Organic Recycling Systems coming with IPO to raise Rs 50 crore

Organic Recycling Systems

• Organic Recycling Systems is coming out with an initial public offering (IPO) of 25,00,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 200 per equity share. 
• The issue will open for subscription on September 21, 2023 and will close on September 26, 2023.
• The shares will be listed on BSE SME.
• The share is priced 20.0 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Arihant Capital Markets.
• Compliance Officer for the issue is Zinal Mukund Shah.

Profile of the company

The company is an engineering company focused on environmental solutions and provide waste management solutions across waste types and across the value chain. The company has been a forerunner in providing sustainable waste management solutions in India since 2008. Incorporated by technocrats its focus primarily has been on developing robust, cost effective & environment friendly technologies that are simple to operate. It has proven technology and capability of successfully running one of India’s first Waste to Energy (WTE) plant developed on anaerobic biomethanation technology.

The anaerobic bio methanation technique has been recognized as a promising technology as per National Master Plan issued by Government of India, it has also set up a MSW processing and disposal plant in Solapur, Maharashtra to convert Municipal Solid Waste (MSW) into electricity and compost. The plant has been operational since 2013 with the plant being recognized as one of the case studies for best practices for MSWM under the Swachh Bharat Mission and various other reports. With the data collected over the years, the company is now a front runner for various EPC opportunities in the country and therefore providing solutions encompassing entire value chain for waste management. Its Business verticals includes Build Own Operate Transfer (BOOT) model, Engineering Procurement and Commissioning (EPC) model and Supply of key equipment. 

Proceed is being used for:

• Reduction of the aggregate outstanding borrowings of the company
• Towards general corporate purposes

Industry overview

The world generates 2.01 billion tonnes of municipal solid waste annually, with at least 33 percent of that extremely conservatively not managed in an environmentally safe manner. Worldwide, waste generated per person per day averages 0.74 kilogram but ranges widely, from 0.11 to 4.54 kilograms. Though they only account for 16 percent of the world’s population, high-income countries generate about 34 percent, or 683 million tonnes, of the world’s waste. 

When looking forward, global waste is expected to grow to 3.40 billion tonnes by 2050, more than double population growth over the same period. Overall, there is a positive correlation between waste generation and income level. Daily per capita waste generation in high-income countries is projected to increase by 19 percent by 2050, compared to low- and middleincome countries where it is expected to increase by approximately 40% or more. Waste generation initially decreases at the lowest income levels and then increases at a faster rate for incremental income changes at low-income levels than at high income levels. The total quantity of waste generated in low-income countries is expected to increase by more than three times by 2050. 

The total quantity of Solid waste generated in the India is 160038.9 TPD of which 152749.5 TPD of waste is collected at a collection efficiency of 95.4%. 79956.3 TPD (50 %) of waste is treated and 29427.2 (18.4%) TPD is landfilled. 50655.4 TPD which is 31.7 % of the total waste generated remains un-accounted.  A Waste to Energy Programme for recovery of Energy from Urban, Industrial and Agricultural Wastes/ Residues (WTE Programme) in the form of Biogas/BioCNG/Power is under implementation. The WTE programme through grant of Central Financial Assistance supports the Sustainable Alternative Towards Affordable Transportation (SATAT) initiative of Ministry of Petroleum and Natural Gas wherein it is envisaged to set up 5000 CBG plants by 2023-24 with production target of 15 MMT of BioCNG. It will facilitate the creation of new employment opportunities and enhance farmers income thereby help realising the vision of ‘Annadaata se Urjadaata’ and invigorate the rural economy. 

Pros and strengths

Proven Technology & Capability: It is one of the forerunners in introducing Thermophilic Anaerobic Bio methanation Technique for Municipal Solid Waste Management in India. Anaerobic bio methanation technology is the most ideal for Indian conditions for treating organic waste and based on the same, ORS has developed, Patented DRY ANAEROBIC DIGESTION (DRYAD) technology which is capable of treating several kinds of waste and same is also proven through its use in Solapur plant which is operating since last 9 years. Through data collected, it has developed further technologies based on techno-commercial feasibility and client requirement such as LIPH-AD technology, a low cost anaerobic digestion process, MARUT - Pulverising and homogenising technology and many more as per the waste sector demands.

