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Strong quarter; robust order book to sustain momentum

Revenue/EBITDA/PAT grew 17%/18%/20% YoY in 1QFY26

VATW reported a strong set of results in 1QFY26 as its revenue/EBITDA/PAT grew 17%/18%/20% YoY. EBITDA margin came in healthy at 13%, flat YoY and up 85bp QoQ. O&M revenue mix stood at over 20%. Gross cash position stood high at INR8.15b (net at INR5.1b, INR6.3b excluding HAM).

Strong 4.7x book-to-bill ratio supports 15-20% revenue CAGR guidance

VATW's current order book of about INR158b (4.7x TTM revenue) provides strong revenue growth visibility for the next 3-4 years. The company secured fresh orders of INR26b during 1Q and is also a preferred bidder in projects worth over INR35b. The 400 MLD Perur desalination project in Chennai and 200 MLD STP project in Pagla, Bangladesh, are progressing well. The company also secured a large project from Reliance in Dahej. It secured the much-anticipated Yanbu 300 MLD desalination project in Saudi Arabia and the BWSSB DBO project in Bengaluru. India, the Middle East, Africa, and CIS markets have huge opportunities in the water sector. VATW’s strength will remain leveraging technology and partnering with local entities. Focus remains on profitable growth with selective bidding in high-margin EPC projects and O&M jobs. With a strong bid pipeline of INR150-200b, the company expects to capture orders worth INR60-70b annually. Thus, we expect a revenue CAGR of ~17% over FY25-28E (in line with company’s guidance of 15-20% CAGR). (concall KTAs)

Focused bidding to support 13-15% EBITDA margin

VATW has guided for EBITDA margin of 13-15% (1QFY26 at 13%, FY24/25: 13.2%/12.8%) over the next 3-5 years. Key margin levers include its healthy order book, execution of large projects (INR25.6b 400 MLD Chennai desalination plant, INR21b 300 MLD Yanbu desalination plant, INR14.2b Al Haer KSA ISTP plant), and greater focus on winning orders in EP, O&M, industrial, and overseas segments and markets. Bad debt provisioning expenses have declined materially in the last 6-8 years owing to selective bidding in well-funded projects by sovereign funds or multilateral agencies. Since the launch of ‘Wriddhi’ in FY23, the company has already achieved a notable expansion in its EBITDA margin. Going ahead, we expect VATW's EBITDA margin to further expand toward 15%, the higher range of its guidance.

Valuation and view: Reiterate BUY

We broadly maintain our earnings estimates after strong 1QFY26 results. After delivering a CAGR of 4%/18%/28% in revenue/EBITDA/PAT over FY21-25, we estimate a CAGR of 17%/22%/23% over FY25-28E. VATW's current order book of ~INR157b (~4.7x on TTM basis) and a strong bid pipeline of INR150-200b provide strong 15-20% revenue growth visibility for the next 3-4 years. Its greater focus on executing large-scale projects in high-margin segments such as EP, Industrial and O&M augurs well for margins. Outlook of strong FCF generation, net-cash status and expansion in return ratios make VATW’s scrip attractive at ~21x FY27E EPS. We, thus, retain our BUY rating and a TP of INR1,900, based on 26x FY27E P/E (at +1SD on an improved outlook). (our IC note dated Jul’25)

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