Buy VA Tech Wabag Ltd For Target Rs.636 - Yes Securities
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Our view
VA Tech Wabags (VATW) revenue declined 12.5% YoY to Rs5.5bn on account of higher share of EP projects and delay in commencement of new projects while EBITDAM expanded 8x YoY to 11.9% on account of change in project mix. Order intake was strong at Rs7.3bn during Q1FY24 leading to a robust orderbook of Rs125.1bn (4.3x TTM sales), 58% of which is for EPC contracts. Chennai 400MLD desalination project will start contributing to revenue from 2H post foundation stone to be laid on 21st Aug. Management indicated it would focus on improving intake of international orders and EP projects as these projects have sustainable margins and have shorter execution timeline, which will help improve its cashflow.
Given the growing attention of the government and multi-lateral funding agencies towards an escalating water shortage crisis, the water treatment sector is well poised for a secular, long-term growth. In our view, VATW?s robust order book thriving on strong market leadership, execution ramp up, operational efficiencies would help it capitalize on the forthcoming opportunities. At CMP, the stock trades at a P/E of 12.2x/ 10.4x on FY24E/25E earnings estimates. We maintain our BUY rating on the stock with a TP of Rs636 based on 13x PE on FY25E earnings.
Result Highlights
* For 1QFY24, VATW?s revenues came in at Rs5.5bn, down 12.5% YoY (below our estimates of Rs8.0bn) with slowdown in execution.
* EBITDA grew by 1.8x YoY to Rs656mn (below our estimates of Rs883mn) with EBITDAM expanding to 825bps YoY to 11.9% (above our estimates of 11%). Margin were better on account of lower raw material cost and other expenses
* On the bottom-line front, adj PAT in 1QFY24 came in at Rs594mn (below our estimates of Rs764mn) mainly due to lower execution.
* In 1Q, company has bagged orders worth Rs7.3bn
* At the CMP, the stock trades at a PE of 12.2x FY24E and 10.4x FY25E EPS.
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