Antony Waste Handling Cell Ltd (AWHCL) Q4 FY23 Earnings Concall Transcript

Antony Waste Handling Cell Ltd (NSE: AWHCL) Q4 FY23 Earnings Concall dated May. 25, 2023

Corporate Participants:

Jose Jacob Kallarakal — Chairman and Managing Director

N. G. Subramanian — Group Chief Financial Officer

Mahendra Ananthula — President, Operations, Business Development and Diversification

Analysts:

Kaushal Kedia — Wallfort PMS — Analyst

Ambar Taneja — Geomatrix — Analyst

Richard D’souza — SBI Mutual Fund — Analyst

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Gaurav Gandhi — Glorytail Capital Management — Analyst

Swaranshi Chatterjee — Ashtech Capital — Analyst

Harshal — HSBC — Analyst

Harish Swaminathan — Private Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Antony Waste Handling Cell Limited Q4 FY ’23 Earnings Conference Call.

This conference call may contain forward-looking statements about the company, which are based on 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 of Antony Waste Handling Cell Limited. Thank you, and over to you, sir.

Jose Jacob Kallarakal — Chairman and Managing Director

Good afternoon, ladies and gentlemen, thank you all for attending this fourth quarter earnings call. I’m joined on this call by Mahendra, our Group President, Operations and New Business Development; and Subramaniam N.G., our Group Chief Finance Officer.

We stand before you today to celebrate the remarkable achievement of Antony Waste Handling Cell over the past year which has been a significant growth, solidifying our position as the leader in waste management and environmental solutions. We have not only achieved a strong sustainable core profitability trend, but have also set our sight on a future that holds immense promise for our company. Despite certain challenges such as the absence of elected members in few corporations resulting in delayed routine matters and temporarily affecting our margins, we have remained resilient. We understand that these are transition hurdles and do not overshadow the tremendous progress we have made.

One area that deserves special mention in the strong demand we have witnessed is for RDF, Refuse Derived Fuel. This demonstrates the trust and confidence our clients have in our ability to effectively handle waste and provide innovative solutions that contribute to a cleaner and more sustainable environment. Moreover, our commitment to operational excellence has allowed us to expand our coverage in more cities. By doing so, we have established a robust operational platform that positions us for future growth and success. We believe that a strong foundation is the key to unlocking new opportunities and driving positive change in our industry.

Looking ahead, our outlook remains incredibly positive. As elected members are reinstated, as routine matters resume their regular course, we anticipate a return to our strong margins. We are fully aware that these margin softness are temporary and will not hinder us from progress in long-term. We are thrilled to be part of an industry that is growing and evolving rapidly. The need for effective waste management solution has never been greater, and Antony Waste Handling Cell is poised to play a pivotal role in shaping the future of the sector. With our unwavering dedication to sustainability, innovation and operational excellence, we are confident in our ability to navigate any challenges that may come our way.

To talk a bit more about our current operations and business outlook, I hand over the call to our Group President, Operations and Business Development, Mahendra. Over to you.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Thank you, Jose. Good afternoon, everyone. I’m pleased to share with you an update on the operational performance of Antony Waste Handling Limited. Our unwavering commitment to excellence and sustainability has allowed us to achieve significant milestones and solidify our position as a leader in waste management. On a daily basis we cater to a staggering 43 lakh households and establishments handling over 30,000 tons of municipal waste and cleaning, more than 500 kilometers of roads. These impressive figures are a testament to our operational efficiency and dedication to providing top-notch services to our clients.

In the C&T business for quarter four, we successfully managed around 0.41 million tons of waste demonstrating a 6% year-on-year increase. Our waste processing business handled approximately 0.63 million tons of waste, reflecting a remarkable 10% year-on-year growth. During the financial year ’23, the C&T business and waste processing business witnessed annualized growth of 7% and 10%, respectively. Thanks to our continuous efforts to introduce technology, our core C&T operations have been performing in line with our expectations.

During this quarter, we strengthened our IT systems to enable live tracking of vehicular fleet at cities’ integrated command and control center, that is ICCC, and deployed fuel sensors in all our vehicles to reduce pilferage. We also focused on increasing user charges collection in Noida, Varanasi and Jhansi, where it’s part of our scope to partially mitigate payment risk.

In the waste processing segment, the first phase of processing has followed historical trends and we have seen a significant improvement in the disposal of processed waste such as compost and RDFs. Even though these by-products have lower margins compared to our core operations, they are an essential part of our business. We are confident of commissioning our waste-to-energy plant in Pimpri by the end of June 2023, which incidentally happens to be Maharashtra’s first waste-to-energy plant. We also have hired a leading carbon credit consultant to register this waste-to-energy project with Verra carbon standards to monetize the carbon credit potential of these projects. Additionally, we anticipate commissioning operations for our construction and demolition waste project in Mumbai by the fourth quarter of fiscal year 2024.

All these milestones will further strengthen our position as an integrated waste management player. With a robust employee base of over 9,000 professionals, Antony Waste stands stronger today than ever before. We continue to work on new initiatives and new bids and are making conscious efforts on enhancing our non-municipal revenue source. We will keep our stakeholders informed as and when we have more information on the same.

On to the financial aspects, NG will take over from here.

N.G. Subramaniam — Group Chief Financial Officer

Yeah, thank you, Mahendra. Good afternoon, ladies and gentlemen. I would like to bring your attention to some significant changes in our financial numbers that has occurred over the past financial year. While we have seen positive growth in revenue, there has been certain factors that has impacted EBITDA margin and pretax profits.

