Antony Waste Handling Cell Ltd

NSE:AWHCL

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Antony Waste Handling Cell Limited Q3 FY '24 Earnings Conference Call.

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the 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. Jose Jacob, Chairman and Managing Director. Thank you, and over to you, sir.

[Jose Kallarakal, executive]

Good afternoon, and thank you for joining us for our Q3 FY '24 earnings conference call. With me, I have Mr. Mahendra Ananthula, Group President, Operations, Business Development and Diversification; Mr. Subramanian, our Group CFO; and SGA, our Investor Relations advisers. Our investor presentation for third quarter 2024 is now available on the website of the stock exchange and also on our company's website.

In our third quarter, we clocked core operating revenue raking INR 193 crores, marking a strong 22% year-on-year growth. This growth can be attributed to several factors, including escalation in tipping fees and improved revenues from fixed shifts, trips and household fees. Furthermore the initiation of our C&T project at Panvel and the start of sale of power sales from our WtE project has begun to contribute positively. The bulk of our CapEx is behind us, and hence, the drop in that revenue.

With this shift in our revenue mix, the driver of our margin is now being led by core operating revenue. This is evident from our improvement in EBITDA margins, which jumped by 690 basis points to attain 22.3%. The third quarter of FY 2024 core EBITDA margins meet our expectations, boosting confidence in our stability and long-term growth.

On the corporate side, the company has submitted a Scheme of Merger with the NCLT, which entails the absorption of 2 of its wholly-owned subsidiaries, namely Antony Infrastructure and Waste Management Services Private Limited and KL EnviTech Private Limited into AG Enviro Infra Projects Private Limited, a subsidiary fully owed by the company. The primary objective behind this strategic move is to rationalize and simplify the organizational framework, thereby enhancing operational efficiency and facilitating better management oversight.

Thank you, and now I hand over the call to Mr. Ananthula, our Group President, Operation and Business Development. Mahendra, over to you.

[Mahendra Ananthula, executive]

Thank you, Jose. I'm pleased to present an update on our operational performance for the third quarter of FY '24. During this period, we effectively managed 1.18 (sic) [ 1.17 ] million tonnes of waste, demonstrating a notable 13% year-on-year increase. This growth can be attributed to the successful execution of operations in a newly acquired -- in newly acquired contracts, improved volumes at existing collection and transposition sites and an uptick in tonnage processed at our waste processing operations.

Specifically, within the C&T business segment, we handled 0.48 million tonnes in quarter 3 of FY '24, marking a significant 19% growth compared to the previous year. Furthermore, our waste processing business managed 0.70 million tonnes, representing a commendable 9% (sic) [ 7% ] increase over the previous year.

During this quarter, our Refuse Derived Fuel, which is commonly known as RDF, sales reached a new milestone totaling approximately 47,000 tonnes. This signifies a substantial improvement compared to around 16,500 tonnes in the same period last year and around 25,000 (sic) [ 29,000 ] tonnes in quarter 2 of FY '24.

Additionally, we sold around 3,200 tonnes of compost during the quarter, compared to about 1,700 tonnes sold last year. It is worth noting that the sales volume of compost was softer than expected due to lower uptake of fertilizers in the states of Maharashtra and Gujarat, primarily due to the weaker than expected monsoon in this region.

A respectable achievement in the quarter was the commencement of commercial power sales from our Waste to Energy plant to the Pimpri-Chinchwad Municipal Corporation. We are pleased to report that during the first 3 months of operations, the plant's performance has met all the technical and operational parameters as defined satisfactorily by our Japanese technical partner, Hitachi Zosen.

Currently, we are supplying approximately 8 megawatts of power to PCMC's water pumping station in Ravet and sewage treatment plant in Chikali, lowering their monthly power bills. Over the remainder of this fiscal year, our aim is to steadily achieve PLF of 85% to 90%. We are also in the process to onboard additional PCMC's assets for full utilization of power generated in our Waste to Energy plants.

On the ESG front, in terms of emissions, our Scope 1 emissions totaled about 6,348 tonnes of carbon dioxide equivalent in quarter 3. Our Scope 2 emissions increased to 1,405 tonnes from 625 tonnes in quarter 2, reflecting increased biomining and shedding activities. Our commitment to emission reduction is evident with avoided emissions of 2,559 tonnes in quarter 3 as compared to 1,260 tonnes in quarter 2. Currently, our ground staff strength stands at 9,781, with a sequential increase reflecting the commencement of the Panvel C&T contract.

We remain proactive in pursuing opportunities in C&T, biomining and waste processing projects, underscoring our core commitment to sustainability and creating value for our shareholders. Our operational excellence is exemplified by the prestigious rankings bestowed upon Antony Waste as demonstrated by the recent Swachh Bharat Survey survey. These remarkable accomplishments are thoroughly outlined in Slide #13 of our investor presentation.

In conclusion, these accomplishments underscore our steadfast dedication to environmental sustainability, innovation and the creation of a better, cleaner future. Our company remains committed to growing sustainably while promoting a clean environment. In the coming months, we eagerly anticipate achieving important milestones, including the commissioning of our Construction and Debris processing project in Mumbai and expanding power sales to the Waste to Energy plant in the Pimpri Chinchwad region.

On to the financial aspects, let me get N.G. involved here. N.G., over to you.

[NG Subramanian, executive]

Thank you, Mahendra. The standard feature for the quarter lies in the transformation of our revenue mix, signaling the nearing completion of the capital expenditure phase of the group. In the third quarter of financial year ending March 2024, the company achieved significant growth with operating revenue rising to INR 193 crores, which represents a robust 22% increase compared to INR 158 crores in Q3 FY '23.

