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Turning water problems into business opportunities

We interacted with the management of VATW during our recent plant visit of 110MLD Nemmeli Desalination plant and 45MLD Koyambedu TTRO plant. Management reiterated its strategy to a) focus on bagging technology projects with limited construction scope, b) concentrate on design-oriented projects that are margin lucrative, c) building up O&M orderbook in order to bring stability in cash flow and enjoy better margins d) concentrate on industrial and overseas projects rather than only municipal projects.

Key takeaways from visit

* Diversified orderbook mix: The Company has diversified order-book from both domestic and international projects constituting 69:32 to orderbook. The order wins in O&M segment have increased recently driving the O&M orders to 42%, while the municipal orders continue to dominate the orderbook with 83% share. The company is gradually focusing on increasing its share in O&M segment and has increased from 30% in FY20 to 42% in 1QFY24.

* Robust order intake: VATW is pursuing several projects in domestic and international geographies comprising of desalination plants, recycle, reuse, and water effluent treatments and has been a preferred bidder in several projects and expects the same to be awarded in the next 6-8 weeks. These orders will be funded by multilateral agencies. Moreover, Russia has a strong enquiry pipeline, and the company continues to pursue opportunities however would prefer orders that have an irrevocable letter of credit thereby safeguarding the financial risk.

* Strong Execution: Strong execution ramp-up expected across projects with Amur Gas Chemical Complex LLC, Russia project ramping up the execution in FY24E and would contribute significantly to revenue generation. With foundation laid down on 21st Aug, Chennai desalination plant is expected to contribute to revenue from H2FY24E.

* Focus on improving cash flows: The company’s focus is to increase the share of EP business and minimize the construction component. This would help improve margins, bottom line as well as cash flows by reducing the construction risk in contracts.

* Various government schemes fueling the long-term growth: Government schemes like AMRUT, Jal Jeevan Nigam and community water programs are focused on conserving and managing water resources. Also, stringent norms on discharge of ground water in industries is leading to vast business opportunities for the sector.

* Nemmeli Desalination plant at Chennai: Tamil Nadu government awarded construction of this plant to VATW in consortium with IDE Technologies. The plant is built under reverse osmosis (RO) method thereby enabling lower construction cost, energy consumption and greater scalability due to the use of modular units. Post commissioning in 2013, VATW is awarded O&M for 10years. The plant processes 265MLD sea water and generates 110MLD of treated water for the government. The cost of desalinated water is ~Rs55per MLD comprising of capital cost of Rs 17/litre and operating cost of Rs38/litre. Power being the major operating cost (65% of operational cost) can be brought down by substituting to renewable energy.

* Koyambedu TTRO plant: This plant was commissioned in 2019 by VATW in partnership with IDE technologies with O&M contract for 15years. With the use of ultra-filtration and reverse osmosis technology, secondary treated water from Koyambedu is processed to achieve high quality water equivalent to drinking water standards. This plant has a capacity of 45MLD expandable to 60MLD thereby reducing industrial requirement of fresh water of 13,000 million litres annually.  

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