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Revitalizing its strength

Our view

VA Tech Wabag’s (VATW) reported strong set of 4Q numbers with revenues up 22.2% YoY above our estimates owing to robust execution and change in product mix with margins in line with our estimates. During FY23, the company has bagged highest ever order inflow of Rs68bn taking order book to Rs132.2bn (4.5x FY23 revenue). With strong budget allocations by the Ministry of Jal Shakti with a thrust on rivercleaning projects extended to other major rivers, management expects strong order inflow in India. In International segment good traction in Middle East (Saudi Arabia and Egypt) Africa are also witnessed. Management is focusing on accelerating pace of execution given a comfortable order book with EBITDA margins to be sustained in double digit.

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 10.2x/ 8.5x on FY24E/25E earnings estimates. We maintain our BUY rating on the stock with a revised TP of Rs634 based on 13x PE on FY25E earnings

Result Highlights

* For 4QFY23, VATW’s revenues came in at Rs9.3bn, up 3.9% YoY (above our estimates of Rs7.6bn) with pickup in execution.

* EBITDA grew by 51.7% YoY to Rs1.1bn (above our estimates of Rs888mn) with EBITDAM expanding 368bps YoY to 11.7% (in line to our estimates of 11.7%). Margin were supported by lower other expense.

* The company has bagged order worth Rs68.4bn in FY23 taking orderbook to Rs132bn.

* On the bottom-line front, adj PAT in 4QFY23 came in at Rs1.3bn (above our estimates of Rs503mn) mainly due to better operating performance. Exceptional loss of Rs2.4bn has been booked as write off of receivables and other current assets from AP Genco.

* At the CMP, the stock trades at a PE of 10.2x FY24E and 8.5x FY25E EPS

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