Va Tech Wabag

[rcinvestor999]

Water Funds:

[Vikky9995]

Posted excellent results. Profit up more than 60% year on year
Uploading: 6a2aee2a-a1b9-456a-a9be-ce3f8d147675.pdf…

[ganeshrpl]

My notes from the Annual Report 2023:

One of the leading players and geographically diverse water technology companies. With a strong focus on R&D, backed by cutting-edge technology, we have evolved as system specialists. We are the leaders in the water space providing designing, engineering, and procurement, construction, and O&M services to meet the demands of the municipal and industrial segments.

The Company plays a critical role in optimising the use of water with over 6,500 projects executed across 25+ countries.

Few facts about company and in general:

• WABAG’ is reaching its 100th anniversary in 2024
• WABAG has been ranked 3rd globally, by Global Water Intelligence (GWI), London, for ensuring safe and clean drinking water and sanitation for 88.8 Million people across the globe.
• WABAG has ascended to global acclaim, securing a prestigious 6th position among global desalination players in the illustrious annual survey conducted by GWI for FY 2021-22.
• historic milestone by securing the highest ever order book of over INR 13,200 Crores providing us a robust and reliable revenue visibility for next few years.
• The Middle East & Africa dominate the global desalination industry & they have opted for large-scale desalination to cut down their dependency on increasingly costly imported water. The Asia-Pacific region is expected to grow due to escalating water scarcity combined with increasing water demand owing to rapid urbanisation.
• India aims at revitalisation of 200 water bodies in the capital and upsurge the groundwater level in the surrounding areas.
• By 2030, Malaysia is planning to invest in reviving and building new water infrastructure with a tentative investment of USD 3.6 Billion
• The World Bank is supporting Bangladesh with USD 200 Million to help 3.6 Million people with access to hygiene and clean water
• Mongolia plans to invest USD 300 Million for wastewater management at power plants
• The agriculture sector is considered to be the largest freshwater user in the country (85%).
• Over the last few years, the Indian Government has been ambitiously investing and promoting the water sector; with a vision to make the country ‘Water Secure’ by 2030. Allocated USD 11.86 Billion for the water sector in FY 2023-24 Budget.

The water treatment industry is vital for public health, environmental sustainability, and economic development. However, the industry faces several challenges:

• Aging infra
• Population growth and urbanisation
• Emerging contaminants - The industry must adapt to address emerging contaminants, such as pharmaceuticals, micro plastics, and chemical pollutants, which pose new challenges for treatment processes
• Climate change
• Energy consumption and sustainability - Some water treatment processes are energy-intensive, and the industry is striving to reduce energy consumption and explore sustainable alternatives to minimise environmental impac
• Affordability and access

Focus and Outlook of a Transforming Global Water Sector:
India

1. The Indian Government’s initiatives in the water sector, including

• ‘Namami Gange’,
• ‘Jal Jeevan Mission’,
• ‘Swachh Bharat’,
• ‘AMRUT’,
  present a fertile landscape of opportunities for WABAG to thrive and make a lasting impact.

2. Recycle and Reuse: In India, ‘Recycle and Reuse’ has been a focus at state as well as national level. Five states in India – Tamil Nadu, Karnataka, Maharashtra, Haryana and Gujarat – have come up with a state-level reuse policy, aiming at 70% reuse of treated wastewater by 2030 and ultimately at 100% reuse.

• • The ‘Namami Gange’ released National Framework on Safe Reuse of Treated Water in November 2022.
• • The Government of India mandated all thermal power plants to use the treated sewage water from sewage treatment plants (STPs), situated within 50 kms radius for non-potable purposes.

3. Desalination: The Central Government and NITI Aayog are drawing up a road map for setting up commercially viable desalination plants across the country’s coastline in line with its target of supplying clean piped water to every household

Middle East and Africa

• Government of Saudi Arabia allocated USD 28 Billion to support new waste water projects. In view of Vision 2030, wastewater reuse is seeing significant interest in Saudi Arabia, with a target of recycling 35% of the country’s used water by 2030.

