The firm also plays well into the emerging ESG theme, say analysts, as it is involved in water treatment. VA Tech’s solutions can help serve the rising demand of drinking water as well as reduce waste water wastage.
Nomura India — which recently came out with an extremely bullish report on Va Tech Wabag — says its order book and execution outlook look quite robust. The growing ESG-related water capex will also benefit the company in the long run.
The company in its latest investor presentation said its order book was at Rs 10,000 crore. Consolidated revenue from operations during the last quarter rose 12 per cent and Ebitda 31 per cent. Operating margins improved in Q2 consequent to execution pace and project mix, while finance cost has come down.
“Order prospects are robust. Focus on industrial orders could improve Ebitda margins further. We largely retain our sales estimates but cut EPS forecast for FY22/23 by 8%/3% to factor in the commodity price rise,” said Priyankar Biswas of Nomura. “We continue to value it at 15x FY23F EPS of Rs 34.90 and roll our valuation forward to Sep-21, and to that add book value of HAM (hybrid annuity model) assets to arrive at our target price of Rs 581, and reiterate our buy rating.”
Analysts say the company’s industrial water capex is increasingly focused on self-sufficiency and to meet increased regulatory scrutiny. This should support 15 per cent growth in prospects for higher-margin industrial water capex for next 5-7 years, according to the management, which provides long-term order inflow visibility. Further, the company is pre-qualified for the Chennai desalination project. Any favourable announcement on the Namami Gange project and a pick-up in domestic execution would also provide growth visibility.
However, not everyone is equally bullish on the company’s prospects. ICICI Securities’ Renjith Sivaram says a strong order book lends visibility. However, a third of it comprises O&M orders, which restricts near-term growth. There is improvement in receivable days, but net working capital remains stretched. “The stress on working capital continues and provision towards doubtful debtors dampens margin upside visibility in the short term. However, as ESG regulations tighten and demand for water-related projects increases, we believe the company’s long-term growth story remains intact,” he adds.
ICICI Securities maintains a hold rating on the counter with a target at Rs 365.
The Refinitiv data show just three analysts track the company. They have a median price target of Rs 415 in 12 months, a potential upside of 17 per cent from current level. The consensus EPS target for FY22 is at Rs 20.55 and for FY23 at Rs 28.95. In FY21, it was at Rs 18.83.
The stock has performed quite well in the last one year. It has clocked a return of 85 per cent. Three-year returns are, however, less than impressive at 24 per cent.
