IPO of Antony Waste and its implication for waste management industry
2021 has begun on a positive note for the Indian waste management industry, with the listing of IPO of Antony Waste Handling Cell limited (Antony Waste), a first for an Indian solid waste management company. This IPO marks a significant step in catalysing capital for the industry by showcasing potential exit opportunities for investors, and thus increasing their confidence. In this regard, we discuss three key takeaways that are likely to impact the ability of waste management companies to attract capital going forward.
1. Demand for Environment Social and Governance (ESG) investment opportunities is rising
Anchor investors for the IPO include marquee names such as Massachusetts Institute of Technology, Tata AIG General Insurance, and SBI Mutual Fund indicating strong demand for opportunities in sectors such as waste management that contribute to meeting sustainable development goals related to environmental degradation and climate change.
Increased interest in sustainable investing in India is also evident in launch of new ESG offerings from asset management firms, two of which (Axis ESG Fund from Axis Mutual fund and ESG ETF by Mirae Asset Mutual Fund) launched new ESG funds in FY 20. Internationally also, sustainable investing gained traction as evidenced in increasing reach of Principles for Responsible Investment (PRI), a UN-supported network of ESG investors, whose membership increased by 28 per cent to 521 members in 2020.
Investor action in young and growth stage ESG companies also received a boost In FY 20, as Circulate Capital, a VC fund focussed on preventing plastic from leaking into the ocean, invested $ 39 mn in FY 20 in 6 Indian waste management companies.
ESG investing is growing in popularity, and waste management companies are very well placed to benefit from this trend, as they not only present a large and rapidly growing market, but also contribute to a number of SDGs including access to clean water and sanitation, building sustainable cities and alleviating poverty.
2. To attract capital, Waste management companies need to find scalable business models
Whereas it took 19 years for Antony Waste to reach a turnover of Rs. 400 crores, almost half of this growth has come about only in FY 20, indicating difficulties in scaling up waste management businesses. While demand for waste management services is rising rapidly, scaling up operations remains challenging because of thinner margins, fixed nature of contracts and largely manual nature of operations. Further, among waste management companies, municipal solid waste management companies face additional challenges due to poor financial health of their clients (municipal corporations), whose capacity to make contractual payments for PPP contracts has been further constrained in the wake of COVID.
To improve profitability and to scale up their businesses faster, waste management companies need to reduce their dependence on municipal/government contracts and need to focus on generating value from sorting waste and creating related value added products. For example, RICRON, based in Gujarat, India creates valuable building material from multi-layer plastic waste; similarly NEPRA (also based in Gujarat) has gained scale from automation of waste sorting technology.
Additionally, there are opportunities to develop scalable businesses by improving waste recovery at source. For example, Kerala based Green Worms improves waste value recovery by training local SHG groups on waste segregation and buying back 100 per cent of their segregated products thus boosting their income.
3. Governments can make waste management more sustainable/financially viable by creating infrastructure related to waste segregation
Antony Waste proposes to use part of the IPO proceeds in financing its foray into Waste to Energy (WTE) plant, a risky proposition, given the high moisture content and low calorific value of Indian waste, which make it unsuitable for energy production. Since waste is not segregated at source in India, but is transported and segregated in a central facility later, it ends up with higher moisture levels and organic content. As a result, the waste doesn’t burn fully and WTE plants produce large amount of ash, which is a source of pollution. Further, since the cost of power from such plants is Rs. 7–8 per unit, as compared to the cost of power from coal and other sources which is available for under Rs. 5 per unit, such power doesn’t have any buyers.
In order to make WTE viable, we need to address the root cause for lack of source segregation — lack of modern processing facilities to handle the large quantity of wet waste generated by our cities. In this context, states could learn from Indore and Pune municipal corporations that have already demonstrated viability of waste segregation at source and conversion of large quantities of wet waste into BioCNG. The BioCNG sector is ripe for private sector participation, due to announcement of several favourable policy measures including Sustainable Alternative towards Affordable Transportation (SATAT) scheme, which is creating market linkages for such gas. However, municipalities need to assure supply of source segregated organic waste, as well as land to encourage private sector participation.
Investor interest in the waste management industry is rising, due to large size of the opportunity and its ability to contribute towards sustainable development goals. Waste management companies could ride the ESG investing wave by developing scalable business models, and clearly communicating the link between their solutions and SDGs to potential funders.