• Egypt’s strategy for setting up large-scale desalination plants in conjunction with renewable energy. 21 projects are planned for 3,300 MLD with USD 3 Billion investment.

• Urban, Rural & Climate resilience programmes in Africa are set to drive opportunities and funding for the sector through multi-lateral and bi-lateral funding agencies.

Europe

The EU is planning to overhaul contaminant and nutrient removal standards in Europe in a revision to the Urban Waste Water Treatment Directive (UWWTD), with over USD 4 Billion a year of Capex & Opex by 2040.

Operational:

• Aligned with our strategic vision, we actively pursue projects funded by Central / Federal Government schemes and multi-lateral agencies. I am delighted to inform you that we are expanding our services to new locations and securing orders from both our strategic markets and core sectors. Notably, our most substantial orders such as:
• • DBO order to build South East Asia’s largest Sea Water Desalination Plant for CMWSSB at Chennai funded by JICA and
• • DBO order for Reconstruction, Expansion and Operation of Pagla STP at Dhaka, Bangladesh for Dhaka WASA funded by World Bank & AIIB,
    exemplify the global collaboration and growth we are experiencing

Biz Strategy for the future WRIDDHI

• Implementing an Efficient Global Delivery Model
• Remaining focussed on Engineering Procurement, International and Industrial Sectors: Initiating advanced technology jobs with better margins, reduced construction scope resulting in better cash-flows and guarantee limit utilisation; International focus to have geo-diversification.
• Focussing on marketing and development of jobs rather than tendered jobs; Focus on jobs in high technology (Desal, Reuse, Oil & Gas, ZLD, Total Resource Recovery, Industrial) at good margin profiles with payment security (Multilateral, Federal Government, LC-backed, Sovereign funding).
  -Technology partnerships to license technology wherever needed to remain ahead of competition in addition to internal R&D efforts;

• • Construction partnerships to improve EP share as construction is a pass-through in the business better margins and cash-flows;
• • Financial Partnerships to remain asset-light, while pursuing the asset-heavy BOOT [Build-Own-Operate-Transfer] / HAM [Hybrid Annuity Models] business;
    Partnerships on the 3 counts ensure that WABAG remains a ‘Full range service provider in the water treatment sector’.

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WABAG can compete successfully by providing technology-driven and cost-effective solutions across various service lines using a global delivery model and intends to develop strategic partnerships to pursue EP, EPC, DBO, BOOT/HAM, and O&M global opportunities.

• Engineering Procurement and Construction (EPC)

WABAG excels in undertaking comprehensive EPC projects, offering a wide spectrum of services encompassing the entire project life-cycle, from conceptualisation to commissioning. Each project demands meticulous assessment of various critical factors, including appropriate technologies and diverse geographical locations, among other key considerations.

• Design-Built-Operate (DBO)

WABAG carries out long-term design-build-operate contracts. These projects enhance performance while also helping the Company optimise the cost of project life cycle. WABAG, backed by its in-house engineering team, quality procurement, quality construction support and dedicated operations and maintenance, is a preferred partner for DBO contracts.

• Operation and Maintenance (O&M)

WABAG diligently oversees the operation and maintenance of existing water and wastewater plants, leveraging the Company’s extensive expertise and years of experience. Through streamlined operational procedures, the Company enables its clients to enhance their efficiencies and optimise performance, driving their success in the water management sector.

• Hybrid Annuity Model (HAM)

WABAG, under this model, provides comprehensive solutions for financing, construction and operation of water and wastewater projects. The Company’s asset- light model helps it gain competitive financing from the available sources. This, in turn, helps WABAG achieve timely project execution while also enhancing its efficiency.

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Historical Chart of Wabag’s Order Book

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Key Projects:
1. CHENNAI METROPOLITAN WATER SUPPLY AND SEWERAGE BOARD - SWRO – INDIA
Company in joint venture with METITO Overseas Limited, has bagged a design, build, operate (DBO) order from Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) for building 400 million litres per day (MLD) sea water reverse osmosis (SWRO) desalination plant at a total cost of about INR 4,400 Crore. The new Plant will come up at Perur, near the present 100 MLD Desalination plant built by WABAG on the East Coast Road, Chennai. This is the largest order for the Company and once completed, this plant will be the largest desalination plant in the South East Asian Region.