Our revenue growth has been impressive with a 31% increase, driven partly by core revenue growth of 15% and the remaining contribution coming from capex business revenue recognition. However, it’s important to note that though our reported EBITDA has remained flat at INR168 crores, the reported EBITDA margin has decreased by approximately 6 percentage points. The main contributing factor to the decline in EBITDA margin is the absence of elected members in few corporations, resulting in the delay in routine matters. As a result of this, approximately INR19 crores could not be recognized in the financial year ending ’23. Adjusted for this and an ECL provisioning during the year, our reported EBITDA margin would actually have been 21.9%, which compares against the reported EBITDA margin of 19.2%.

To summarize, our reported EBITDA margin for Q3 ’23 and Q4 ’23 stood at 18.7% and 15%, respectively. And if we were to add the revenue that we have not recognized due to the absence of reimbursements and escalations getting delayed, our reported EBITDA would have actually stood at 22.4% and 21.8%, respectively. Additionally, our EBITDA has been affected by the higher wage bill, reflecting the increase in headcount with the addition of marquee corporations during the year. Furthermore, higher transportation bills related to RDF sales has also impacted the margin for [Indecipherable]. To reiterate the point from what Mahendra said, compost and RDFs are by-products from our waste processing activity and even the high transportation costs weigh on our reported margins.

The pretax profit for the fiscal year ending March ’23 stood at INR102 crores, a decrease of 9%. This decline can be attributed to the lower reported EBITDA margins, as mentioned earlier as well as higher depreciation and finance costs. If you were to include reimbursement revenue and routine escalations, which are pending approvals from the authority, the adjusted EBITDA for FY ’23 would have been approximately INR188.7 crores, with adjusted PAT of approximately INR102.8 crores.

Our total debt has increased to INR350 crores compared to INR170 crores last year, the rise being mainly due to higher drawdown at the PCMC waste energy plant of INR126 [Phonetic] crores, along with the remaining balance being due to capex costs at our new CNG operations. As of March ’23, our net debt stood at INR219.6 crores, resulting in a net debt to equity ratio of 0.4 times based on our total net worth of INR617 crores.

It is worth mentioning that our financial liquidity has improved during the subsequent period. As of March 31, our DSOs increased to 90. Since then, we have realized approximately INR59 crores returning us to our historical trend of 65 DSOs.

As we assess our financial performance, it is crucial to understand the various factors that have influenced our numbers. We remain committed to drive a sustainable growth and improving our operational efficiency and revenue recognition to overcome challenges and capitalize on the opportunities.

With this, I’ll open up the floor for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We’ll take the first question from the line of Kaushal Kedia from Wallfort PMS. Please go ahead.

Kaushal Kedia — Wallfort PMS — Analyst

Hi. Can you just elaborate as to what is this escalation clause and the other? Why was there a delayed recognition of those INR21 [Phonetic] crores? Can you just throw some light on that?

N.G. Subramaniam — Group Chief Financial Officer

Yeah, Kaushal, so as part of the routine tender, there are certain expenses that is reimbursed to the company. This is a tender process. Any increase in salary, any change in minimum wages and change in fuel costs gets reimbursed automatically. Now for that, the elected standing committee of the various municipal corporations, so since elections in the different corporations like Thane, Nagpur and [Indecipherable], Navi Mumbai has not happened, the elected numbers are not present. So some of the election-related issues like passing the escalated amount is pending their approval. So that is one of the key reasons why we have not been able to recognize this amount of INR19 crores for the full year. So if I were to add this INR19 crores, my EBITDA would have been higher than what has been reported. We expect these escalations to be passed as and when the elected numbers are duly appointed and the businesses return to routine.

Kaushal Kedia — Wallfort PMS — Analyst

So if this amount would have been added, the EBITDA would have been close to INR188 crores, right?

N.G. Subramaniam — Group Chief Financial Officer

INR188 crores, yeah.

Kaushal Kedia — Wallfort PMS — Analyst

And PAT would have been INR102 crores. Okay. So you have taken this basically — you have basically accounted for in quarter four.

N.G. Subramaniam — Group Chief Financial Officer

So there are two ways to look at it. Either, the company would have [Technical Issues] and booked it and waited for [Technical Issues] and then realize [Technical Issues].

Operator

Sorry to interrupt, sir. Mr. Kedia, there’s a lot of background disturbance.

Kaushal Kedia — Wallfort PMS — Analyst

Sorry, sorry, yeah, yeah, sorry.

Operator

We request you to mute your line when you’re not speaking.

Kaushal Kedia — Wallfort PMS — Analyst

Yeah, yeah.

Operator

Thank you.

N.G. Subramaniam — Group Chief Financial Officer

Yeah. So just to summarize — I lost my train of thought.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

You were saying, as and when these elections happen.

N.G. Subramaniam — Group Chief Financial Officer

Yeah, as and when the elected members come in, the routine matters coming forward, so these things will be put up and the approvals will be coming shortly. So just to put things into perspective, a similar thing happened in one of the large corporation where we provide services. So the receivable is pretty high, but post January 2023, till date we have realized around INR59 crores from that entire amount. So it’s just a routine process where we need to pause those business. As in, there are no elected members, this has been kept in abeyance [Phonetic].

Kaushal Kedia — Wallfort PMS — Analyst

Okay. Fair enough. And tell me one thing, as of today, what is the amount that is disputed or that is stuck in courts or stuck in some sort of a regulatory issue? What is the total amount of dispute in that?

N.G. Subramaniam — Group Chief Financial Officer

I would say that is less than INR4.5 crores.

Kaushal Kedia — Wallfort PMS — Analyst

Less than INR4.5 crores. So then why have the auditors given an observation — an amount which is more than that?