Sequentially, the core operating revenue shows the softness, and this is mainly due to the recognition of INR 14-odd crores of escalation booked in second quarter for the past period. Adjusted for this onetime escalation benefit, sequentially, the total reported revenue is still up by 12.3%.

On a 9-month basis, the company has reported an operating revenue of around INR 570 crores, reflects a substantial 20% increase on a year-on-year basis as compared to INR 474 crores for the 9-month period last year. This impressive growth in operating revenue can be largely attributed to a substantial increase in volumes handled, the successful acquisition of the Panvel project and the escalations materializing in the last 3 months -- last 3 quarters.

In Q3 FY '24, the total tonnage handled reached 1.17 million tonnes, which reflects a 12% growth over the previous year. For the 9-month period, the total tonnage stood at around 3.52 million, which reflects a growth of 12% for the same period last year.

In terms of consolidated EBITDA performance, the group demonstrated significant growth of 45%, reaching INR 50 crores in Q3 FY '24, compared to INR 34 crores in Q3 FY '23, accompanied by an impressive EBITDA margin of 22%. This marks a noteworthy increase of around 690 bps from Q3 FY '23.

However, on a sequential basis, the margin appears softer, primarily due to the reasons stated above, which is basically INR 14.8 crores of PAT escalation being materializing after their billing. When adjusted for this factor, the second quarter's EBITDA margin would have been around 18.1%. And this compares against the Q3, Q4 EBITDA margin of 22.3%.

For the 9-month period ending December 2023, the company exhibited a robust 23% in EBITDA, reaching INR 158 crores compared to INR 129 crores for the same period last year with an EBITDA margin of 23%. This demonstrates a remarkable increase of 400 bps on a year-on-year basis.

In regards to other expense line item, the total other expenses have risen by 17%, primarily driven by 96% increase in RDF transportation cost, which came in at around INR 10.9 crores. The other components of other expense line item, namely power, fuel and vehicle related costs came in at around INR 34.6 crores and INR 24.3 crores, respectively.

Interest expenses have jumped from INR 6 crores last year to INR 11.4 crores in the last quarter, while depreciation has risen by 58% year-on-year. These increases are primarily attributed to the commercial launch of the Waste to Energy plant.

Despite these factors, the pretax profit for the quarter has risen by 24% year-on-year, reaching INR 23.2 crores for the quarter. However, despite the uptick in the pretax profit, the rise in deferred taxes has exerted a pressure on the PAT number, which has come in flat at INR 15.6 crores The deferred tax has increased during the quarter due to increase in undistributed profit at the subsidiary level and also due to a deferred tax liability at our renewable energy Waste to Energy plant as new assets are being capitalized.

As of December '23, the group's gross debt stood at around INR 383 crores, with a net debt of around INR 330 crores, indicating a net debt to equity of 0.5x. The weighted cost of debt for the group stands at 8.8%. The company remains steadfast in its commitment of bolstering operational efficiency, enhancing liquidity and cultivating a favorable financial landscape.

During the quarter, one of the large subsidiary of the company has been upgraded by CRISIL by a notch to A-, with a stable outlook. Similarly, the Waste to Energy project is also started to being initiated at an investment grade by the rating agency.

Given these parameters and the upcoming projects, the company is sure of achieving a sustainable 20% to 25% CAGR rate in its core operating revenue outlook.

That's all from our end. And now we will open the floor for Q&A.

[Operator]

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

[Faisal Hawa, analyst]

Sir, the financial results keep on showing a very big up and down in -- as far as the EPS is concerned, so how can we really stabilize this, and it is becoming more and more difficult to understand the figures each quarter, particularly there's a huge variation in each quarter? That's one.

And second is, sir, what is the kind of revenues we are now expecting in quarter 4 from the Pimpri Chinchwad project? And what is the kind of EBITDA? Has the project even stabilized?

[NG Subramanian, executive]

Good afternoon, Mr. Hawa. So the volatility in the earnings is primarily because of lack of clarity and directions and decision-making at bulk of our clients. And since most of our clients don't have elected members, there is a significant delay in decision-making process. As a result, there's a lumpiness of escalation getting recognized and being passed on. So that is why you are seeing a significant jump in recognizing these escalations, which you have been seeing in the EPS kind of changing in the last 2 or 3 quarters. Answering to your second point -- yes.

[Jose Kallarakal, executive]

So on the second point about the PCMC's Waste to Energy, I mean, we are pleased to disclose that in the last few weeks, especially in the last 3 weeks, we've been running the plant at full load of 14 megawatts, which basically means that we have maximized our power generation capability and the plant is functioning well. And that's why -- which reflects in a very healthy power load factor of 99%, and we are -- I'm talking of the last 21 days data. So going forward, in the next this thing, we expect to achieve 85% to 90% of PLF, right, which I think is a great achievement -- rather, great target to have in the first year of operations.

[Faisal Hawa, analyst]

So what kind of revenues can we get in quarter 4 from there?

[Jose Kallarakal, executive]

So -- yes, so typically, if you see the revenue model for this from the power sale, 14 megawatt is the generation, you take out -- let's say, you -- I mean if you work according to PLF of 15% to -- like 15% and then an auxillary percent -- auxillary power of about 12%, the average billing would be for 11 megawatts of power, okay? So that's going to be -- that's going to be the bench volume.

[Faisal Hawa, analyst]

Okay. And -- I mean what is the kind of luck that we could have with the Supreme Court in this quarter? Whatever case come up for hearing, the INR 10 crores to INR 11 crores is always hanging in balance.

[NG Subramanian, executive]

The dates, unfortunately, have been postponed again. We have got the date of February 26 from the Supreme Court. So as and when the case comes for hearing, we will be taking that from there.

[Faisal Hawa, analyst]

And do you feel that the construction collection program also could start in this quarter?

