With new investors, NEPRA enhances its value through dry waste solutions

In December 2016, an innocuous mail landed in Robert Kaplan’s email introducing him to NEPRA, a dry waste solutions company working in a handful of cities in India.

The mail was from an investment banker helping the company in raising funds. At the time, Kaplan was the co-founder heading Closed Loop Partners in New York, a firm for impact investing with focus on North America.

But it was after he met the management team of the Ahmedabad-based dry waste solutions company at a Sankalp summit in 2019 that he began to get more and more interested in what was being attempted. At the summit, Kaplan also met the top executives of impact investor Aavishkaar and its CEO, Sandeep Patil.

Kaplan’s team visited the company’s plant and offices in Ahmedabad and were quite impressed with what they saw.

By this time, Kaplan had moved on from New York and set up Circulate Capital, based out of Singapore. The nascent company aims to deploy capital in partnership with leading corporations and investors to scale solutions that advance the circular economy and prevent the flow of plastic waste into the ocean in South and Southeast Asia. It has raised $106 million, has four investments in India and Indonesia, and is expanding its footprint in the region.

Waste management is one of the biggest problems facing India. So much so that it has been listed as a priority of the Narendra Modi regime (the effectiveness of Swachh Bharat Abhiyan is opaque but that it is a priority has been made amply clear).

Oddly for a country of its size, there was almost no serious private player working on tackling this menace. And Kaplan could see an opportunity.

When he came across NEPRA, it was primarily in Ahmedabad, Indore and Pune, with a small presence in Jamnagar and Vapi. It had plans of entering Bhopal, Mumbai, Delhi, Patna, Jaipur and expanding further in Ahmedabad. The company had blended technology with the human element to come up with an efficient business model that could be replicated easily and scaled up effortlessly.

Its leadership team had learnt many lessons since the company’s inception in 2006, including a fresh start thanks to a fire that left them penniless. Moreover, the company was a “fit for purpose” in its local environment.

“I have invested in companies in waste management around the world, and I would not expect a company that is successful in Japan to be successful in India. What NEPRA brought to the table was a scalable solution ideally suited for Indian conditions,” says Kaplan.

NEPRA has managed to integrate and improve the lives of rag pickers (who now have bank accounts) in the cities they operate in. Since Circulate began working on it before the pandemic and had done its homework, the deal could be finalised last month.

The latest fund-raising has brought in $18 million for NEPRA, which is valued at roughly $48 million. Of this, Circulate committed $11 million and $4 million that is an exit secured by an earlier fund of Aavishkaar, taking the total capital put in by Circulate to $15 million. The exit has happened at an IRR of 26.25 per cent and a 5X multiple on capital invested in dollar terms (5.7x USD).

In the latest round, Aavishkaar has invested $7 million through another fund. As a result, Aavishkaar continues to hold a majority in NEPRA, although its holding has reduced. The $18 million investment will help NEPRA scale up operations, establish its presence in several new cities and handle a far higher volume of dry waste. It currently handles 500 metric tonnes (MT) of waste on a daily basis across its plants. The goal is to take this to over 1,100 MT with the latest expansion.

Vineet Rai, chairman of Aavishkaar, said that the latest NEPRA investment was a demonstration of the kind of value impact investing could create while solving a larger problem of waste management.

Aavishkaar invested in NEPRA in its early days and lost the money when the latter’s plant caught fire in 2013. But instead of “cutting its losses” as investors are quick to do, Aavishkaar invested more into the business as it had set out with the promoters to chase a bigger goal of making India cleaner.

“We failed, we fell but we didn’t cut our losses as many advised,” said Rai. Earlier, the Aavishkaar and NEPRA team was only able to convince another impact investor, Asha Impact, which brought in a small investment. But the latest tranche proves that they have been able to put their troubles behind them and are in fact set on a growth path that other bigger investors have bought into.

Municipal corporations across India spend crores annually to get contractors to collect waste from homes and dump it in landfills, both an inefficient and unworkable solution in the long run.

According to Rai, their goal was to see whether “we could create wealth from waste without the government paying for it”. Instead of the tipping fee model, NEPRA pays municipal bodies for the dry waste it collects from them. The waste is then dealt with in its integrated plants and recyclables and other products that have a market value are created.

While what it does is a “drop in the ocean”, its replicable model will allow it to scale. The Circulate investment has got other investors across the globe interested, and NEPRA’s journey till now is an example of what impact investing can do to will, intent and execution.