N.G. Subramaniam — Group Chief Financial Officer

So they have qualified a receivable of around INR10.9 crores because part of this dispute business, the council has already passed the judgement and the payment is yet to come. That is one part of the provisioning or the quantity that I’m referring to. The other referring point that ensue is emphasis of matter pertaining to one corporation where the state government has already instructed the corporation to make the payment and the letter has been issued by the corporation to the company saying that they will make this payment correct in the next 12 months’ time. Now this matter of the state government instructing the corporation and the corporation making the payment is a slightly delayed process. It’s not something that can be achieved or acted upon within 12 months’ time. And that is why the auditors are kind of highlighting these amounts. So we have already won a couple of arbitrations which are in favor for the company, and they also are significantly higher than the amount that we carry in our book of accounts.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. And any new order wins for any new cities or any visibility on that front?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

So there are a couple of projects that we have already submitted bids. We cannot disclose, but there is a very large C&T contract in northern part of India, where the annual contract value is upwards of INR100 crores. Then there is also a very large processing plant in western zone, which is an EPC contract plus O&M [Phonetic] for 15 [Phonetic] years. So these are two bids which we have already submitted and we have a very good feeling of having a good chance of winning them. In addition to that, there are several projects which are in the pipeline that we’ll be bidding in the next few months.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. All right. Thank you. That’s it from my side. Thank you.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Thank you, Kaushal.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ambar from Geomatrix. Please go ahead.

Ambar Taneja — Geomatrix — Analyst

Yes. Hi. I recently started looking at this company. I actually have one question and one suggestion. My question is, can you talk a little bit about the auditors’ observations because what you just said, that is the amount stuck with the municipalities or in litigation, seems to be more than the number that you gave. And my second question is, why does this company not pay a dividend, even a token dividend? It would come on so many buyers lift. There are so many funds, especially outside India who are looking for things like this, but will refuse to buy a non-dividend paying stock. It seems to me there is enough capacity to institute a small dividend. I appreciate your thoughts.

N.G. Subramaniam — Group Chief Financial Officer

Yeah. To answer to your second question, this has been already discussed internally, and the matter has been given to our Board. We will be coming back to you on this before the AGM. So that is something that we will definitely take it from the Board’s direction on that aspect. That’s the short answer to your question. And the first question is on the qualification. So this amount of qualification of INR8.05 crores has been pending for the last four years. So it’s a continuing matter. So it’s not a fresh set of qualification that is getting flagged off. So auditors are of the opinion that if we — either maybe provide for the entire amount or you get the money out of the system. Now we were already getting this money out by 2021 when the company went for a public — for the IPO, but then COVID hit and the courts went into hibernation and we were not able to get any traction there.

Now post that, we have already received a dispute redressal settlement with one of the corporations for an amount, which is more than 5 times the amount we mentioned in our books. So we are very confident of realizing this money, so if you look at the last time’s amount and the current amount, which is being qualified, there is a small dip of around INR60 lakhs because that money has come in. So these are very small amounts that we’re talking about around INR8.05 crores in totality. And that translates to just 1% of our total annual revenue. So — and we are very confident because most of this money are under arbitration where the arbitrator has given an order in favor of the company. So it’s just a matter of time of realizing this money, and that is taking time. And hence, the company has not made provisions for this. So the amounts are not significant. It is with corporations, which are sound. What is going on is most of these corporations, we have helped these corporations get very good ranking in the Swachh Bharat Survey, and they are still very good clients with us. So we don’t want to kind of [Indecipherable].

Ambar Taneja — Geomatrix — Analyst

Okay. I think there should be some kind of clarity here, if you kind of want to attract a new set of buyers, because obviously, this is also a small cap stock. So many people will exclude it because of liquidity concerns. I think having an investor presentation and earnings release is a good idea. I don’t know if there is a settlement mechanism or something with municipalities, but maybe some management comments around that, if there is an easier way to kind of get this stuck money out so that the audit report can be cleaner, it would help. But anyway, I understand that you’re trying. Good luck and no more questions from my side.

N.G. Subramaniam — Group Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Richard D’souza from SBI Mutual Fund. Please go ahead.

Richard D’souza — SBI Mutual Fund — Analyst

Yeah, good afternoon, Jose and NG. Hello?

N.G. Subramaniam — Group Chief Financial Officer

Hi, good afternoon.

Richard D’souza — SBI Mutual Fund — Analyst

So just couple of questions from my side. One is in the other expenses, do we have any extraordinary items which are there? Because year-on-year, the other expenses have gone up quite a bit.

N.G. Subramaniam — Group Chief Financial Officer

So two factors which have led to the increase here. One is the transportation expense related to RDF. So that has — because in the last year, we transported just around 8,000 tons of RDF, this year, we transported around 48,000 tons of RDF. So there has been a significant spike in the transportation bill. So that has reflected into the spike in your other expenses. The other small components are hiring costs of vehicles because these are normally higher now, post-COVID, the rates have increased for us. So these are the two reasons why you are seeing an increase in other expenses. There is no extraordinary provisioning that we had to book in this period.

Richard D’souza — SBI Mutual Fund — Analyst

Okay. So that means we don’t have any pricing power on RDF, is it? While we have been saying that it is of use to the clients, they save a lot of money and the fuel cost. But when we ask them to bear transportation expenses, they are not able to bear this.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

So this had been the trend in the past. But over the last one year, we have seen a very good response because we have actually directly addressed the concern for the cement companies. Cement companies are very particular about the size and the moisture content of the RDF that they want, which we have accordingly adjusted our operations, and we are supplying that. So as we speak now, we have several clients who have given us orders with a positive contribution, excluding the transportation cost. So we are [Speech Overlap] money excluding the transportation.

Jose Jacob Kallarakal — Chairman and Managing Director

So Richard, this RDF in the past was dirty RDF. So cement factories were not happy with this type of RDF. What we did is, our team of engineers, we realized the quality of RDF required in their [Indecipherable]. So they required certain size and certain moisture control, for which we bought additional machineries and improved the quality. And thereafter, we are getting good orders. And even we are making RDF pellets also, which also, has a market, good value for it. And so we have generated a market where cement factories can slowly shift from coal to RDF base to run their plants.

