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Strong revenue growth in 4QFY26 to sustain Revenue/adj. EBITDA/adj. PAT grows 22%/27%/29% YoY in 4QFY26

* VA Tech Wabag (VATW) reported a strong 22% YoY revenue growth in 4QFY26, driven by RoW markets. Adj. EBITDA/adj. PAT grew 27%/29% YoY.

* Adj. EBITDA margin expanded 41bp YoY to 12.5% and contracted 111bp QoQ. VATW treats forex gains/losses as part of its core operations. As such, analyzing adjusted margins is more meaningful.

* RoW revenue (56% mix) surged 55% YoY; EBIT margin stood high at 29.4% vs. 14.3% in 4QFY25 and ~26% in earlier quarters.

* India revenue (44% mix) continued to show weakness, declining 6% YoY. EBIT margin stood low at 9.7% vs. 19.2% in 4QFY25 and ~20% in earlier quarters.

* EPC revenue (84% mix) grew 23% YoY, whereas O&M revenue rose 18% YoY.

* Municipal contributed 80% to revenue, while Industrial stood at 20% of the mix.

* In FY26, revenue/adj. EBITDA/adj. PAT grew 20%/20%/27% YoY.

* Net cash stood at INR8.3b (INR9.5b excluding HAM projects).

Valuation and view: Reiterate BUY

* We increase our revenue estimates by 3-4%. However, we broadly maintain our earnings estimates on lower margin expectations.

* After delivering a CAGR of 7%/17%/28% in revenue/EBITDA/APAT over FY21- 26, we estimate a CAGR of 18%/24%/20% over FY26-28.

* A greater focus on executing large-scale projects and high-margin segments such as EP, Industrial, and O&M augurs well for margins.

* The outlook for strong FCF generation, INR10b+ net cash status, and improving return ratios makes VATW’s scrip attractive at ~17x FY28E P/E. We, thus, reiterate a BUY rating and a TP of INR1,905, based on 22x FY28E P/E.

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