[Jose Kallarakal, executive]

C&T?

[NG Subramanian, executive]

The C&T contract is expected by 1st of April. The construction phase, the establishment of the assets, everything is ongoing. So we expect the approvals and everything to be in books by the end of the current financial year. Commercialization of the project is likely to start from the first quarter of the next financial year.

[Faisal Hawa, analyst]

And sir, on a per unit basis, are we profitable in this RFP that we send to the cement companies? Or are we still making losses every -- on each unit?

[Jose Kallarakal, executive]

So we are positive. I mean there's a positive contribution because what we are looking at is that after adjusting for the competition cost, we need to make a positive contribution. So on that front...

[Faisal Hawa, analyst]

Are we earning anything on each truck that we send to these cement companies?

[Jose Kallarakal, executive]

Absolutely. On each tonne of RDF that we are selling, we are...

[NG Subramanian, executive]

We're having a positive contribution.

[Jose Kallarakal, executive]

We are having a positive contribution.

[Faisal Hawa, analyst]

Okay. Because it is tending to bring down the EBITDA every time the volumes go up on this front.

[NG Subramanian, executive]

Mr. Hawa, there is a combination of revenue contributors and the margin contribution. Sale of RDF though is a very bulky item, it is a low-margin business. So that is why the weighted average of EBITDA margin drops in. But on quantity terms, I mean, if we look at on volume and on value basis, it adds to the bottom line.

[Operator]

The next question is from the line of Neerav Dalal from Maybank Investment Banking Group.

[Neerav Dalal, analyst]

A couple of questions. First is can we get a PBT for the Pune project and for ex-Pune? Because I think that will give a better indication in terms of how the performance is shaping up, at least on the PBT side, obviously, excluding the one-offs that we have in terms of collection and all of that. So is that possible?

[NG Subramanian, executive]

Yes. Currently, we don't give segment-wise information because none of these projects provide more than 10% of the revenue or of the profitability or the CapEx, so -- I mean we don't -- disclose the segment-wise information and the contribution of those projects.

[Neerav Dalal, analyst]

No. Where I was going towards that -- because depreciation and interest costs would have been higher just because we've capitalized the Waste to Energy project, right?

[NG Subramanian, executive]

Yes. So if you were to ask the depreciation cost and interest cost of the Waste to Energy project on a thumb rule basis, I think the cost of interest -- annualized interest is in the range of around INR 13-odd crores, depreciation would be in the annualized range of around INR 17-odd crores.

[Neerav Dalal, analyst]

Okay. Got that. The other question I had was for the waste. So our average cost as you -- interest cost, as you said, is down, less than 9%. So is there a possibility that we can rework the Waste to Energy project debt? Because I guess we've taken that -- it's been taken from PFC at 12.15%. So is there a possibility of...

[NG Subramanian, executive]

There is definitely a possibility of refinancing this. But based on the performance and the rating that we have got, PFC has already reduced the rate to around 10.5%. So the cost of borrowing has already come in to lower levels. But after 2 years of successful performance, and once the cash flow comes in, our ability to get it refinanced will be much stronger and much easier for us to sell than the way it is today.

[Neerav Dalal, analyst]

And just last question. In terms of the RDF and all of that, what would be that as a percentage of revenues?

[NG Subramanian, executive]

Less than 2% of our total revenue, I mean, it's significantly a small pie.

[Operator]

[Operator Instructions] The next question is from the line of Soumitra, an individual investor.

[Unknown Attendee]

Am I audible?

[Operator]

Yes, you're audible, sir.

[Unknown Attendee]

So if we've understood the interest and depreciation part, so this is something that will continue for the next quarters also, right? So just to offset that, what would be required if probably those assets are giving you value and your revenue is going up? So if -- I may have missed it if it's already been answered. I just wanted to understand what kind of revenue -- not only core, but cumulatively, the entire business, what kind of revenue can we expect in the coming quarters?

[NG Subramanian, executive]

So we are comfortable -- on the core revenue part, I think we would be looking around INR 200 crores to INR 220 crores based on the existing kind of projects that we have. Going forward, I think with the construction debris processing contract kicking in, in the next year, that gives us a visibility of around 18% year-on-year growth for the entire group. And that -- this is at the core operating section.

[Unknown Attendee]

Okay. So basically, what you are saying is at least 20% growth is something that -- or 18% to 20% growth is something that we can expect year-on-year from the company?

[NG Subramanian, executive]

Yes.

[Unknown Attendee]

That's on the overall revenue, right? Not on...

[NG Subramanian, executive]

It's on the overall revenue, not on the project-specific...

[Unknown Attendee]

Just one thing is -- sir, actually it's a little confusing, your business is a little complex, and just understanding which moving part is going where -- so you talk about core, then there are certain noncore activities, so it's become a little difficult to understand what would be the revenue projection. And hence, specifically, going forward, you can just provide some kind of view on the overall -- I'll tell you why the reason is.

So among -- so I am an HNI, I have been interacting with a lot of people, not only in this country, but outside. There is a lot and a lot of interest in businesses like you. And I feel it is terribly undervalued just because of certain aspects of communication and clarifying what exactly is the business. This business does not deserve the valuation that it is currently having. It deserves much, much, much better. These are the businesses globally people are looking at and figuring out and wanting to enter because this is the future.

Now the only question is can we expect from the management to provide -- because see you have to understand people are not as engrossed in the business as we guys are probably, and they would require a simplified understanding of the business. So if that is something that can be done, I see wonders happening for this particular business. So this is one request from my side, and this request is based on interacting with multiple people across different countries.

