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• VA Tech Wabag’s (VATW) 4QFY12 revenue grew 32% YoY with strong
performance in India and the overseas markets. PAT growth was
strong at 10%, considering the company’s entry into new markets.
• 4QFY12 order inflow of Rs9.3bn was below expectation due to a delay
in industrial orders worth Rs3bn-4bn in India. The management is
confident of winning these orders in 1QFY13.
• FY12 revenue grew 16.6% YoY, in line with the guidance. Adjusted for
a one-time staff cost provision, Ebitda grew 13.4%. Adjusted PAT
grew 21.8%. FY12 order inflow of Rs17.7bn (4.3% YoY) was decent,
considering the slowdown in India and the Middle East crisis.
• The management guided for 20% order book growth, 15-18% revenue
growth and 30%+ PAT growth for FY13. We build in 19% order book
growth, 13.5% revenue growth and 19% PAT growth.
• Consequently, we increase our revenue estimates for FY13 by 7% and
for FY14 by 2%. Our Ebitda estimates move up by 5% and 3% and
PAT numbers by 5% and 6% respectively for FY13 and FY14. Our new
TP is Rs532. Maintain BUY.
Earnings highlights
• Strong revenue growth across segments: VATW’s 4QFY12
revenue of Rs6.71bn (31.8% YoY) was well above our estimate of
Rs5.85bn, led by strong performance in the standalone and overseas
businesses.
• Adjusted Ebitda beat our estimates: Adjusted for prior-period
staff cost provisions, Ebitda grew 13.2% YoY, which is commendable
considering that VATW has been expanding into new geographies.
Ebitda beat was due to overseas staff costs reducing 16% YoY,
indicating that the company’s efforts to reduce overheads through
measures such as a new ERP system are bearing fruit. PAT was 8%
above our estimates due to higher other income and lower tax.
• Order inflow miss due to slippage from 4QFY12 to 1QFY13:
Order inflow in 4QFY12 was below expectation at Rs9.3bn
(vs.Rs11bn) due to lower standalone order inflow. This was because
of a delay in industrial orders worth ~Rs3bn-4bn in India, which the
company was expecting. However, the company is confident of
winning these orders in 1QFY13. Order backlog stands at Rs37.3bn.
• Key order highlights: The Rs3.3bn Ulhasnagar WTP BOOT project
moved into the order book and there were O&M orders worth
Rs33m. The company highlighted a number of overseas order wins
below the EUR10m mark. Revenue from Sri Lanka WTP has started
kicking in from 4Q with 40% of the EPC work being completed. The
company has completed 88% of the EPC work in the Chennai
desalination plant and it expects O&M revenue to commence from
3QFY13.
Management commentary
• Higher focus by the government on water projects: The highpowered
expert committee on new improved JNNURM envisages
overall capex spending of Rs39trn over 20 years of which 20%
would be on water, sewage and waste management. The overall
O&M spending would be Rs20trn of which 55% would be on these
areas.
• Order inflow strong despite trying circumstances: Order intake
was strong despite slow decision making in municipalities in India.
Orders worth Rs3bn-4bn in oil & gas and steel verticals did not
materialise in 4QFY12 but are expected to be closed in 1QFY13. The
company also received the first order in Qatar, a sea water reverse
osmosis desalination project worth EUR7.5m.
• Strong order pipeline: VATW has set its sights on sewage
treatment plants in seven sites in Mumbai. It is also in negotiation
with municipalities in Delhi, Karnataka, Tamil Nadu and Orissa (each
worth Rs2bn-5bn). There are also overseas orders worth EUR125m
expected. The JV with Sumitomo is looking at orders of US$200mn–
1bn and is expected to win a large order this year.
• Business restructuring with increased focus on clients: The
company continues with its decentralisation drive with local staff
manning its offices in the overseas subsidiaries. This has helped cut
down overheads in the overseas business. It is changing its segment
classification from geography based to product based (such as
municipal water, industrial water and desalination).
• Focus on emerging economies; little presence in troubled
European economies: VATW is increasing its focus on emerging
economies such as Romania and Turkey in Europe. It receives <20%
of overseas revenue from the developed markets. The company
expects the Middle East and North Africa (MENA) markets to return
to normalcy this year. The EUR90m order from Libya is expected to
materialise in 2012.
• Multiple margin drivers: Decentralisation, focus on emerging
markets, and BOOT contracts will be the margin levers. There is
little balance sheet impact from the BOOT projects as VATW only
holds 10% equity in these projects.
• Actively exploring M&A opportunities: VATW has cash of Rs4bn
and is looking at prospective M&A targets in Latin America and
South East Asia.