• • The contract includes design, engineering, procurement, construction, installation, testing, and commissioning of the 400 MLD SWRO desalination plant and the associated sea water intake system over 42 months followed by 20 years of operation & maintenance (O&M).

2. RELIANCE INDUSTRIES LIMITED - SEA WATER REVERSE OSMOSIS – INDIA
Your Company is executing 2 x 1100 M3/hr. SWRO (Sea Water Reverse Osmosis) based Desalination Plant at Jamnagar for Reliance Industries Limited (RIL). This is a repeat order (extension) from Reliance Industries, as we have executed a 24 MLD SWRO plant in the same premises. Scheduled to be completed over a 21-month period. Track as per the agreed schedule, we have achieved overall 60% physical progress.

3. ONE CITY ONE OPERATOR – CLEAN GANGE MISSION PROJECT – INDIA
Your Company is executing INR 1,858 Crore worth order secured from State Mission for Clean Ganga – Uttar Pradesh since FY 2019-20 towards O&M and Management of the Sewage treatment and network infrastructure in the cities of Agra and Ghaziabad for a period of ten (10) years, extendable for an additional period of five (5) years.

• • This is the first initiative across the country on the “One City – One Operator” model. Your Company will manage, operate and maintain 22 Sewage Treatment Plants (STP), 70 Pumping Stations and underground network of over 4,200 kilometers with the objective of providing round the clock uninterrupted operations. Your Company shall also improve, rehabilitate and up-grade facilities related to systems, structures and equipments etc., associated with the Sewage Treatment Plants (STP) and underground sewage network systems.
    This project will ensure treatment of over 672 MLD in both cities of Agra and Ghaziabad put together, adhering to national treatment standards thus providing cleaner and healthier eco system to the three (3) Million population of Agra and Ghaziabad. Your Company is proud to play a significant part in the rejuvenation of river Yamuna, by treating over 80% of the sewage generated in both the cities.

4. NAMAMI GANGE PROJECT – INDIA

• A) BIHAR URBAN INFRASTRUCTURE DEVELOPMENT CORPORATION HAM PROJECT – INDIA
  we are executing the largest order under Namami Gange Programme worth INR 1,187 Crore secured from Bihar Urban Infrastructure Development Corporation (BUIDCO) under the prestigious National Mission for Clean Ganga (‘NMCG’) Scheme to build Sewage Treatment Plants (STP) of 150 MLD capacity along with sewerage network of over 453 km in Digha and Kankarbagh zones of Patna, one of the most populous cities on the banks of River Ganga.

• • This project comprises Design, Build and Operate (DBO) scope worth about INR 940 Crore and Hybrid Annuity Model (HAM) scope worth about INR 247 Crore.
    40% of CAPEX of the EPC part of the HAM portion will be paid in the form of grant during construction and 60% will be paid as Annuity over 15 years, along with the OPEX. This will be the first water project on HAM, in the State. Powered with resource recovery model, the STPs are designed to ensure minimum foot print and will be enabled to produce green energy from bio-gas leading to lower OPEX to run the plants.

• B) KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY HAM PROJECT – INDIA
  This KMDA Bally, Arupara, Baranagar project which is under execution, consists of construction of three (3) STPs at Arupara (65 MLD), Bally (40 MLD) and at Baranagar (60 MLD), associated pumping system and sewage transmission lines. Your Company will execute the Engineering, Procurement and Construction (EPC) portion of this project over twenty four (24) months followed by O&M of fifteen (15) years. This project is implemented by National Mission for Clean Ganga (‘NMCG’) and Kolkata Metropolitan Development Authority (‘KMDA’) with financial assistance from World Bank.
  Your Company completed the financial closure for this ‘HAM’ project received from KMDA. The project debt requirement will be funded by a consortium of International Finance Corporation (‘IFC’) and Tata Cleantech Capital Limited (‘TCCL’).
  The plant is moving towards completion, having completed substantial amount of construction at site.