Richard D’souza — SBI Mutual Fund — Analyst

But sorry to say bluntly, but why can’t they bear the transportation costs?

Jose Jacob Kallarakal — Chairman and Managing Director

There are some cement factories, they are paying upfront, and they are bearing the transportation costs of late. It has just come and…

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

That’s the point that we’re trying to make.

Jose Jacob Kallarakal — Chairman and Managing Director

We’re trying to convince them.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Let’s say, the gross value they are paying is INR3,000 per ton. The transportation cost is INR2,500. So we make a INR500 margin net of transportation. So in a way, they have started paying that. I’m just giving you an example to…

Jose Jacob Kallarakal — Chairman and Managing Director

So initially, Richard, when we started off, we were giving RDF almost free of cost in the marketing way. And we started interacting with the cement companies, what type of quality they want. Because in Europe, about 75% of the coal is replaced by alternate fuel, which is RDF, and in India, it is only 3%. One of the reason why cement factories were saying they were getting dirty RDF. And now, of late, after giving this quality RDF as per their requirement, things have changed. And they are willing to also consider much more upside amount. I mean, it is not one or two cement factories, we are working with around five to six of them.

Richard D’souza — SBI Mutual Fund — Analyst

One last question on this is, what is the calorific value of the RDF that we supply?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

So the — in terms of the GCV, the gross calorific value is about 2,500, the net calorific value is close to 2,200 kilocalories.

Richard D’souza — SBI Mutual Fund — Analyst

Okay. Okay. And the second question is on your employee cost. I mean on a Y-o-Y basis, compared to fourth quarter last year, you’re hitting an annual run rate of about INR240 crores. So — or let’s say, put in simpler terms, your employee cost has gone up from [Technical Issues] of sales to about 30% of sales. Now I mean, can you give any color on this? Is it expected to stabilize here because your revenues haven’t grown that much, but your…

N.G. Subramaniam — Group Chief Financial Officer

[Speech Overlap], Richard, one is, last year, we had Nashik operations there, so that has kind of added around 800 headcount to the base. So that is one of the reasons. And second one…

Richard D’souza — SBI Mutual Fund — Analyst

800 on 9,000 is not much, isn’t it?

N.G. Subramaniam — Group Chief Financial Officer

Yeah, but those costs are higher than the minimum wage in certain geographies. So the wages that we pay in Nashik is more than the minimum wage in that particular region. So that has led to one set of increase. And a lot of geographies, I think there is an increase in average wage bill. So the average salaries has been increased to compensate for the rise in inflation and the standard of living costs.

Richard D’souza — SBI Mutual Fund — Analyst

And do we expect this to stabilize here? Or we expect it to grow…

N.G. Subramaniam — Group Chief Financial Officer

Only because the spike happen once in two years, so I mean, if you look at the last couple of years wage bill, almost been in line with the revenue lines. But then the spike comes and then it kind of stabilizes over the next two years and then another spike comes later. So we expect this to stabilize over the next 18 to 24 months at least.

Richard D’souza — SBI Mutual Fund — Analyst

Okay. Okay. Thank you. Maybe I’ll come back later.

N.G. Subramaniam — Group Chief Financial Officer

And Richard, just to clarify, the escalation has not come in. So we are seeing a softer revenue. So the percentage of wage bill is also higher because of that.

Richard D’souza — SBI Mutual Fund — Analyst

So the escalation is about INR20 crores, isn’t it?

N.G. Subramaniam — Group Chief Financial Officer

INR21 crores, yes.

Richard D’souza — SBI Mutual Fund — Analyst

INR21 crores. Okay. Okay, thank you.

Operator

Thank you. The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited. Please go ahead.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Yeah. Good afternoon, and thank you for this opportunity. Now this problem of recovery from the municipalities is a continuing problem and the auditors have also, after reading it out, they have finally kind of reached a conclusion that the recoverability or the timing of this is uncertain. So assuming that the municipalities will continue to behave the way they were, and your manpower costs are also rising, and so what is — basis this, what is the expected EBITDA percentage that the company can continue with?

N.G. Subramaniam — Group Chief Financial Officer

So yeah, good afternoon. So looking at the way the trends are — I mean, if you look at last DSOs of Antony, we’ve consolidated and DSOs have always averaged around 60 to 70 DSOs. For the month of March, those numbers looks spiked, it stands around 90. But post that, we have collected close to INR59 crores of these amounts. Of those, March, it was within 45 days of the year-end closing. So my DSOs are now tracking 60, 65, which is my historical comfort zone. So I mean the receivable is the key, but it’s not problematic because the way those business works is on a monthly billing system. So there is always a 45-day to 60-day kind of a cycle wherein we get the payment realized out. Escalations do help us, now because this is the first time in the last two decades that we ever see various corporations without elected members running the show. So this has never been foreseen such kind of an event that large corporations in the BMC or Nagpur or Pimpri have not had elected members. Otherwise, we have never had this kind of a stringent kind of a cash flow kind of a mismatch between the escalation and wage bill rising.

On a steady state of affairs, the C&T operation and waste processing, the kind of revenue mix that we have, we should be comfortable with the 22% to 24% EBITDA on a steady state of affairs. Part of the reason why the EBITDA is also softer is because of higher contribution of the project revenue which is coming in. That is a lower margin business. That’s contributing to just 10% of the margin. Going forward, if the capex at PCMC is getting out of the shape and commercial operations kicking in, our EBITDA margins will be comfortably upwards of 22% [Phonetic].

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay. Okay. See, the point is that, it is the nature of the business, that your customers are these municipalities, etc., and getting the approvals for escalations and that is going to continuously — that is going to be an issue. So either your pricing basically manages that element or you basically — see, because currently, the EBITDA margins are significantly lower than the ones that you are mentioning at the steady state level. Now it is getting difficult for us to actually kind of value as to how we should look at this critical element of the business.