[NG Subramanian, executive]

I appreciate this point of view, but if you were to look at our investor presentation, if I can draw your attention to Slide #25, it actually spells out our revenue contribution, what we call as core operating revenue, which is our revenue from collection and transportation and from waste processing. That is my core operating revenue. After that, we have a line item called contract and others, which is what our entire revenue is. So when we talk about a 20% growth in core revenue, I mean, I'm actually giving a number every quarter about what we are talking about. Similarly...

[Unknown Attendee]

Yes, yes. Go on.

[NG Subramanian, executive]

And similarly, when we talk about EBITDA margin and core EBITDA margin, we strip out the Ind AS related revenue and Ind AS related costs. And this is what we're talking about. My reported EBITDA is -- say for this quarter, is around INR 49.7 crores. But my core EBITDA, which strips out my Ind AS accounted revenue -- project revenue, this is INR 49.3 crores. So I actually split out my revenue potential, my core revenue and my core EBITDA, and this is there on Slide #25.

[Unknown Attendee]

No. My suggestion only comes from the perspective that everyone is looking for such businesses because this perfectly falls into the ESG category. And if you realize there are a lot of funds across that are looking for such businesses. And it's an appreciation that is how -- somehow it can be properly communicated. I understand even the first person found it a little difficult to understand how the revenues are functioning, et cetera.

If there can be some improvement in terms of how the communication is done about the business, I feel this business has a lot of value. And I think that is appreciation towards you as a management who are in this -- who identified at the right time and are working in the right this thing -- business. It's just -- I don't know why, but I just feel there is a lack of awareness about this business across.

[Jose Kallarakal, executive]

Sure. Thanks for the suggestion, sir. We will look into it, and we'll try to improve our line of communication.

[Unknown Attendee]

That's the only thing. That's the only thing. Everything else is good.

[Jose Kallarakal, executive]

The point is erected. Yes.

[Operator]

The next question is from the line of Utkarsh Somaiya, an individual investor.

[Unknown Attendee]

I had a question regarding your accounting again. So in your core operating revenues, which is INR 193 crores, the Waste to Energy project, which is just commissioned, is a part of this, am I right?

[NG Subramanian, executive]

Yes. That's part of the MSW processing.

[Unknown Attendee]

Right. And the contract and others, why is there so much volatility in that number?

[NG Subramanian, executive]

This is reflective of the CapEx that we have done. So in the past, if you see the last 9-month details, it was -- for the previous year, it was INR 192 crores. And for this last 9 months, it's around INR 100-odd crores. This is primary because as and when we do the CapEx, the same line item gets projected as contract revenue. So once the construction period is done for us, the contract revenue falls off and that asset, once it's put into use, gets reflected into my processing or a C&T line item.

So this is as per the accounting standard norms wherein assets are not owned by the company, these are reboot projects. So hence, I need to recognize them using this kind of methodology. And it flows through my income statement and then sits at either financial assets or as intangibles in my balance sheet.

[Unknown Attendee]

So is there any way to make this a little more predictable for investors because...

[NG Subramanian, executive]

We would be very happy to do it. For that, I would like to go back to my old Indian accounting standard, which is simply whatever you own, you put it as land bank and plant and machinery, and there is nothing to do with the accounting standards. I would be very happy to do it because it is a nightmare just to explain internally and to my bankers and financiers this is my core earnings, this is my accounting adjusted earnings. So trust me, this is something that we always bother.

But the fact is today -- I mean, with Q3 and Q4, I mean part of Q4, I would say, all my construction phase is almost done. So I will not be having significant contract revenue line item going forward. All of the revenue would be predominantly be driven from my core activity of processing and handling waste.

[Unknown Attendee]

So will this go down to almost zero now...

[Operator]

Please rejoin the queue for follow-up questions. The next question is from the line of [ Jishan Singhi ] from [ Krijuna Research & Analytics ].

[Unknown Analyst]

Am I audible, sir?

[Jose Kallarakal, executive]

You're audible, sir. Please go ahead.

[Unknown Analyst]

First, I would like to ask that if we see on the quarter-on-quarter wise, your profit has been impacted nearly by 50%. So what could be the potential reason for that?

[NG Subramanian, executive]

During second quarter, we recognized around INR 14-odd crores of escalation of a past period. That was approved in the second quarter of FY '24, hence, there was a significant increase in the second quarter's number. Now, if you were to strip out that, then my margins on a year-on-year and as a -- sequentially has improved on that basis. So this is just the lumpiness coming in because of the administrative lapse in the past, which got rectified in the second quarter.

[Unknown Analyst]

Okay. Okay. And my next question is on the construction and debris side that you mentioned in your last con call. I would like to know more about that. That means, sir, is this a new segment your company is entering into? Or -- and how it can contribute to your top line further going ahead?

[Jose Kallarakal, executive]

Yes, so this is -- yes, this is our first project in the construction and debris processing segment. And there are 2 revenue streams that -- actually, there are 3 revenue streams in this. The first one is on...

[Unknown Analyst]

Hello? Sir, it's not audible from your end. Can you please be more clear?

[NG Subramanian, executive]

I think there is an audio issue at your end, maybe you can kind of mute yourself and...

[Jose Kallarakal, executive]

Am I audible now?

[Unknown Analyst]

Yes. Now, it is audible, sir. Yes, sir.

[Jose Kallarakal, executive]

Okay. So what I am saying is that, yes, it is our first C&T contract. There are 3 revenue streams in this project. The first one is for the collection and transportation of construction debris from the distant suburbs of Mumbai to our processing site. This processing fee is -- has got a rupee per tonne kind of processing fee, which is payable by BMC to us.

The second revenue stream is basically by the sale of the value-added products that we would be selling. We just assign and aggregate [indiscernible]. So these are the 2 broad revenue streams of this project, both things were processing revenue.

[Unknown Analyst]

Okay. So is percentage of revenue...