• C) GNN HAM PROJECT, GHAZIABAD, UTTAR PRADESH – INDIA
  WABAG, through its wholly owned subsidiary Ghaziabad Water Solutions Private Limited (SPV entity), has signed a concession agreement with Ghaziabad Nagar Nigam (GNN) with the state of Uttar Pradesh, for a new 40 MLD Tertiary Treatment Plant (TTP) under Hybrid Annuity Model (HAM). Under a Design-Build-Operate (DBO) contract with SPV worth INR 594 Crore, WABAG will construct the new plant over two (2) years and operate the facilities, including the existing upstream 56 MLD Sewage Treatment Plant up to a period of fifteen (15) years following the start of commercial operations.

KANPUR CETP – INDIA
Your Company is currently executing INR 520 Crore worth order secured from Jajmau Tannery Effluent Treatment Association (JTETA) towards Engineering, Procurement, Construction, Operation & Maintenance of a 20 MLD Common Effluent Treatment Plant (CETP) along with treated sewage dilution facility for Jajmau leather cluster, in the state of Uttar Pradesh.
Post successful commissioning, your Company will also O&M the above plants for a period of five (5) years.

DHAKA WATER SUPPLY & SEWERAGE AUTHORITY – SEWAGE TREATMENT PLANT – BANGLADESH
your Company has secured a breakthrough project in a new country, Bangladesh. This is a first of its kind project in Bangladesh where bio gas engines will be used to generate power from the digested sludge. The project has an execution period of 40 months followed by 60 months (5 years) of Comprehensive Operation and Maintenance.

300 MLD INDEPENDENT STP AT NEW JEDDAH AIRPORT- SAUDI ARABIA
This project to execute the 300 MLD Jeddah Airport 2 Independent Sewage Treatment Plant (ISTP) at Jeddah, Saudi Arabia is a repeat order for your Company in Saudi Arabia secured through Saudi Services for Electro Mechanical Works Company (‘SSEM’).

JUBAIL STP PROJECT – SAUDI ARABIA
This STP project in the Kingdom of Saudi Arabia is to Design and Build a large scale sewage treatment plant, capacity 120 MLD for Jubail Industrial City for a total contract value of around half a billion Saudi Riyals equivalent to approx. USD 126 Million.

SOUTH DOHA STP PROJECT – QATAR
This EPC project from Pubic Works Authority (ASHGAL) is for rehabilitation of South Doha Sewerage Treatment facility

ZARAT PROJECT – TUNISIA
This project from SONEDE is to Design and Build a 50 MLD Sea Water Desalination plant in Tunisia, expandable upto 100 MLD.

PUBLIC UTILITIES BOARD (PUB) – SINGAPORE
The Public Utilities Board (PUB) has awarded WABAG the contract to replace polymer membranes at the Chestnut waterworks with ceramic membranes. The project is valued at 17 Million Euros (INR 140 Crore) and involves replacing membranes for the water treatment plant with a total capacity of 300 MLD, as well as pipeline and construction work. This is a significant milestone for WABAG as it will be our first reference plant for ceramic membranes.

AGCC – RUSSIA
Your Company has consolidated its market position in the Oil and Gas sector further, by securing a breakthrough Engineering and Procurement (‘EP’) order from Amur Gas Chemical Complex LLC. (‘AGCC’) in Russia. AGCC is set to become one of the world’s largest basic polymer production facilities.
This technology dominant breakthrough order in the CIS region, especially in the Russian Federation also marks WABAG’s largest order in the Oil and Gas sector. This order from a marquee customer in the Oil and Gas sector, re-affirms our technological superiority and execution excellence,

PUROLITE S.R.L, ROMANIA
WABAG Water Services S.R.L., Romania (‘WABAG Romania’), our European subsidiary, secured a repeat order from Purolite S.R.L, Romania (‘Purolite’) worth about INR 260 Crore (EUR 30 Million) towards upgrading the Industrial Wastewater Treatment Plant (‘WWTP’) in Romania. The contract will be an Engineering & Procurement (‘EP’) scope contract - project is scheduled to be executed over a 24 month period.

