Va Tech Wabag

Stock Opportunities Not-so-Hidden Gems
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Is this the same Quant fund that Sebi is investigating now? If so then its sort of good news.

Link

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The company has won the arbitration Proceedings pertaining to Kerela water Authority. The amount involved is approximately Rs 36.11 Cr.
20f0e488-e14a-440c-96a4-d5868c328c48.pdf (480.1 KB)

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VA TECH WABAG Secures Significant Repeat Order

Water technology firm VA TECH WABAG has won a INR 415 crore contract from Chennai Metropolitan Water Supply and Sewage Board (CMWSSB) for the operation and maintenance of a 110 MLD desalination plant.

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It’s a 7 year maintenance contract meaning 60 crores per year run rate. Will contribute only 2% to company’s topline. Hardly significant in my view.

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Significance lies in the repetition of the order and not the value.

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In the capital goods industries the win classification (significant, large, mega) etc is based on the value of the order and not whether they are repeating or not.

If you read l&t press releases for new orders that’s how they define them.

Va tech didn’t use the word “significant” in their press release.

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  • VA Tech Wabag is celebrating its centenary year, marking 100 years of presence in the water technology industry.
  • Consolidated revenue grew 13% year-over-year to INR 627 crores
  • Consolidated EBITDA increased 23% to INR 81 crores with 13% margin
  • PAT grew 31% to INR 55 crores
  • Order book stands at INR 11,000 crores
  • Net cash position remains positive
  • Focus on emerging markets like India, Middle East, Africa, Southeast Asia
  • Divestment of Romanian subsidiary completed as part of strategy to reduce European exposure
  • Targeting new areas like semiconductor, compressed biogas, green hydrogen, and digitization/AI
  • Aiming to increase international revenue share to at least 50% of total
  • Shift towards technologically challenging projects like desalination and water reuse
  • Growing opportunities in One City One Operator projects in India and internationally
  • Increasing focus on O&M business for better margins and cash flow visibility
  • Indian government’s emphasis on water supply and treatment projects for 100 large cities
  • Growing demand for desalination and wastewater treatment projects globally
  • Targeting 15-20% annual revenue growth
  • EBITDA margin guidance of 13-15%
  • Entering semiconductor ultra-pure water, compressed biogas, and green hydrogen segments
  • Exploring partnerships to enhance capabilities in new areas
  • Aiming to more than double revenues within this decade at attractive margins
  • Targeting order book of INR 15,000-16,000 crores for next year
  • Asset-light approach
  • No long-term debt on books
  • Large project pipeline of INR 6,000 crores where company is preferred bidder
  • Political/economic risks in some international markets mitigated through payment securities
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Begining to get expensive. Almost entire run up in last year is due to re-rating.
Despite so many industry tailwinds, management has only guided for15% growth(2x rev in 5 years, 4x in 10years).

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Be mindful of elongating WC cycle, Trade receivables are 70% of revenue for FY24. So cash generation is slow.

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@rcinvestor999 From which site your are seeing this data?

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Wabag has won a big order for Greenfield Water Desalination Plant - from Saudi Water Authority worth USD 317 Million (~SAR 1,190 Million / ~INR 2,700 Crores) towards a 300 MLD Mega Sea Water Desalination Plant in the Kingdom of Saudi Arabia

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Yeah, that’s quite big order. It shows Wabag’s credibility amongst the global clients.

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There are multiple semiconductor big scale projects in the news (gujrath , tamilnadu and now mah ), however haven’t read any tie up for water treatment requirement (desalination for ultra pure water being anticipated as one of the major requirement) , any idea who from water treatment industry is getting the orders , not sure if wabag has approached for any of these projects , anyone tracking this will be good to know about it.

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During the concall the management said they are in talks with some semiconductor companies. They didnt give any other details

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Re: Orders from the semiconductor sector

They are expecting to receive the order by the end of this year or early next year.

va order
va order692×509 50.3 KB

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Company Profile: The company is a technology focused water solution provider having core expertise in EP, with civil activities being outsourced, following an asset light model. The company offers world-class technology at competitive prices promoting circular economy, resource recovery, and manufactured water. The company has presence across 25 countries.

a) Q1 FY25 results: The following are the highlights of the company’s Q1 FY25 results:

  1. The company’s Q1 FY25 revenue from operations stood at Rs 626.5 crores, up 13.3% YoY. EBITDA stood at Rs 81.3 crores, up 23.4% YoY, whereas EBITDA margins stood at 13% versus 11.9% YoY. The company’s PAT stood at Rs 55 crores, up 9.9% YoY. PAT margins stood at 8.8% versus 9% YoY.

