Buy VA Tech Wabag Ltd for the Target Rs. 1,900 by Motilal Oswal Financial Services Ltd
Strong order book supports robust outlook
We remain constructive on VA Tech Wabag’s (VATW) prospects on the back of regular order inflows and a robust book-to-bill ratio of ~4.6x. In Dec’25, VATW secured a large repeat order worth up to ~INR7b from Saudi Water Authority for a technologically advanced 50 MLD BWRO Plant at Aljouf, Saudi Arabia, and was also declared the preferred bidder by the Saudi Water Partnership Company (SWPC) for the Hadda Independent Sewage Treatment Plant (ISTP) Project. Earlier in Nov’25, it secured a large repeat order from Melamchi Water Supply Development Board, Nepal, for design, build and operate (DBO) of Sundarijal Water Treatment Plant with a capacity of 255 MLD in Kathmandu Valley, funded by the Asian Development Bank (ADB). The ultra-pure water segment is an emerging segment and is expected to be an INR35b opportunity for VATW.
Regular order inflows, focus on profitable growth aid robust outlook
* VATW's current order book of over INR160b (~4.6x TTM revenue), preferred bidder status in orders worth INR30b, and a strong bid pipeline of INR150-200b (~30% win rate) provide strong 15-20% revenue growth visibility for the next 3-4 years. ? While the current order book is more inclined toward EPC projects having high volumes and relatively lower margins, the company focuses on profitable growth by bidding selectively on high-margin EPC and O&M jobs in India, the Middle East, Africa, and CIS countries.
* VATW’s strength will continue to lie in leveraging technology and tie-ups with local entities.
* VATW is tracking well on its guided adj. EBITDA margin range of 13-15% (1HFY26 at ~13%) and net-cash status (INR5.6b at 1H-end, INR6.7b excluding HAM Projects).
* 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 the 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.
Valuation and view: Reiterate BUY
* After delivering a CAGR of 4%/18%/28% in revenue/EBITDA/PAT over FY21-25, we estimate a CAGR of 17%/22%/23% over FY25-28 for VATW.
* Its greater focus on executing large-scale projects in high-margin segments such as EP, Industrial, and O&M augurs well for margins.
* The outlook for strong FCF generation, a net cash status, and expansion in return ratios makes VATW’s scrip attractive at ~17x/~14x FY27E/28E P/E. We, thus, reiterate BUY rating and a TP of INR1,900, based on 26x FY27E P/E (~+1SD on an improved outlook) (our IC note dated Jul’25).
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