[Operator]

We request you to please rejoin the queue if you have further questions. The next question is from the line of [ Reyansh Jain ] from [ Alta Wealth and Investments ].

[Unknown Analyst]

Yes. I just want to know like protests are going on in Delhi, Noida, and you have like collection transportation contracts there, so is there any operational effect that you see from that protests going on?

[NG Subramanian, executive]

Sorry, can you repeat the question?

[Unknown Analyst]

Like how does the protest like -- which are currently going on in Delhi or Noida sites? So how does it affect your operations of collection and transportation, which are in Delhi or Noida...

[Jose Kallarakal, executive]

If you can just get a little back, the mic is probably too close.

[Unknown Analyst]

Hello. Am I audible?

[Jose Kallarakal, executive]

You're audible, but somehow not very clear. But maybe you can try again.

[Unknown Analyst]

Yes. Now, I am audible?

[Jose Kallarakal, executive]

Yes, sure.

[Unknown Analyst]

Yes. So I was just asking about the protests that are currently going on in Delhi or Noida side. So how does it affect or does it affect your operations of collection and transportation, which are going on in Delhi or Noida side?

[Jose Kallarakal, executive]

Are you referring to the ongoing farmers' agitation?

[Unknown Analyst]

Yes. Yes.

[Jose Kallarakal, executive]

So I mean, it's too early to say because this agitation actually started technically only yesterday or this day. It's a bit too early. But Noida, as of now, there is no effect. Delhi also -- I mean, there is some restrictions going to the larger districts. But all in all, I mean, there is no effect on our business, I mean, in terms of collection of waste or transportation.

[Unknown Analyst]

Because if any problem in transportation -- transporting the waste to your main central point, then will it not be an issue to you?

[Jose Kallarakal, executive]

Not really.

[NG Subramanian, executive]

Currently, we are working on Karol Bagh area. So there is no grave impact because of the strike in that region. And the dumping ground or the waste processing sites are away from the places where the strikes are going on. So we don't have any impact on our operations.

[Jose Kallarakal, executive]

Because the, so called, agitation is only at the border. Because what we understand is that the Delhi Government or Delhi Police has stopped the farmers that have been to the entry point check, right? So -- but all our operations, our collection points, transportation routes and the management site or the processing site is within the specific limits, so we don't envisage, as of now, any impact on our operation.

[Unknown Analyst]

Okay. And one last question, like if I see your like C&T revenue, which was in last quarter INR 152 crores, and this -- in this quarter, it's like INR 113 crores and 114 crores, so while there is a fall in it, instead like you also told last quarter that on 1st November, your Panvel collection and transportation contract is going to start. So it should add your revenue, and there was no other expiry date of your contract. So why there is a fall in collection then?

[NG Subramanian, executive]

Yes. So last quarter, that is, second quarter of INR 152.4 crores of revenue, we had around INR 14.8 crores coming in as escalation for the past periods. I mean this was our past 6 quarters. So there was a lumpiness there coming in. So if you were to look at my steady state of Q2 C&T operation, the number would be around INR 138 crores. So it's not a significant decline at those numbers, primarily due to escalations being booked in Q2. That is why you are seeing an 8% sequential fall there.

Also, in the current quarter, our Mangalore and Thane are kind of getting under the extension mode. So there is some kind of an offset in the tonnage coming in. So C&T operation on a year-to-year comparison is still flat to at best positive, sequentially.

[Unknown Analyst]

Sir, but there should be some growth, right, because Panvel contract has also been added. So it should add your revenue, like you said 420 tonnes per day you are collecting there. So it should add some revenue? Why is it flat dead?

[NG Subramanian, executive]

So we started Panvel operations from 1st of November. So we have only 2 months of operations in the reporting quarter, and the ramp-up of any new project doesn't happen at full 100% capacity. You slowly ramp up your operation from ward and then scaling to 100% of the area to be covered.

[Jose Kallarakal, executive]

Yes. More so because in the case of Panvel, unlike most of our C&T contracts, it is the responsibility of the corporation to give us vehicles. So this handover of vehicles happened over -- has happened over a period of time. So it's only in January when the -- by when Panvel actually handed over the entire fleet to us. So that's why in the November -- even though technically we started the contract in November, the full impact is not visible in the numbers.

[Unknown Analyst]

Okay. Okay. And is there any solution that like an escalation clause. You said you are adding to your C&T revenue because this should make our revenue much volatile because which revenue will be resolved at which quarterly and which you would not have been able to know, and which -- this will create much volatility in your C&T revenue. So is there any kind of solution or anything?

[NG Subramanian, executive]

So currently, as per the tender, escalation is either annual or quarterly. But because of the absence of elected members, there are no rigors being processed by the administrative group. So for the foreseeable couple of quarters, there is likely to be some lumpiness in the revenue recognition. Because currently, they are not recognizing any escalation in the contracts, which has not been approved by the client. So as and when the C&T gets approved, we would like to bring it into the books. So until that time, we cannot recognize them on notional basis.

[Operator]

The next question is from the line of Dhruv Shah from Dalal & Broacha Stock Broking Pvt Ltd.

[Dhruv Shah, analyst]

Sir, just wanted to understand what would be the Ind AS impact on the interest and the depreciation part in this quarter in particular? Because I can see that in September, we had this INR 32 crores of right to use of assets, which was created, but I don't think so that similar impact had come in Q2, the majority of it has come in Q3. So if you could just give a bit of detail on that, sir.

[NG Subramanian, executive]

So I think the total assets that have been incrementally added in the Q3 quarter would be not more than around INR 14-odd crores, which forms part of the contract revenue. So that is a bit of it. Because if you look at the project expense component, that's just INR 5 crores as compared to INR 36 crores in the year ago period. So bulk of the assets have been booked in and everything is done. This was just a timing from the independent engineer to certify the bills that is getting recognized in the third quarter.