INTERNATIONAL ENGINEERING CENTRE (IEC)
WABAG’s International Engineering Centre (IEC) in Pune and Vadodara provides design and engineering services to the Company’s EPC business under the banner of WABAG Engineering Services. This centre is equipped to deliver world-class cost-effective engineering services. It has a competent team of engineers and state-of-the-art software to attract global engineering business. IEC provides services to oil & gas, power, fertiliser, and steel industries across the globe.

R&D

• CERAMOZONE the CERAMOZONE® pilot plant is a combination of the CERAMOPUR® pilot plant and the Ozonisation pilot plant which was transported from Vienna to Pappankalan STP, Delhi.

• DAMOPUR is WABAG’s technology for the Deammonification process (conversion of ammonia to nitrogen gas) in side and mainstream.

• Membrane Distillation (MD) – Crystallisation
  A small-scale pilot plant with one tube combined HX-MD Module was built in 2021. First crystallization tests with sodium chloride solution and fractionated crystallization with CaCl2 and NaCl were also done in 2021. Also, real saline wastewater was tested (salty highway runoff; first half of 2022). This patented new technology has the **potential of a game changer technology within Zero Liquid Discharge/**Minimum Liquid Discharge (ZLD/MLD) processes to be started at Romanian or Indian industry.

• Hard Chemical Oxygen Demand (COD)
  Hard COD removal by the BIOZONE® process is an important add-on as the COD discharge has been limited for industries, viz. IOCL Paradip, RIL Dahej, HMEL, etc.

• Frauenkirchen, Austria - Micro-Pollutants Removal
  Micro-pollutants removal by ozone and activated carbon (CARBOPUR® and BIOZONE®) – The Pilot tests were completed by WABAG Austria in cooperation with the Vienna University of Technology in fall 2019 at Frauenkirchen, Austria.

• Antimicrobial Resistance Project
  Antimicrobial resistance in water reclamation and reuse – The project has been carried out by WABAG Austria in cooperation with the Vienna University of Technology to assess the efficiency of conventional and advanced treatment technologies in removing antibiotic resistant bacteria (ARB) and antibiotic resistant genes (ARG) at the New Goreangab Water Reclamation Plant (NGWRP) in Windhoek, Namibia.

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Revenue split based on Project type and Customers at consolidated level,

• 86% of sales is from Construction contracts & remaining 14% is O&M
• 70% of sales is Municipal is and remaiming 30% is Industrial customers

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Order book snapshot:

A few points from recent conf call:

• Order book of 12,500 Cr
• EPC orders is 6,500 Cr
• O&M 4,800 Cr
• As stated in Annual report too - they are focusing on E&P projects over EPC orders to improve their profitability. in the Construction part of EPC they make negligible margins & thus wants to concentrate on E&P and this will help improve their long term margins from 10% to 12-12.5% margins
• they have sold 2 of their European subs, thus their consolidated order book has been reduced by 900 Cr approx.

[Hirendrasingh]

Thanks @ganeshrpl for provding AR details in Breif. It seems VA Tech is on new Growth journey.

[Vikram.b]

What could be reason wabag is trading on lower valuations despite clear order book , technology leadership , diversification , and also being in essential sector with big future prospect ? Is it about lower promoter holding , or no significant revenue growth or market might see few more quarters with steady twin digit margins with higher PAT ?

[Ravi_Hundal]

I think the issue is of trust in management. Wabag’s management has been seen giving too optimistic guidance in the past. Plus, the mismanagement of GENCO projects. If they could change the perception of investors, market will definitely give higher rating to it.