Lucrative prospects of the market: The average per capita per day solid waste generation in cities in India is estimated to be around 0.39 kg. (Source: Waste wise cities by CSE and NITI AAYOG) As per the 2018-19 data form CPCB Annual report and Plastic waste management case study by MOUHA, MSW generated per day in India is around 1.5 lakhs tons per day and treated quantity is around 0.5 lakhs tons per day and plastic waste generated is around 0.26 lakh tons per day and plastic waste treated is around 0.15 lakhs tons per day with total market opportunity upto $60 billion till 2025.

Experience of Promoters and management personnel: Its Promoter Mr Sarang Bhand has a total experience of 17 years. He has played vital role in securing technological collaborations, contracts/ projects for the company. He has also been involved in project implementation, project planning, securing funding, stakeholder management, monitoring projects & securing compliances for ongoing projects. He along with an experienced team of commercial and environmental specialists who have deep operational, technical & scale up expertise in waste management sector. This team has a combined more than 100 years of experience in providing engineering solutions in waste management sector.

Risks and concerns

Depend on limited number of customers: It has in the past derived a significant portion of its revenue from limited number of customer and it may continue to derive a significant portion of its revenue from such customer. As its business is currently concentrated to a select number of customers, any adverse development with such customer, including as a result of a dispute with or disqualification by such major customers, may result in it experiencing significant reduction in its cash flows and liquidity. Substantial portion of its business contracts are with municipal authorities. Thus, it derives a high proportion of its revenues from a small number of customers. Its major contracts relate to processing and disposal, aggregation and treatment of waste awarded by regional government authorities and agencies like Solapur Municipal Corporation, Kalyan Dombivali Municipal Corporation, etc.

Working capital requirements: Its business requires a significant amount of working capital, which depends upon the nature of the project. Generally, in its area of business, significant amounts of working capital are required towards financing the purchase of materials and equipment, advances to suppliers, margin monies towards bank guarantees. Further, the processing and disposal of waste requires the Company to employ large numbers of workers and electricity and other fuel costs.

Operate in highly competitive business: There are around 25 participants in the MSW management market offering various services. Many infrastructure and environment services companies are present in this market. Competitors can be categorized into two tiers - national and local. National participants are large infrastructure and environmental services firms. Local participants are largely small firms involved in making compost. Most of its contracts are won through a competitive bidding process. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. In selecting contractors for projects, clients generally limit the tender to pre-qualified contractors based on criteria such as experience, technical ability, past performance, reputation for quality, safety record, financial strength and the size of previous contracts executed in similar projects with them or otherwise. Its inability to compete successfully with them could materially and adversely affect its business prospects and results of operations.

Outlook

Organic Recycling Systems is an engineering company focused on environmental solutions and provide waste management solutions across waste types and across the value chain. The company has been a forerunner in providing sustainable waste management solutions in India since 2008. On the concern side, its business requires a significant amount of working capital, which depends upon the nature of the project. Generally, in its area of business, significant amounts of working capital are required towards financing the purchase of materials and equipment, advances to suppliers, margin monies towards bank guarantees.

The company is coming out with an IPO of 25,00,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 200 per equity share to mobilize Rs 50 crore. On performance front, during the FY 2022-23 the restated revenue from operation of the company has increased to Rs 2,471.93 lakh as against Rs 1,461.37 lakh in the FY 2021-22. This represents a 69% increase year-on-year (YoY). The restated profit after tax for FY 2022-23 has increased to Rs 365.38 lakh as against loss of Rs 535.03 lakh in the FY 2021-22. Meanwhile, it intends to start its consulting section to offer businesses in the waste management sector technical and financial advisory services. It has a team of engineers and specialists in waste management, which is still an underdeveloped field. With the knowledge it has gained over the past ten years, the data it has gathered and the technology it has access to, it hopes to transform the waste management industry.