[Dhruv Shah, analyst]

Okay. Sir, but in the interest of -- interest and depreciation, in particular, what would be the impact of the Ind AS?

[NG Subramanian, executive]

That won't be significant here because this is the first quarter wherein the PCMC's assets have been put to use. So the incremental hit would be in the range of around INR 3 crores in terms of depreciation, and in terms of interest, well, it's less than INR 2.5 crores. So that is the incremental impact that you can see.

[Dhruv Shah, analyst]

Okay. And sir, the rest of the interest is the increased cost? Or what is the any other reason for that?

[NG Subramanian, executive]

It's also the increase in cost due to the pull down of debt at 2 or 3 sites where we have incurred the CapEx, support vehicles at Panvel, for example, and at Nagpur and other sites. So incremental CapEx at the Kanjur project and C&T operations is the reason why there is a slight increase in the interest cost. Additional cost of interest has slightly inched up over the last 3 quarters. So that is also kind of weighing on the numbers.

[Operator]

The next question is from the line of Arpit Shah from Stallion Asset.

[Arpit Shah, analyst]

I think I missed the numbers on interest and depreciation normalized for our Waste to Energy plant going ahead. What is that number?

[NG Subramanian, executive]

Yes. On a steady state of operation, my depreciation of Waste to Energy would be around INR 17-odd crores. That's one is for the full year.

[Arpit Shah, analyst]

INR 17 crores. And what would be the interest?

[NG Subramanian, executive]

Interest would be around INR 13-odd crores.

[Arpit Shah, analyst]

1-3 or 3-0?

[NG Subramanian, executive]

1-3.

[Arpit Shah, analyst]

1-3. And what was the revenue this quarter from the plant?

[NG Subramanian, executive]

Revenue from the Waste to Energy plant in the current quarter, that is Q3, was around INR 6.2 crores. And that is just because we started the operations, we have less than around 60 days or 70 days of effective operations, and we tested the plant right from 30% PLF to 95% PLF and other thing. So we have recognized just around INR 6.9 crores -- or INR 6.2 crores, sorry, from the Waste to Energy project in Q3.

[Arpit Shah, analyst]

What kind of monthly run rates did you see in this plant given that you already operated in the last 3 weeks at almost 90% PLF...

[Jose Kallarakal, executive]

So what N.G. was talking about, the INR 6.2 crores revenue, that's only from the sale of power. Over and above that, we also have revenue from the tipping fees, which is payable by PCMC to us for the incoming waste. So that's additional revenue.

[Arpit Shah, analyst]

So what will be the steady state tipping fees for sale of power, let's say, when the plant is operating 85% to 90% PLF?

[NG Subramanian, executive]

It should touch anywhere between INR 12 crores to INR 13.5 crores. This is a very conservative number based on an 80% PLF plan with load factors and absolute consumption of around 14%. So that is a number that we are looking around. I mean this -- actually the numbers for Q4 would actually give us the benchmark on how the steady state of our plants would likely to be.

[Arpit Shah, analyst]

INR 12 crores to INR 13 crores is on a quarterly rate or a monthly rate?

[NG Subramanian, executive]

On a quarterly rate.

[Arpit Shah, analyst]

Which includes tipping fees plus sale of power?

[NG Subramanian, executive]

Yes.

[Arpit Shah, analyst]

Okay. And what kind of margins you will be making in this business because it's typically a high margin business, right?

[NG Subramanian, executive]

Yes, it's normally a very high margin business. So this is like the way a processing contract will be around 40% to 45% [indiscernible] kind of number. It can even be better depending upon the auxillary power consumption stats and everything. So that is why the Q4 will be the first quarter where we have the basic numbers about what kind of rated capacities of consumption, the kind of [ LDUs ] that we need to use for start-ups and shutdowns, all will come into play.

[Operator]

The next question is from the line of [ Dr. Gagan N. Jain ] from [ HRJ Investments ].

[Unknown Analyst]

I think, sir, you've answered most of the questions regarding to the balance sheet. Am I audible now?

[NG Subramanian, executive]

Yes.

[Unknown Analyst]

Yes. So I just wanted to ask you, sir, like in the future, what are we doing for the car recycling businesses which are really coming up, battery recycling, the biogas? As you know, in this budget, they said that biogas, they're going to add 25%, they're going to add. So are you looking at these verticals also? And what is the revenue? And by what time can we expect these revenues to really materialize, if any?

[Jose Kallarakal, executive]

So our first focus in this recycling segment is in -- for end-of-life vehicle strapping thing. We are looking at -- currently, we're in the process of identifying useable land. We have already zeroed down on a couple of locations, in 3 different -- in 2 different states. And we are also talking to one of the OEMs as a potential partner for this project. So I think if all goes well, I think by third quarter of next financial year, we should be in a position to announce this project. So that was first focus.

Second one is the recycling, which we want to actually set up in the same auto recycling facility. For that also -- we are not looking for a partnership, but we already have identified equipment for the same.

[Unknown Analyst]

And, sir, for the biogas?

[Jose Kallarakal, executive]

The bio-CNG -- more than the bio-CNG, we actually are looking at -- as of now, our focus is to look at more Waste to Energy projects, because we think that, that probably has got a better return on our efforts.

[Unknown Analyst]

Okay. And sir, I'd just like to stand by saying just one thing, sir. Actually, I think the -- we have to publicize this business a bit, and we have to make people more aware. Because I think I agree with the second caller that the potential is high, but the communication thing is maybe which is troubling us. And it can maybe -- make a slide, we can just work on that communication part and maybe get into that battery and biogas, if possible, you can look ahead for that. And maybe give some announcements and some future plans so that we can also just work on that.

