Buy VA Tech Wabag Ltd for Target Rs. 1,626 by Geojit Investments Ltd
Execution Strengthens Growth Momentum
VA Tech Wabag (VATW) is a Chennai-based multinational company specialising in water technology. With its expertise in the turnkey execution and operation of water and wastewater treatment plants, the company primarily serves both municipal and industrial sectors, focusing on providing comprehensive solutions for water-related challenges.
* Q3FY26 revenue stood at Rs.961cr, up 18.5% YoY, supported by strong execution in the EPC municipal segment.
* Lower cost of sales supported a 227 bps YoY improvement in gross margins to 25%, driving gross profit to Rs.240cr, reflecting a 30.4% YoY growth.
* In Q3FY26, EBITDA stood at Rs.121.5cr, with a margin of 12.6%, aided by lower employee costs, though partially offset by an increase in other operating expenses.
* Depreciation rose 23.1% YoY, while finance costs fell 11.8% YoY to Rs.17.9cr. EBT reached Rs.102cr with an 89 bps margin expansion.
* Other income grew 20% YoY, supporting PBT of Rs.121.3cr. After accounting for Rs.4.7cr labour-code impact, adjusted PAT rose 36.8% YoY to Rs.96cr, with margins improving to 10% (up 133 bps).
Outlook & Valuation With an order book (excluding framework contracts) of Rs.15,079 cr (4.1x TTM revenues), VATW is well positioned to deliver strong growth. Revenues are projected to clock an 18% CAGR over FY26–28E, while EBITDA is expected to grow at a 27% CAGR, supported by margin expansion from 12.3% to 14.4%. Although margins are marginally below consensus due to a higher EPC mix, the company stands to benefit from increasing international exposure, improved working-capital cycles, and a healthy pipeline of multilaterally funded projects. Structural tailwinds in desalination, water reuse, and emerging new-energy opportunities such as UPW, hydrogen, and solar manufacturing further strengthen long-term visibility. Earnings are estimated to grow at a 28% CAGR, with ROE improving to 18% by FY28E. Hence, we value the stock at 18x FY28E EPS to arrive at a target price of ?1,626 and maintain a BUY rating.
Key Concall Highlights
* International projects contributed 50% of revenues year-to-date, highlighting WABAG’s expanding global footprint and strengthening traction across overseas markets.
* Management reiterated strong order pipeline visibility of over Rs.3,000cr across key geographies, supported by active prospects nearing conclusion.
* The Middle East remains a major growth engine for the company, with sustained opportunities in desalination, wastewater treatment and reuse supported by large regional infrastructure investments.
* Domestic tendering momentum continues to strengthen across municipal and industrial water segments, driven by a healthy mix of EPC, DBO and selective PPP opportunities.
* Management highlighted rising opportunities from new?energy sectors such as solar manufacturing, hydrogen projects, BioCNG and data centers, where increasing water and reuse requirements align with WABAG’s core capabilities.
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