N.G. Subramaniam — Group Chief Financial Officer

See, if I were to add the escalation and the reimbursement of minimum wages, which is part and parcel of the tender, I just know the time factor. My EBITDA margin, what is being reported will be up around 200 bps. So that is something that, as a company, we are adopting a policy to recognize the reimbursement and escalation on a cash basis instead of accrual basis. So once things stabilize, we will see this cash flow coming into the system. And the prospective costs has already been incurred. So there won’t be any costs associated with these activities. Going forward, your point is valid, this issue of working with corporations, but that is now being addressed with the user collections being an additional source of revenue for companies in waste management. In cities like Noida, Nagpur, Indore, I mean, you name it, the corporations don’t just pay tipping fees. [Technical Issues] are allowing the operators to charge directly to the waste generators.

So in the city of Noida, I mean, a monthly cash collection range of anywhere between INR80 lakhs to INR1.2 crores per month. So that is one way of hedging your receivable risk from municipalities. Similarly, we have seen a large number of corporations opting for this basis where — let it be Jhansi, Varanasi, where user collection is an additional source of revenue, which not only helps the corporation derisk their model, given the way the financials are, but also gives the operator an equal footing to derisk his revenue from the receivables that you rightly mentioned.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Just to add to that…

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

I understand that, but the point is that, see, instead of collecting from one party, now for each municipality, you will be collecting money from, say, 100,000 people. And that basically will add to the cost profile of the organization. So that also will need to be kind of baked in and — so if you have the experience of doing this collection from Noida and the other municipality that you gave an example of, so how does it work there? Meaning how is the collection process happening from the individual waste generators?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

So it’s just like what happens in the power and the water utility business. Even in waste management, some of these cities, specifically Delhi, Noida and in some cities in Uttar Pradesh, they have allowed, by law, collection of user charges. So that’s very much integral part of our scope. So when the client bid out that project, we were supposed — it was known to us that this is part of our scope. And we actually now look forward to it, because this is the classical thing of hedging your payment risk. Do you want to have one customer versus 100,000 customers? So just like utility business, we see this as an opportunity to maximize our revenue and reduce the payment risk.

Just to give you an example, I mean, in one of the cities that we are operating in — where we are operating in Noida, our user charges collection is almost one-third of the tipping fees that we get from the client, right? And there is another 10%, 15% of additional scope that we probably can increase. There is a potential to increase it by another 10%, 15%. So that’s the kind of thing that we are talking about. So it’s actually, we see this as an important part of our business, where we are continuously in the process of improving our skills.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay. Thank you.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

And on the issue of receivables and DSOs, what I would say is that, I think — see, most of the clients — most of the tenders — municipal tenders, not just for us, but in this business, that contractually, the clients are supposed to pay in 60 days’ time, right? So — and if — which matches very well with our DSO of 60, 65 days, so which basically means that most of our payments are reasonably updated. It is only the escalation issue, which actually requires some kind of approval from the standing committee, which is taking a bit of time in some of the places because the party is not in place — the standing committee is not in place, which when rectified, we are confident of actually improving our EBITDA margin.

Manish Dhariwal — Fiducia Capital Advisors Private Limited — Analyst

Okay. Thank you, and all the best, thank you.

Operator

Thank you. The next question is from the line of Gaurav Gandhi from Glorytail Capital Management. Please go ahead.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Yes. Hi, sir. Just one question. Can you quantify the major items in our other expenses for whole year?

N.G. Subramaniam — Group Chief Financial Officer

The main items would be power and fuel, hiring charges and your transportation costs. These are the three main items which contributes close to 80% of the other operating expenses.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Okay. So all of these forms 80%, right? Okay. And sir, the fourth note to our consolidated accounts says that the escalation claims of INR50 crores and INR6.57 crores are confirmed by municipalities.

N.G. Subramaniam — Group Chief Financial Officer

Yes.

Gaurav Gandhi — Glorytail Capital Management — Analyst

So are these confirmed — I mean if you’re saying that there are no elected members to the municipalities, whether the — who else confirmed these amounts?

N.G. Subramaniam — Group Chief Financial Officer

The commissioner, the state government, urban ministry confirms that this amount is payable that has been confirmed by the state government themselves. They have further instructed based on the ledger balances, which has been confirmed and tallied with our books that this is payable by those particular municipal corporation and the municipal commissioner of that party, with which we work, has also issued us a letter, under this office that this amount is confirmed and will be paid to the company in instalments.

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right, sir. And in the case when the member get elected in the municipality, can they raise the dispute regarding this amount? Because I’m seeing another note where there is INR15 crores of which have been cleared by standing committee, but the municipality has disputed that in High Court, which you have won, but can it be the case that elected members may raise a dispute against this INR50 crores also?

N.G. Subramaniam — Group Chief Financial Officer

So this has already been approved by the standing committee of the municipal corporation. And since this is a grant that needs to come from the state government, the corporation has written to the state government. The state government has in turn directed the municipal corporation to [Indecipherable] their good offices to make the payment. So the approvals to make the payment out of the budgetary allocation has been granted by the urban ministry to the commissioner. So the municipal commissioner now has the right to do it. So change in government has nothing to do with it. This is the bureaucracy — the bureaucratic arm which kind of does the paperwork.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Okay. Okay. Understood. Understood, sir. Thank you.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

The order has come from the state government to the municipality where they can pay us on any of the budget. Usually, they need sanction from the state government for such.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Okay. Okay. Thank you, thank you, sir. Thank you.

