes, please go ahead.

U
Unknown Analyst

Yes. So I wanted to understand that why we are not presenting segment results because from each of the business, we have been getting different margins, right? And as per the Indian accounting standard, we have to assess the segment from the perspective of Ind AS 108. So first question is on that, why we are not presenting segment-wise results? First thing. Second thing, why we have not disclosed the amount of income tax demand -- the amount of income tax demand into the results? That is second question. Third question is on the expected loss on disputed receivables because we have a few disputed receivables. We are not making any adjustments towards the time value of money as per Ind AS 109. So these are various few questions, which I would like the management to give some update or appropriate accounting recognition and measurement principles when they are publishing results.

N
NG Subramanian
executive

Yes. So going with your first question, we don't provide segmental information details for 2 things. One is the accounting standards clearly defined municipal solid waste as a single section. So we don't have to provide any further breakup of the kind of work that we do. So more importantly, this is off a very significantly competitive industry, wherein if I were to give the collection, transportation and the reprocessing business section margins openly, then my ability to build for new contracts and everything will be very much challenged and in a public domain area, which is something that we would like to be governed against. So that is something that we are looking forward very acutely.On the income tax question, we have just reported the numbers that has been informed to us by the income tax authority. They have neither claims, nor any orders, nor any assessment orders saying that this is the expenses that is being doubted or asked for. So as and when we get information from the authority, the same will be disclosed in the numbers.And third, on the time value of the value or the receivable, which is getting stuck or we are getting hobbled because of the delay in payment, the management is of the view that we would start making an expected trade loss for now and also higher or appoint an actuarial to help us identify the best way to go and quantify this amount and have the same disclosure in the financials. We will definitely have that thing in our books.

U
Unknown Analyst

And to add to it, when we are presenting other expenses, can we have these few line items like the power rental, which is a major item of your other expenses than expected credit loss or any other line item, which are a large portion, when most of the companies are giving the breakup of other expenses in certain line items. So I would request management if they keep on putting more disclosures, then it is better for you as well as for the investors to understand from the pace of the results itself instead of having more active or explaining over the call?

N
NG Subramanian
executive

Definitely. Point taken, we'll check with our auditors and our systems, whether the same plan can be disclosed. And if there is anything it stops us from doing that, we'll have the same discuss, and we'll have that thing put out either as a schedule or as an annexure. We'll check and get back to you on that.

Operator

[Mr. Patel ], may we request that you return to the question queue for follow-up questions. We'll take the next question from the line of Faisal Hawa from H. G. Hawa & Co.

F
Faisal Hawa
analyst

Yes. So do you have any estimate on what are the carbon credits that we have accrued so far in the last 3 to 4 financial years? And what is our view on the carbon credit that is already now accrued to us on the various projects? Do we get any part of it or it will go directly to all the municipalities? And are we renegotiating contracts on this because in future we carbon credit to get very valuable?

N
NG Subramanian
executive

So surely, I mean, carbon credit definitely is -- has come back -- has made come back. So in our Kanjur project, all the carbon credit revenue, if at all it comes, will be -- will accrue to BMC. The only project where we have a substantial stake in the future carbon credit revenue is PCMC water -- waste to energy plant, where 90% of the revenue will come to us and 10% will go to PCMC. So that is something which will happen only after the project is commissioned. So we have already started talking to a few companies to work with us on assessing this revenue.

F
Faisal Hawa
analyst

And whatever the number of -- can you give a quantum as to how many tenders we are now going to bid in the next 6 to 7 months? The value of it that we bid for?

N
NG Subramanian
executive

So if I had to give a broad number, I mean, probably 3 to 4 tenders is what we plan to do, expecting large ones. I'm talking about only large ones, I mean not the routine ones. The real big work, I mean, would be about 3 to 4 in the next, I would say, 3 to 4 months. But other than that, we are also actively looking at some of the nonmunicipal revenue projects. The kind which, like, Hawa, mentioned about out of these -- the end-of-life vehicle scrapping facility. So that is something which is like a merchant plant. So we are currently focusing on some of these nonmunicipal initiatives.

F
Faisal Hawa
analyst

And what is the kind of revenue that we could expect from the Bangalore south-based city, which you mentioned, could it be like almost half the size of the Mumbai Kanjurmarg project if they are already having?

N
NG Subramanian
executive

Sorry, are you referring to the Mangalore project?

F
Faisal Hawa
analyst

You referred that there is a south-based city contract that you may bag. It could be a very big one. So would it be commensurate to the Bombay Kanjurmarg project? Or it will be much smaller?

N
NG Subramanian
executive

So this is actually a C&T contract. So strictly speaking, you should not compare it with the Kanjur facility, which is a processing facility. But yes, significantly larger, one of the larger projects that this would be one of our larger projects.

F
Faisal Hawa
analyst

And do you see any kind of potential in redeveloping landfills, which have been abandoned like the Deonar landfill, and refurbishing the land in such a manner that it will be reused again for residential, which is also -- it must be a variety business?

N
NG Subramanian
executive

So that is again a very interesting question. I mean...

F
Faisal Hawa
analyst

The top of the Mulund dumping yard being made into a racecourse, so those could be like very big contract for us. So are we tying up with somebody internationally to develop these kind of expertise?

N
NG Subramanian
executive

That's a very interesting question because the entire concept of biomining is -- I mean, I would say the jury is still out whether it is feasible to do that on a sustainable basis in whatever larger cities or not. Having said this, we are very careful that whichever biomining project or so-called redevelopment of landfill project that we talked about, if we take up, we have to be very, very clear about the revenue model. I mean, most of the -- our belief is that most of the projects, biomining projects are not commercially viable. So we are doing one test project in -- apart from the Kanjur project, as we have one such project in Greater Noida, we decided to take that up only because it was financially viable. So even going forward, we will be taking up this biomining project only if the tipping fee rate is viable and the revenue from sale of RDFs make business sense.

Operator

Ladies and gentlemen, due to time constraint, we will take that as a last question. I now hand the conference over to Mr. N. G. Subramanian for closing comments. Thank you, and over to you, sir.

N
NG Subramanian
executive

Thank you all for taking time out and attending this earnings call. We hope everything is -- we have tried to answer as much of your requirements. We remain confident that our long-term focus on our sustainable growth methodology and enhancing focus on the circular economy, transforming our business to technology and trying to use as much automation as possible will help us in meeting the changing needs of our clients, our customers and the people that we work around with. I hope we have been able to address all of your queries. For further any information that you need, please try and get in touch either with me or with our Investor Relations Advisors, Pratik or Jigar at Strategic Growth Advisors. Thank you.

Operator

Thank you. Ladies and gentlemen, on behalf of Antony Waste Handling Cell Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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