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Key Takeaways
Healthy order book provides revenue visibility; large pipeline in industrial space
VA Tech Wabag (VATW) has an order book of INR33.3b (73% domestic and 27%
international), with a BTB of 2.7x TTM revenue as at the end of 1QFY12. Key orders
include Chennai Desalination Project (INR7.4b), Water Treatment Plant and
Distribution System in Sri Lanka (INR3.6b), APGENCO of Kakatiya and Rayalaseema
BoP (INR2.9b) and IOPL Paradip Project for Total Water Management (INR2.5b).
The management sees healthy pipeline and very good level of inquires in the domestic
market, mainly in the industrial space, with the possibility of some very large orders
from private players in the medium term. The management mentioned that the
municipal sector is yet to see a pick up in orders. The international market is
experiencing a slowdown due to ongoing unrest in the MENA region. VATW has
framework orders (orders in the pipeline) of INR11.3b as of 30 June 2011, which
will be taken to firm order book once the LCs/advances are received.
Execution on track; revenue guidance for FY12 maintained
The management stated that execution is well on track. The largest project in hand,
the Chennai Desalination Project, is progressing satisfactorily and 56% of the EPC
project has been completed till now. The project is likely to be completed by the end
of 1QFY12.
Other key projects such as Sri Lanka project, APGENCO, Rayalaseema BoP, Water
Treatment Plant and Distribution System in Sri Lankla, and IOPL Paradip are also
making good progress.
Risk management remains priority; outsourcing model mitigating risk
High concentration to municipal clients (75% of order book) has escalated working
capital days. Keeping working capital low is critical in the business model. Also, top-
5 clients account for 60% of the order book, putting near-term growth at risk.
Almost 80% of the work in the value chain is outsourced to civil contractors and
electro-mechanical contractors. 30% of the work involves civil construction while
50% of the work is electro-mechanical in nature. Both of these jobs are outsourced.
The outsourcing business model mitigates the risk of non payment from customers.
Valuation and view
The stock has declined by nearly 30% since its listing in October 2010. VATW
disappointed in FY11, with revenue growing just 1%, though profit grew 36%. Though
near-term outlook appears uncertain, the company should be able to post strong
growth over 3-5 years.
The stock trades at 17x FY12E consensus EPS of INR72. We do not have a rating on
the stock. Growth in order inflows will be the key re-rating catalyst for the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Healthy order book provides revenue visibility; large pipeline in industrial space
VA Tech Wabag (VATW) has an order book of INR33.3b (73% domestic and 27%
international), with a BTB of 2.7x TTM revenue as at the end of 1QFY12. Key orders
include Chennai Desalination Project (INR7.4b), Water Treatment Plant and
Distribution System in Sri Lanka (INR3.6b), APGENCO of Kakatiya and Rayalaseema
BoP (INR2.9b) and IOPL Paradip Project for Total Water Management (INR2.5b).
The management sees healthy pipeline and very good level of inquires in the domestic
market, mainly in the industrial space, with the possibility of some very large orders
from private players in the medium term. The management mentioned that the
municipal sector is yet to see a pick up in orders. The international market is
experiencing a slowdown due to ongoing unrest in the MENA region. VATW has
framework orders (orders in the pipeline) of INR11.3b as of 30 June 2011, which
will be taken to firm order book once the LCs/advances are received.
Execution on track; revenue guidance for FY12 maintained
The management stated that execution is well on track. The largest project in hand,
the Chennai Desalination Project, is progressing satisfactorily and 56% of the EPC
project has been completed till now. The project is likely to be completed by the end
of 1QFY12.
Other key projects such as Sri Lanka project, APGENCO, Rayalaseema BoP, Water
Treatment Plant and Distribution System in Sri Lankla, and IOPL Paradip are also
making good progress.
Risk management remains priority; outsourcing model mitigating risk
High concentration to municipal clients (75% of order book) has escalated working
capital days. Keeping working capital low is critical in the business model. Also, top-
5 clients account for 60% of the order book, putting near-term growth at risk.
Almost 80% of the work in the value chain is outsourced to civil contractors and
electro-mechanical contractors. 30% of the work involves civil construction while
50% of the work is electro-mechanical in nature. Both of these jobs are outsourced.
The outsourcing business model mitigates the risk of non payment from customers.
Valuation and view
The stock has declined by nearly 30% since its listing in October 2010. VATW
disappointed in FY11, with revenue growing just 1%, though profit grew 36%. Though
near-term outlook appears uncertain, the company should be able to post strong
growth over 3-5 years.
The stock trades at 17x FY12E consensus EPS of INR72. We do not have a rating on
the stock. Growth in order inflows will be the key re-rating catalyst for the stock.
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