Operator

Thank you. The next question is from the line of Swaranshi Chatterjee [Phonetic] from Ashtech [Phonetic] Capital.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Hi, Sir. Am I audible? Hello?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Yeah, yeah, yes. Go ahead.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Yes, Mr. Chatterjee, please proceed. Yeah. Sir, my first question is the INR19 crores accelerated [Phonetic] revenue didn’t recognize, but that should be recognized by H1 of next year, right? So that should improve our margin in H1.

N.G. Subramaniam — Group Chief Financial Officer

Sorry, your voice is not clear. Can you repeat the question, please?

Swaranshi Chatterjee — Ashtech Capital — Analyst

One second. Hello?

N.G. Subramaniam — Group Chief Financial Officer

Yes.

Swaranshi Chatterjee — Ashtech Capital — Analyst

I’m saying, the INR19 crores revenue, which we couldn’t recognize in FY ’23, that should be recognized by next year, H1, right? And that should boost the margin in H1.

N.G. Subramaniam — Group Chief Financial Officer

Yes. If things go up — if the elected members are in place, the escalation gets passed through, but even if we get an intimation that this has been approved and scripted, this will come as part of revenue and flows through our EBITDA.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Okay, sir. And this year, our contract revenue was INR232 crores versus INR98 crores last year. Now this is entirely for Kanjurmarg and Pimpri Chinchwad waste-to-energy project? Or there are some suite project that we are also part of that?

N.G. Subramaniam — Group Chief Financial Officer

No. This is entirely related to the Pimpri Chinchwad waste-to-energy and the Kanjurmarg project only.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Okay. So then next year, this amount should be very less, right? And the revenue from…

N.G. Subramaniam — Group Chief Financial Officer

From the third quarter, there won’t be any such significant number in the balance part of the year.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Okay. Okay, sir. Thank you. And I have one request to you. There is one slide in the presentation where you provide which are the contracts going on. So is it possible to share the number of projects or identify the projects which are going to expire in one year? For example, you have on C&T project in Mangalore, which was probably extended up to January…

N.G. Subramaniam — Group Chief Financial Officer

[Speech Overlap] 18% [Phonetic] of my C&T revenues are up for renewals. And the project has mentioned that the tenders have not yet been floated. So these contracts, which has already expired, I have a visibility of at least 12 months from now. So that’s around 18% of the C&T contract, so that is where 18% of my — 45% of our revenue, which is around 11% of the gross core revenue.

Swaranshi Chatterjee — Ashtech Capital — Analyst

Okay, sir. And from when should we see the revenue kicking in from the C&T project, which we got for Mumbai SIC [Phonetic]?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

So that would be quarter one of FY ’24, that is April — around March — around April ’24 is when we will start commercial operations.

Swaranshi Chatterjee — Ashtech Capital — Analyst

April ’24, that is FY ’25, right? Okay, sir. Thank you, thank you. Thank you, sir.

Operator

Thank you. The next question is from the line of Harshal from HSBC. Please go ahead.

Harshal — HSBC — Analyst

Yeah, hi. Hello? Hi. Am I audible?

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Yeah, please.

Harshal — HSBC — Analyst

Yeah. So my question is on two things. First question is on that we have significant investment happening in working capital. So when I say working capital, is excluding cash and bank balances. Because as we are growing and we have to make the investment into working capital, I understand, but because of increased debtors credit period, it is adversely impacting the margin, right, overall margin. So are we going to charge any interest on this receivable for which there is a significant delay in collection?

N.G. Subramaniam — Group Chief Financial Officer

So normally, the tender allows us to charge interest on the delay in payments from municipal corporation. But it’s an industry practice or it’s normal practices that interest is stopped only in legal terms and it’s never been — you adjust in actual operational metrics.

Harshal — HSBC — Analyst

But because especially, we are having a case because when the state government municipal authorities have also approved the claim, right, and they also admitted the amount, but they are not paying it on time, right? So we have a significant case. Why can’t [Phonetic] we forgo our interest claim, especially when there is a delay from their side?

Jose Jacob Kallarakal — Chairman and Managing Director

You’re right. I mean we also hope that these government clients should actually pay the penal interest for delays. But unfortunately, that’s how the industry has evolved, not just our industry, but all government contracts, I meant. They don’t give interest on…

Harshal — HSBC — Analyst

I understand how the business work. I understand the business aspect of it. But because we are at INR210 crores of receivable stuck in — total INR210 crores receivable, out of that, INR80-odd crores for which there is some [Indecipherable] audit report [Indecipherable] audit reports. So at least one-third of my receivable is stuck for this overdue.

N.G. Subramaniam — Group Chief Financial Officer

This point was raised in our audit committee and it was decided that we will raise a bill, but in the books of account, the same will be reversed. So in the books of accounts, interests chargeable to our clients, the amount stands at zero, but it was noted that the audit committee that this is something that the company should work on. So we have informally informed our clients that this is the tender clause, so you need to look at this aspect. But the books of accounts don’t carry this as most of the time.

Harshal — HSBC — Analyst

So the overdue receivables that we have, out of this, we have provided some amount. So the provision that we have made in this quarter as well as in earlier quarters, so whether those provisions covers this overdue amounts or it is a wholesale bucketing approach or portfolio approach that we have adopted?

N.G. Subramaniam — Group Chief Financial Officer

[Speech Overlap]. Only in specific client cases where we’ve got a balance confirmation and a credit note or an adverse recommendation from the client, as we make absolute provision, otherwise, it’s the portfolio provisioning that we have taken and kept it. Based on the last two decades of experience of working in this industry, we always have an ECL kind of a provisioning to kind of tide us over such kind of eventualities.

Harshal — HSBC — Analyst

Okay. And there is significant increase in borrowing. So is this borrowing is for these projects, which is going on?