  2. The company earned 60% of Q1 FY25 revenues from RoW and 40% from India. 81% of the revenues were from EPC and 19% from O&M. 57% of the revenues were from the municipal segment whereas 43% were from the industrial segment.

  3. On a consolidated basis, the India business revenues declined 22% YoY, and the export revenues doubled. This was because of the general elections in India and two international projects in the supply phase. On the domestic side, the revenues will start flowing in from Q4 FY25 majorly from the 400 MLD desalinization plant.

  4. The higher gross margins in the current quarter can be attributed to a higher international revenue mix.

  5. The company completed the 100% divestment in Wabag Romania in Q1 FY25.

B) Order book and order intake: The following are the details about order book and order intake:

  1. The company’s order book as of Q1 FY25 stood at Rs 10,676 crores versus Rs 11,400 crores as of Q4 FY24. Of the current order book, 69% is from India and 31% is from RoW. 55% is EPC and 45% is O&M. 91% is municipal and 9% is industrial.

  2. The company’s order intake for Q1 FY25 stood at Rs 67.2 crores. Out of this, 68% is India and 32% is RoW. 82% is municipal and 18% is industrial.

  3. The company is a preferred bidder in projects of over Rs 6,000 crores in the MEA and India region, which will take anywhere between 1-5 months to flow through.

  4. On 6th Sept’24, the company won an EPCC order worth Rs 2,700 crores from the Saudi Water Authority towards a 300 MLD Mega Sea Water desalinization plant. The project is slated to be completed within a 30-month period. With this order, the company’s total order book stands at Rs 13,376 crores.

C) Project highlights: The following are the highlights for the company’s ongoing projects:

  1. The company’s 400 MLPD desalinization project in Chennai, funded by JICA, is moving at a brisk pace and engineering activities are at its peak.

  2. The company’s 200 MLP sewage treatment plant project in Bangladesh and CIDCO water treatment plant in Maharashtra are progressing well.

  3. A large part of revenues from the Senegal and SIBUR projects will be earned by Q2 FY25 as they are EP projects.

D) Future outlook: The following is the future outlook provided by the management:

  1. O&M has been the company’s focus as it helps bring in stability, better profit margins and cashflow visibility. The company has a long-term visibility on O&M with a robust order backlog and it will continue to develop its O&M business.

  2. The recent budget announcements also put emphasis on promoting water supply, sewage treatment, and solid waste management projects and services for 100 large cities which will augment demand for freshwater and other water infrastructure.

  3. The company will have some semi-conductor, CBG, and green hydrogen projects in its pipeline in the next 2-3 years as it has already started working in these segments. It will be setting up 100 CBG projects in partnership with peak ventures over the next few years. Order inflows in the semi-conductor space could start as early as FY26. Hydrogen is still in a development phase.

  4. By FY25, the company is targeting an order book of Rs 16,000 crores.

  5. The company aims to double its revenues and increase the margins over the next 4-5 years. It has given a medium-term outlook of 13-15% EBITDA margins. Also, H2 is always far better than H1 in terms of execution. FY25 revenue growth guidance is 15-20%.

  6. One of the company’s stated goals is to derive 50% of the revenues from international business. The Middle East market gives better flavor with respect to the O&M business. Also, internationally, there is a scope of have more EP projects. The company will strive to keep at least 1/3rd of revenues from EP and will aim to improve this percentage over the long run.

  7. The company’s closest international peers are Veolia (French company) and the Beijing Water Company.

  8. The company also sees growing opportunities in the One City One Operator Model both India and internationally. It is currently handling water treatment activities for the city of Agra and Ghaziabad.

  9. The company has also pre-qualified for a 1000 MLD desalination plant in Egypt. As per ICICI securities, Egypt and Middle East have a strong pipeline of desalination projects.

D) Key monitorables: The following are the key monitorables for the company:

  1. As of FY24, receivables formed almost 70% of revenues and 45% of the total assets. Although the company has said that it takes 3-4 months to collect the receivables for the execution done in Q4, hence the receivables will normalize.

  2. Since the company has a presence across various geographies, it is prone to geographical risks arising out of war, politics, climate, etc.

The stock trades at a TTM PE of 34x.

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