Buy VA Tech Wabag Ltd for the Target Rs 2,529 by Motilal Oswal Financial Services Ltd
Healthy order inflows and execution drive robust outlook
VA Tech Wabag (VATW) remains well-positioned for sustained growth, aided by regular order inflows (INR34.3b added in 1Q) and normal project execution, including in the war-affected Middle East. The company’s current order book of ~INR200b (~5x FY26 revenue) and a strong bid pipeline provide visibility into ~20% revenue growth over the next 3-4 years. The focus remains on profitable growth and overseas markets. After delivering a CAGR of 7%/17%/28% in revenue/EBITDA/ APAT over FY21-26, we estimate a CAGR of 19%/26%/23% over FY26-28. Strong FCF generation, net cash of INR10b+, and improving return ratios (pre-tax RoCE/RoIC of 23%/ 36% in FY28E) make VATW attractive at ~21x FY28E P/E. We reiterate our BUY rating on the stock with a TP of INR2,529 (based on 28x FY28E P/E).
Regular order inflows across a wide range of water-sector applications
* Over the past six months, VATW has bagged several high-quality orders across a wide range of applications in India and overseas markets.
* The company recently won a repeat order worth up to INR2.5b from Reliance Industries in Jamnagar for an EPT work.
* It entered Kuwait with an INR10b contract for an SWRO project; it also entered the UAE market with an order of up to INR6b in Ajman.
* In India, the company strengthened its long-standing relationships with BWSSB and DJB through new order wins; in Europe, it secured a key project in Austria from Donauinsel Water Works.
* The Chennai desalination project is steadily moving towards completion.
* VATW's current order book of ~INR200b (~5x FY26 revenue; ~40% of the order book from the Middle East) and a strong bid pipeline provide visibility into 15-20% revenue growth over the next 3-4 years.
* The Middle East and Africa region remains a key strategic focus market. Overseas projects contribute ~50% of revenue and a higher share of the order book. Given the critical and non-discretionary nature of desalination plants, business continuity is expected to remain intact
Valuation and view: Reiterate BUY
* After delivering a CAGR of 7%/17%/28% in revenue/EBITDA/APAT over FY21-26, we estimate a CAGR of 19%/26%/23% over FY26-28.
* Strong FCF generation, net cash of INR10b+, and improving return ratios (pre-tax RoCE/RoIC of 23%/ 36% in FY28E) make VATW attractive at ~21x FY28E P/E. We reiterate our BUY rating on the stock with a TP of INR2,529 (based on 28x FY28E P/E).
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