[Hirendrasingh]

I think it will trake 2-4 qtry when investor will see consistent returns their perception will change regarding management. I think managemetn has leared their lession in 2017-18 and taken very objective approach towards Business and their focus. I think it has started yieldign results for company & few more qtr investors confidicen will improve & will rerate it .
not to forget this is good ESG story as well. ESG at this valution is very attractive in long term.
note: I am invested inthe share from lower level and recently also accumated some qty so my opinion might have some level of biased.

[RajeevJ]

Va Tech at current market Cap of about 2900 crs presents an interesting opportunity. Run by a passionate technocrat promoter, it is in the field of water mgt. Water is a scarce resource, & will be more so in the future. The Co. is in the exciting space of water recycling, creating wealth from waste. It is only a matter of time before it becomes mandatory for all manufacturers to become zero discharge, more so when the technology is available at a reasonable cost. In addition to re-cycling water, Va Tech has been in the field of desalination for the last several years, providing drinking water to the city of Chennai. With the vast coastline that we have, the scope for growth in the business is clearly huge.

The business has been explained in some detail by @ganeshrpl above. There is also sufficient data/ articles etc. available on this thread itself for those interested in building conviction.

The current valuations are indeed attractive. Adjusted for the one time hit taken in Q4 of 22-23 for long pending dues, the Company is available at a trailing multiple of 10! The huge amounts written off will in all probability be recovered sometime in the future, but that is not central to the basic investment thesis here, but rather the huge growth opportunities available in the water infrastructure space, together with a meaningful increase in valuations/ multiple of the Co. make it a compelling story!

[SHAIL_APTE]

Hi, one of the issues that I see with Va tech is a non-lucrative business. I usually look at Ebitda/Total Assets ratio to gauge if a company can utilize debt to grow in case of a growth scenario. The company’s ebitda/total asset ratio has always hovered around 7.5% which means if they take debt at interest rates more than 7.5% that will incrementally diminish shareholder earnings (present interest rates for corporate clients are at 9%+). The company in its present form is unable to use debt to grow and thus I remain skeptical on any potential for realized growth unless something inherently changes in the business.

[vnandan]

I might have limited understanding of this ratio but Wabag has declared and is actively working to move towards asset light model having burnt their hands before. I think it should mean if they pull it off over the next 5 years and beyond, the ratio should improve. They also avoid financing the projects from their pocket. The question being where they can do it successfully.

I’ve heard them refer to themselves as water technology company rather than water utility/infrastructure company.

[Siddharth_Goliya]

Any reason why ION exchange has 3x the valuation multiple as compared to VA tech?

[manoopatil]

Superior and Predictable Margins of Ion Exchange. Wabag margin range have been largely single digit except last two quarters. Whereas Ion Exchange margins more than 10% (even reaching 16%). Superior return ratios ROCE(33% vs 19%) and ROE(26% vs 3%).

Its largely better business performance overall.

[vineet_mittal]

I agree with your interest-rate hit. That’s why, they are working with multi-lateral financers where interest rate is ~5-6%.
Please see allotment of NCD to ADB.

I think, worst is in the past. Now with ZLD and recycling water under One city one Operator and Green Hydrogen Capex, this is one of best companies to invest.

Note: Invested since Nov 2020.

[SHAIL_APTE]

If they pivot to a pure play technology provider that could be a positive development. But until that materializes, one needs to be cautious.

[SHAIL_APTE]

Do you have more details on the NCD? Is it a foreign currency debt? Is is zero coupon, annual coupon?

[vineet_mittal]

WABAG and ADB enter into a Strategic funding tie up; ADB to invest Rs. 200...

Need to go through Annual report to find details of NCDs .

[vineet_mittal]

Snippet from Annual Report:
NCDs are in INR.

[SHAIL_APTE]

“5% and INR denominated”. That is amazing for the company. This is probably the only debt that it can afford given its business and present rate environment.

[vineet_mittal]

Indeed a good move.

And also, it is for working capital loan. Overall company is Net debt free.

[Siddharth_Goliya]

Thank you for your analysis! What can understand from this is if they get their act together and focus on doing more EP working rather EPC with better margins we could see earning and PE expansion both