IGI Logo

Est. Vs. Actual for Q4FY25: Revenue: BEAT; EBITDA: BEAT; PAT: BEAT

Change in Estimates post Q4FY25

FY26E/FY27E: Revenue:  -5%/0%; EBITDA: -4%/0%; PAT: -8%/-3%

Recommendation Rationale

Order Book Remains Healthy:  The company has secured new orders of around Rs 5,700 Cr this year, boosting its total order book to ~Rs 13,700 Cr, including framework agreements. Additionally, it is the preferred bidder for orders worth over Rs 3,000 Cr, which are expected to materialise in the coming months. While the order book was short of the company’s guided range, it remains strong enough to provide clear medium-term visibility. The company expects the order book to strengthen further with expected order inflows similar to the previous year.

Improved Order Execution: The company reported strong revenue growth of 24% YoY, indicating efficient conversion of the order book into revenues and alleviating concerns regarding order execution. Past order wins, which were in initial stages, are expected to begin contributing to revenues in the coming quarters, further improving the execution rate. The company is also focusing on optimising working capital and expects to improve the cash position further going ahead.

Maintains Medium-Term Outlook: The company is expected to continue benefiting from the rising focus on water infrastructure domestically as well as in its key international markets. Accordingly, the company has maintained its medium-term outlook of 15-20% revenue CAGR with targeted EBITDA margins in the range of 13-15%.

Sector Outlook: Optimistic

Company Outlook & Guidance: The company is targeting an order book equivalent to 3 times its revenue and anticipates revenue growth at a CAGR of 15%-20% over the next 3-5 years. The targeted revenue mix, comprising over 50% from international projects, 30% from industrial customers, 20% from O&M, and one-third of EPC being EP projects, is expected to drive margin improvement. Consequently, EBITDA/PAT growth is projected to outpace revenue growth, with EBITDA margins ranging between 13%-15%. The company currently holds a robust order book of ~Rs 13,700 Cr.

Current Valuation: 21x FY27E (unchanged)

Current TP:  Rs 1,920/share; ( Earlier: Rs 1,970/share)

Recommendation: We maintain our BUY rating on the stock.

Financial Performance:

The company posted a stronger-than-expected performance, surpassing estimates on all fronts. Consolidated revenues increased by 24% YoY/43% QoQ to Rs 1,156 Cr, beating estimates by 11%. Gross margins declined to 17.6%, from 22.4% in Q4FY24. The company reported an EBITDA of Rs 141 Cr, up 24% YoY and 43% QoQ, exceeding estimates by 7%. EBITDA margin stood at 12.2%, compared to 12.4% in Q4FY24 and Q3FY25. While margins were slightly below the estimate of 12.6%, they remain healthy. PAT stood at Rs 100 Cr, up 27% YoY and 42% QoQ, against the estimate of Rs 91 Cr. The order intake for FY25 was Rs 5,700 Cr.

Outlook:

We remain positive about the company’s long-term prospects as sectoral tailwinds are expected to continue in the foreseeable future, and Wabag is well placed to tap the opportunity. The company is focusing on improving the quality of revenue by choosing projects with low payment risks and good profitability. It is also working towards improving the revenue mix and reducing working capital requirements, which should support improvement in margins as guided (EBITDA margins ~13-15%).

Valuation & Recommendation:

Wabag’s closing order book stood at ~Rs 13,700 Cr as of FY25 end, which was slightly below our estimates. Accordingly, we have revised our FY26E/FY27E estimates marginally. However, we believe the order book remains healthy our long-term view remains positive. Accordingly, we continue to value the stock at 21x FY27E with a revised target price of Rs 1,920/share. This implies an upside of 24% from the current market price (CMP), and we maintain our BUY rating on the stock.

For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home

SEBI Registration number is INZ000161633