N.G. Subramaniam — Group Chief Financial Officer

Yes. The main increase for the set is primarily due to the waste-to-energy project that is being constructed at Pimpri, that has taken another increment of INR126 crores for that project. The balance is due to the new project that we executed in the North Delhi and in Nashik CNG project.

Harshal — HSBC — Analyst

Okay. And in terms of waste-to-energy, how much revenue that we expected to generate in next year? And how much would be the margin in that case?

N.G. Subramaniam — Group Chief Financial Officer

So normally we don’t give any specific guidance in terms of project specific numbers, but based on our very conservative approach, I think we are looking at an annual revenue of around INR60 crores to INR65 crores on full scale of operation. Next year is going to be only for six to nine months of operations, so that’s for the staggered [Indecipherable]. But INR60 crores to INR65 crores annual revenue is something that we look at. And since it’s waste processing in nature, these have a higher EBITDA than the consol number that we have.

Harshal — HSBC — Analyst

Okay. Okay. Okay. And actually, I have made a request last time as well. Can we have this breakup of major expense — major part of expenses, which is power and fuel and expected credit loss?

N.G. Subramaniam — Group Chief Financial Officer

We will contact with our Investor Relations team and have the thing sent out or have that as an annexure in our reports going forward.

Harshal — HSBC — Analyst

Yeah. You just present it by way of note into the result itself, that will be better because we don’t want to ask a very basic question which we can get it from the results itself.

N.G. Subramaniam — Group Chief Financial Officer

Point taken.

Harshal — HSBC — Analyst

Okay. Okay. Thank you. And do we have any plan to issue any bonuses? Because we are significantly capitalized in terms of — at least, I would say we are good capitalized company. So do we have any plan to issue any bonuses?

N.G. Subramaniam — Group Chief Financial Officer

Currently, we are looking at — I mean, this is something on the capital structure, we never acquire any — we’ll definitely reach out to the Board whether they are interested I guess in this aspect.

Harshal — HSBC — Analyst

Because why I’m saying this, because when we give a dividend, the cash goes out of the company, right? So — and we have significant borrowing outstanding, so instead of giving cash, at least, reward the shareholders via issue of bonuses. Okay. Thank you.

Operator

Thank you. The next question is from the line of Harish Swaminathan [Phonetic], an Investor. Please go ahead.

Harish Swaminathan — Private Investor — Analyst

Thank you very much. I have been carefully listening to all these questions and wonderfully addressed by all of you. The core concern seems to be the relationship with the municipalities. And so my question is, how do we bring back a little more assertiveness and a certain rhythm back to ensure our rights as a vendor with the municipalities? Of course, we are bound by the tender, but on the other hand, we are an essential service provider. And our service is very much in demand. We have — but then how do we ensure our right because somebody has to pay you, but then he is not on the elected status as on date. So we’ll have to wait. Or — so how do we do it? Do we do it by way of withholding service, which is not very practical or do we escalate to the Chief Minister of the state or we escalate to the Prime Minister’s office? Because as a vendor, it is our right to get back our money, let alone interest. We are providing a sacred service. Now how do we ensure our right? Is it only the tender document by which we ensure our right? Because then you have limitations. I mean my question is, I mean this addresses most of the concerns of the investor questions till now, including the question asked by Richard about our inability or the timidness to collect that INR500 transport cost from a cement company who can very well afford to pay it. So my question is more philosophical around bringing back a little more assertiveness into something which the customer is very much mandated to pay. We are not doing a therapy to them. Thank you very much for all the work that you have been doing. Thank you.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

I think it’s an excellent question, sir. What I would say is that there are two parts to it. One part is the contractual part that we must exercise our rights. So what we have done is that we have strengthened our central contract management team so that at least we are meeting all the obligations contractually that we are supposed to deliver. So then the client doesn’t find faults in our works tomorrow as an excuse not to pay us. That’s one. Secondly is — second part of the answer is philosophical as you said, is that, ultimately, this is an essential service. It’s an essential business, okay? And there’s no two way about it that we actually cannot hold them to ransom or blackmail them by saying that, okay, we’ll not service — not give you service today or for next couple of days, okay? Because that actually leads to bigger problems because after when we come back, because even operationally, if we stop our service for two days and come back after two days, it’s again a mess, right? We have to do — the restarting operations actually take more efforts and energy and time.

So the best way and only way which we have found that works very well is to actually have a close dialogue, very close communication with the stakeholders, I mean no less than the commissioner or the health officer who typically are the two important stakeholders in the city, are the people that we actually communicate with or talk to them regularly about the kind of problems that we are facing in terms of cash flow constraints if they don’t pay on time. And invariably, we have found clients actually being supportive for that. And yes, as you said, we have not gone to the Prime Minister of India, but we actually have reached out to the state government, the urban development department.

For example, there’s even the example of one of the cities that we’re talking about, which has got a huge outstanding and the municipality was not in a position to pay. So we went to the state government and they issued the order. So we have tried all options that are available to us, which is talk to the local stakeholders, talk to the political stakeholders, talk to the RWAs and the resident welfare associations, talk to the state bureaucracy and even the Chief Minister’s office and so on. All these things actually sometimes help you in meeting the objectives that we want to have and solving our day-to-day practice. I hope that address your questions.

Harish Swaminathan — Private Investor — Analyst

Thank you. Thank you very much, and all the best.

Operator

Thank you. The next question is from the line of Kaushal Kedia from Wallfort PMS. Please go ahead.