[Jose Kallarakal, executive]

Sure. I mean -- and whatever you say, like the gentleman who said earlier, I mean, we can always have an off-line discussion, take your suggestions and improve our communication narration -- narrative.

[Unknown Analyst]

Yes, because I think that really makes the investor confidence really go up and that will help everybody as a whole, as a business also to grow, I guess. So best of luck.

[Jose Kallarakal, executive]

We will be happy to engage. Yes.

[Operator]

The next question is from the line of Sandeep Salaria, an investor.

[Unknown Attendee]

Am I audible?

[Operator]

You're audible, sir.

[Unknown Attendee]

Yes. So I've joined late, and pardon me if my questions have been already answered. So I have 2 questions. So see, I see the interest cost has doubled and depreciation has also increased by 50% this quarter. Topline has remained [indiscernible] years. So when do we see this topline growth coming back? And I also see in the past we had EBITDA margins of 25% to 26% range. When do you expect that? The interest cost and depreciation, are we going to go down in further quarters?

[NG Subramanian, executive]

To start with, the interest and depreciation has kicked in because of the commercial start of the Waste to Energy project. Until date, they were under capitalization phase, so that is why those were absent. Now that the plant is put to use, the sale of power has started, so the cost is now coming in. So we see these things to taper off over the next year or 2. It's not -- it's going to be gradual because these are 21-year projects. So the interest cost, of course, will taper out faster within the next 6 to 7 years. But the depreciation is going to be steady at these rates, given the projects that we already have.

The total revenue is flat primarily because the fall in the project revenue, which is the construction-related revenue, which has come down sharply from INR 64 crores to INR 30 crores in this quarter, because the entire construction phase is done and dusted. But if you look at our core operating revenue, that increased by 22%. So the fall in project revenue, which shows the fact that the construction phase is going off the schedule, is getting replaced by an increase in my core operating revenue. So as we mentioned, we will grow the company at core operating revenues around 18% to 22% comfortably, given the underlying projects that we already have.

[Unknown Attendee]

Okay. And I have a second question. So I see a lot of variation in our PAT due to huge variations in our tax. Our tax ranges have -- ranged from 11% in 1 quarter to 35% next. So is there a specific reason as to why we have a large slab variations in our tax every quarter? And is there any way we can reduce this lumpiness in our EPS and tax percentage? With all this, it will give electric shocks to investors every time we see this.

[NG Subramanian, executive]

I agree. The lumpiness is primarily due to administrative reasons at the municipal corporations because of the absence of elected members. Since the approval for escalations are not coming in a timely fashion, that is why we are seeing a lumpiness in the revenue recognition and the booking of income. And that is also reflective in the receivable cycles.

Once things stabilize, once we have elected members and all the clients that we work with, this thing will be streamlined. So if you want to look at our financial numbers, 3/2022, I mean, that was steady state of affairs with a steady kind of numbers coming in, which is very predictable in an annuity kind of a model.

Post-2021, where most of the clients have -- don't have elected members, we are seeing a significant delay in decision-making authority. We hope, post May or May, June, when the elections are over and we have elected members in most of the municipal corporations by the third quarter, things should be back to where it was a couple of years back.

[Unknown Attendee]

But does this relate to tax as well, because tax I see there's a huge variation?

[Operator]

Please rejoin the queue for follow-up questions. The next question is from the line of CA Shivam Parakh from ValueWise Wealth Management Services.

[CA Shivam Vijay Parakh, analyst]

So I wanted an update regarding the dividend policy of the firm. And second question is that you told that you were interested further in the Waste to Energy projects. So are we in potential talks with some municipalities regarding Waste to Energy? So I -- so these are my questions.

[Jose Kallarakal, executive]

Yes, of course. I mean, that's why we are talking to several municipalities. But as you know, that municipalities need to tender out these projects. And the next 3 months, everyone would be under the election fever, so that's why -- but we expect that many of these municipalities will launch their Waste to Energy tenders by the end of this financial year.

[CA Shivam Vijay Parakh, analyst]

Okay, sir. And sir, update on the dividend policy?

[NG Subramanian, executive]

So the Board is really cognizant of the dividend point. And given the fact that the company is currently in the growth stage, the Board is aware to -- for the projects to stabilize, the DSCR and the interest coverage ratio to be stabilized once, and then, they will initiate on the dividend policy.

[CA Shivam Vijay Parakh, analyst]

Okay. So, sir, 2, 3 quarters or fourth quarter down the line, can we expect some dividend announcement?

[NG Subramanian, executive]

I think Board has already been aware of this point, and they are definitely working on the same principle. So we would expect the Board to inform the management on the policy on this aspect.

[Operator]

The next question is from the line of Rohit Maheshwari from Tata AIG.

[Rohit Maheshwari, analyst]

Sir, my question is related to your collection and demolition debris, INR 1,200 crores is a maximum potential revenue in 20 years or there's an upside to this number?

[Jose Kallarakal, executive]

No, the C&T rates, we have been talking about an annual revenue of about INR 30 crores per year.

[Rohit Maheshwari, analyst]

Okay.

[Jose Kallarakal, executive]

It's a [indiscernible] compression. So we expect that this tonnage also will increase over a period of time, plus the shipping fee also will get escalated as per the tender condition. So that's the potential upside.

[Rohit Maheshwari, analyst]

So the maximum revenue per year will not be more than INR 60 crores, correct?

[NG Subramanian, executive]

Approximately that should be the ballpark as giving tipping fee and sale of byproducts put together.

[Rohit Maheshwari, analyst]

Okay. My second question is, like if I see an annual tax rate -- for an example, if I see the 9 months for this financial year is close to 27%, so going forward, that should be the number we should estimate in our model, correct?

