VA Tech Wabag rallies 7%, hits 3-month high on strong growth outlook

Shares of VA Tech Wabag hit a three-month high of Rs 358, as they rallied 7 per cent on the BSE in Thursday's intra-day trade, in an otherwise subdued market. The stock was trading at its highest level since December 19, 2022. In comparison, the S&P BSE Sensex was down 0.10 per cent at 58,148 at 10:53 AM.

In the past one week, the stock has outperformed the market by surging 12 per cent after the company won a design, build, and operate (DBO) order in Bangladesh worth Rs 800 crore, fully funded by World Bank and AIIB. The scope of which, the company had said, includes design, engineering, supply, construction, installation, and commissioning of the 200 MLD STP followed by Operation & Maintenance (O&M) for a period of 60 months.

This project has the potential to be expanded to 600 MLD in the future, fuelled by city’s growing needs, the company added.

VA Tech Wabag is one of the experienced players with strong presence of more than 25 years, engaged in water technology, and providing customized water treatment solutions through Engineering, Procurement, and Construction (EPC) services, O&M services, research and development, construction, and commissioning.

The company is a major player having executed more than 1,450 plants, including over 450 sewage treatment plants and over 320 water treatment plants. The order-book of the company is well diversified in various segments of Municipal and Industrial projects, with its world-wide presence across various continents.

The company's order inflow during the first nine months of the current financial tear (9MFY23) stood at approximately Rs 1,885 crore, boosting the total order-book value as at Dec’22 to Rs 10,037 crore. The company has strong bid pipeline, and has emerged as one of lowest bidders for multiple projects and is expecting orders approximately worth Rs 5,000 crore by April-May 2023, analyst at HDFC Securities said.

The order book comprised of 29 per cent of Industrial orders while Municipal orders accounting for 71 per cent of total order-book. Wabag has gradually increased its share of Operation and Maintenance business segment which now contributes 37 per cent of its existing orderbook, which is likely to fetch better margins compared to EPC segment, the brokerage firm said.

Wabag is also diversifying its business by entering into Zero Liquid Discharge (ZLD), which is likely to witness steady growth over the years as authorities have tightened discharge monitoring and control. On account of its healthy order book, strong execution capabilities, robust order pipeline, stable EBITDA margins, and positive expectation out of government’s budget allocation we remain positive on the stock, the brokerage firm said in report.

"We are optimistic on the strong long term outlook and revenue growth in the coming years for Wabag.We expect revenue/EBITDA/PAT to grow at a CAGR of 10 per cent/15.2 per cent/20.9 per cent over FY22–25E.We think the base case fair value of the stock is Rs 367 (10xDec24E EPS) and the bull case fair value is Rs 401 (11x Dec24E EPS) over the next three quarters. Investors can buy the stock in the band of Rs 333-338(9.2x Dec24E EPS) and add more on dips to Rs 295-299 band (8.2x Dec24E EPS)," analyst said in a March 20, 2023 report.