Kaushal Kedia — Wallfort PMS — Analyst

Yeah, hi. What I wanted to understand is the escalations on the wage increase bill that you’ve not recognized for this year, will it be a recurring issue? And what is exactly the escalation for the fuel increase and what is it? So I just want to understand the technicality…

N.G. Subramaniam — Group Chief Financial Officer

So I’ve clarified on three buckets. One is pure salaries and wages and miscellaneous. So there are different weightages that’s assigned to the [Indecipherable] that we quote to the corporations. So as and when the fuel price or/and wage bill increases, the same gets calibrated and the increase in prices gets passed on as escalation in that tipping fee. Normally, the tipping fee granted by the corporation and escalation needs to be approved by the either commissioners themselves or by the standing committee. In certain contracts, it’s specifically mentioned that escalations which are annual or quarterly or even monthly needs to be approved by an elected member. So till 2021 or even pre-2020, this was not a problem because there were elected members who were there and as a part of the routine monthly budgets and bills, this was getting approved. Now since there are no elected members, there is nobody in the office to pass this through. So the tipping thing, which is the tender rate gets approved and the escalations and due to an increase in fuel bills or wage bills gets approved later once a member is appointed in the office. So that is the difference. Otherwise, it’s a routine matter of operation point of office.

Jose Jacob Kallarakal — Chairman and Managing Director

So for your information, majority of the contracts, we have escalation and the escalation money is coming in without any costs. There is one or two contracts that we are waiting for election to happen. And once that is done, it’s not an issue.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. So what I want to understand is, so it basically — again, if the fuel cost increase, which they were, say, high in the first half of the last financial year, so we’ll have this problem gain maybe, if there is no standing committee again.

N.G. Subramaniam — Group Chief Financial Officer

So the increase in fuel cost, the money is already spent by the company. The reimbursement is not currently getting booked because there’s no authority to approving the reimbursement. So the revenue [Technical Issues] because of that amount, the expenses is actually incurred and spent off. So that is what has led to the differences in the amount.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

And if I can just add to that, the escalation problem has occurred only first time when we moved from the quoted rate to the escalation rate — escalated rate for the first time. After that, it’s almost the automatic cycle wherein the rates are revised quarterly or annually as the case mandates.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. Sir, that is because this year was an anomaly because of the extreme rise in crude oil prices and subsequent rise in the petrol prices. So is that right to assume?

N.G. Subramaniam — Group Chief Financial Officer

That’s a right way of looking at it because once the approval comes in place then [Technical Issues].

Kaushal Kedia — Wallfort PMS — Analyst

Okay. One more question that I have is that — so what the earlier gentleman asked is, why out of INR210 crores, why did he say INR80 crores is disputable or INR80 crores is under dispute?

N.G. Subramaniam — Group Chief Financial Officer

Because the balance are routine payment, because the bills are raised on a monthly basis. So the outstanding as of 31st of March was — the bill is raised only in April. So that’s why the receivable amount is on a higher side. But if you want to…

Kaushal Kedia — Wallfort PMS — Analyst

But you said — the gentleman said — I just wanted to understand, actually the gentleman said INR80 crores is about this disputed amount. So is that correct? More than one-third?

N.G. Subramaniam — Group Chief Financial Officer

So around INR50 crores is the amount which has been disputed and [Technical Issues] processing and that has been passed on. So the entire INR80 crores is not the issue.

Kaushal Kedia — Wallfort PMS — Analyst

No. Passed on meaning? INR50 crores is disputed and passed on meaning?

N.G. Subramaniam — Group Chief Financial Officer

INR50 crores is the money of minimum wage reimbursement, which has been approved by the state and the municipal commissioner to be paid to the company in installment within 12 months. So that is the clarification on the note four that the other previous analyst had asked for. So other qualification which is over and above this INR50 crores is the INR8 crores qualification, which is pending receipt of funds based on arbitration settlement.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. Okay. And one last question from my end is, is there any industry lobby which you all have created with other players in the industry that can basically put up your issues to the concerned authorities about the payments and escalation and something like that on that front? Is there a strong industry lobby?

Jose Jacob Kallarakal — Chairman and Managing Director

So waste management has a subset in CII and the FICCI. These concerns are raised and flagged. But there is not a single industry lobby for waste management because waste management pre-2020 or even pre-2000 was still run by the government agencies. And even today, there are a handful of players, but we all will reach our part of the CII and the FICCI federation. So we do raise a concern through these larger formats.

Kaushal Kedia — Wallfort PMS — Analyst

Sir, just a suggestion, will it be possible to create a lobby and lobby to maybe the central government or basically you can form a sort of a committee under the Swachh Bharat Mission to expedite payments and sort out the matters on a fast track basis?

Jose Jacob Kallarakal — Chairman and Managing Director

We have an organization like FICCCI and all, but that is more of industry, how — policing matters. As far as payment is concerned, every municipality has a different way of paying. Like in the case of Mumbai, we get in 45 to 50 days. In some municipalities, it takes 70 days, some place, it takes only 30 days. So every client is different. And so the organization, the industry organizations like FICCI and all, they — we sit together, we discuss this matter. But basically, it’s more on policy matters.

Mahendra Ananthula — Group President, Operations, Business Development & Diversification

Actually, we often reach out to even the policymakers in Delhi, the Ministry of Housing and Urban Affairs and Swachh Bharat Abhiyan, those kind of — the mission kind of people and so on. But however, as Jose mentioned, I mean, they are more policy-driven. I mean they make policies. Okay? For the payments are always driven at the municipal level, so it’s always better to go to the state government if we need to — if we need them for any intervention. Otherwise, industry lobby and those associations actually do not help beyond a point.

Kaushal Kedia — Wallfort PMS — Analyst

Okay. Okay. Thank you so much for answering the questions patiently. Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Jose Jacob for his closing comments.

Jose Jacob Kallarakal — Chairman and Managing Director

I want to express my gratitude to our dedicated teams who have worked tirelessly to achieve our goals. I also extend my heartfelt appreciation to our clients and stakeholders for their unwavering support. Together, we have built a strong and successful company, and I’m confident that our journey towards a cleaner and greener future will continue to be filled with success. Thank you, everybody.

Operator

[Operator Closing Remarks]