[NG Subramanian, executive]

A couple of variables, the tonnage always keeps swinging. But yes, around 20% to 24% growth in our core operating is a number that, based on the underlying projects that we have, should be baked in. And the EBITDA should be in line with what we have reported now.

[Rohit Maheshwari, analyst]

No, sir, I was talking about tax rate. The tax rate, what we should consider on an annual basis should be between 25% to 27%, correct?

[NG Subramanian, executive]

That should be a very good assumption.

[Operator]

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

[Unknown Attendee]

So sir, given the nature of our contracts, which are pretty much long-term contracts, and based on the projects that you have ramped up and started ramping, would you be able to give a guidance for Q4 and FY '25?

[NG Subramanian, executive]

For Q4, our core operating revenue would be in the range of around INR 200 crores to INR 210-odd crores. I mean that is a number that we are comfortable with. And this is -- again, I'm talking about the core operating revenue. And for FY '25, around 20% to 24% growth is the same assumption currently. Looking at the way the tonnages and everything is coming in from the projects that we handle, I think this was a number that we are working with internally.

[Unknown Attendee]

20% to 24% growth rate?

[NG Subramanian, executive]

Yes.

[Unknown Attendee]

Sorry, did I hear that correct? Is it 20% to 24% growth?

[NG Subramanian, executive]

20% to 24%.

[Unknown Attendee]

22% to 24%. Okay, sir. Yes. And the next question is, in this Q3 revenues, do we have any contribution from C&T revenues? Or C&T revenues have not kicked in yet?

[Mahendra Ananthula, executive]

Not yet, not yet. Well, the project is under construction.

[Unknown Attendee]

Okay. Did we expect them from Q4 onwards?

[Mahendra Ananthula, executive]

From quarter 1 of next year, yes.

[Operator]

The next question is from the line of Utkarsh Somaiya, an individual investor.

[Unknown Attendee]

I had a question. Just wanted to ask you from your discussions with the municipal corporation officials, what is the sentiment regarding municipal solid waste collection, recycling? Given that globally, the sentiment is very bullish on this sector, just wanted to understand from your conversations, is there any sense of urgency? And -- yes.

[Jose Kallarakal, executive]

See, from the point of view of municipalities and these officials, they are extremely, extremely now finicky about improving their rank in the Swachh Bharat Abhiyan ranking, the city ranking, cleanness ranking that Government of India had. You must visit some of these cities. And then if you talk to some of these officials, they actually want -- seriously want to improve the collection efficiency, want to have most of their waste processed, and there's actually work along those lines. So that's why we see that in terms of business opportunities, there are endless opportunities. Because not only the big metropolitan cities, even the Tier 2 cities are now actually allocating a much larger part of their budget for -- towards this ingrown activities, which is a huge positive for our business.

[Unknown Attendee]

So wherever government has actually intended to spend a lot of money, for example, in the power sector and defense, and they have really gone all guns blazing, so do you see this sector to really see a lot of allocation from the government or a lot of spending from the corporates? And thereby, do you see a lot of tenders coming, sizable tenders? Yes, size of the vendors also if you can kind of speak about, what kind of sizes...

[Jose Kallarakal, executive]

First of all, I must say that the order of magnitude of the power sector or the defense sector is very different from this kind of waste management business. Because even in large power plants, we've been talking about 2,000, 3,000 megawatts of power, right? Here, we are talking about municipal waste, the largest would probably be like 20, 25 megawatts. So we are talking about a different scale. So -- but within that scale, we see a lot many opportunities in northern cities coming up with more and more such projects.

So to answer your question about the increased funding which is available, Swachh Bharat Abhiyan, actually has CapEx funding for funding the CapEx portion of some of these collection-transportation contracts, processing projects, even for the viability gap funding, which is required to make some of these projects commercially viable. So which in itself is a huge improvement. But as I said, don't compare the scale, the order of magnitude. But if you compare with what the business was 2 years ago or 3 years ago, we see a quantum jump.

[Unknown Attendee]

If I can fit in one more question, if you don't mind?

[Jose Kallarakal, executive]

Yes, please.

[Unknown Attendee]

Yes. Can you speak about your margin profile of the 3 segments you have? And going forward, do you see the revenue mix changing between the 3 segments?

[NG Subramanian, executive]

Yes, so normally, we don't comment upon the segment margins over here because that's slightly more sensitive given the fact that this has a very competitive industry and it's on a price bidding kind of a range, so we normally don't comment on the margins, activity-based margins.

[Jose Kallarakal, executive]

Yes. But talking about the mix, I mean, if you see historically, our C&T business was about 60%, 65% of the overall revenue. Going forward, in the next couple of years, we want to make it at least 50-50, if not more in favor of processing projects. So that's one. Secondly, we are also very keen to increase our nonmunicipal revenue. Because as of now, only sale of compost or RDF, which is about 2% of our revenue, is nonmunicipal.

Going forward, with the addition of some of these value-added products from the C&D projects, the construction-related projects, and commissioning of these orders for our upcoming recycling projects, we want to at least increase that revenue to 5% in the next couple of years. That's the business plan or the target that we have basically driven.

[Operator]

Ladies and gentlemen, due to time constraints, we will take that as the last question. I would now like to hand the conference over to Mr. Jose Jacob for closing comments. Over to you, sir.

[Jose Kallarakal, executive]

I want to express my sincere gratitude to our dedicated team, whose unwavering commitment have been instrumental in achieving our objectives. I also extend my heartfelt appreciation to our esteemed clients and stakeholders for their steadfast support. Together, we have built a strong and successful company. And I am confident that our journey towards a cleaner and a greener future will be characterized by ongoing trends. Thank you, everybody.

[Operator]

On behalf of Antony Waste Handling Cell Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.