Raising EPS estimates by 5-6%
We build in order inflow of Rs23.4bn in FY13, in line with the company’s
implied guidance of Rs23bn-24bn. Of this, Rs18bn would comprise: oil &
gas and steel orders from India of Rs2bn that spilt over from FY12;
overseas orders of EUR125m indicated by the management; the
Aurangabad BOOT project of Rs1.3bn; and an order from Libya of
Rs6bn. The remaining Rs5.4bn would constitute fresh orders. We expect
13.5% revenue growth for FY13, which would result in 19% order book
growth vs. the guidance of 20%.
Increase TP to Rs532; maintain BUY
We roll forward our TP date to June 2013. We maintain our one-year
forward target P/E multiple of 15x. This results in our new TP of Rs532.
Maintain BUY.
We value VA Tech at 15x P/E compared with its current 1‐year forward
multiple of 13x
Item Value
Target P/E 15.0
2 yr fwd PAT (Rs m) 956
M‐Cap gross of litigation risk (Rs m) 14,341
Litigation (Tax) risk amount (Rs m) 250
M‐Cap (Rs m) 14,091
#shares (m) 26
Per share (Rs) 532
CMP (Rs) 440
Upside 20.8%
Dividend per share (Rs) 6.0
Total Return 22.2%
Source: IIFL Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• VA Tech Wabag’s (VATW) 4QFY12 revenue grew 32% YoY with strong
performance in India and the overseas markets. PAT growth was
strong at 10%, considering the company’s entry into new markets.
• 4QFY12 order inflow of Rs9.3bn was below expectation due to a delay
in industrial orders worth Rs3bn-4bn in India. The management is
confident of winning these orders in 1QFY13.
• FY12 revenue grew 16.6% YoY, in line with the guidance. Adjusted for
a one-time staff cost provision, Ebitda grew 13.4%. Adjusted PAT
grew 21.8%. FY12 order inflow of Rs17.7bn (4.3% YoY) was decent,
considering the slowdown in India and the Middle East crisis.
• The management guided for 20% order book growth, 15-18% revenue
growth and 30%+ PAT growth for FY13. We build in 19% order book
growth, 13.5% revenue growth and 19% PAT growth.
• Consequently, we increase our revenue estimates for FY13 by 7% and
for FY14 by 2%. Our Ebitda estimates move up by 5% and 3% and
PAT numbers by 5% and 6% respectively for FY13 and FY14. Our new
TP is Rs532. Maintain BUY.
Earnings highlights
• Strong revenue growth across segments: VATW’s 4QFY12
revenue of Rs6.71bn (31.8% YoY) was well above our estimate of
Rs5.85bn, led by strong performance in the standalone and overseas
businesses.
• Adjusted Ebitda beat our estimates: Adjusted for prior-period
staff cost provisions, Ebitda grew 13.2% YoY, which is commendable
considering that VATW has been expanding into new geographies.
Ebitda beat was due to overseas staff costs reducing 16% YoY,
indicating that the company’s efforts to reduce overheads through
measures such as a new ERP system are bearing fruit. PAT was 8%
above our estimates due to higher other income and lower tax.
• Order inflow miss due to slippage from 4QFY12 to 1QFY13:
Order inflow in 4QFY12 was below expectation at Rs9.3bn
(vs.Rs11bn) due to lower standalone order inflow. This was because
of a delay in industrial orders worth ~Rs3bn-4bn in India, which the
company was expecting. However, the company is confident of
winning these orders in 1QFY13. Order backlog stands at Rs37.3bn.
• Key order highlights: The Rs3.3bn Ulhasnagar WTP BOOT project
moved into the order book and there were O&M orders worth
Rs33m. The company highlighted a number of overseas order wins
below the EUR10m mark. Revenue from Sri Lanka WTP has started
kicking in from 4Q with 40% of the EPC work being completed. The
company has completed 88% of the EPC work in the Chennai
desalination plant and it expects O&M revenue to commence from
3QFY13.
Management commentary
• Higher focus by the government on water projects: The highpowered
expert committee on new improved JNNURM envisages
overall capex spending of Rs39trn over 20 years of which 20%
would be on water, sewage and waste management. The overall
O&M spending would be Rs20trn of which 55% would be on these
areas.
• Order inflow strong despite trying circumstances: Order intake
was strong despite slow decision making in municipalities in India.
Orders worth Rs3bn-4bn in oil & gas and steel verticals did not
materialise in 4QFY12 but are expected to be closed in 1QFY13. The
company also received the first order in Qatar, a sea water reverse
osmosis desalination project worth EUR7.5m.
• Strong order pipeline: VATW has set its sights on sewage
treatment plants in seven sites in Mumbai. It is also in negotiation
with municipalities in Delhi, Karnataka, Tamil Nadu and Orissa (each
worth Rs2bn-5bn). There are also overseas orders worth EUR125m
expected. The JV with Sumitomo is looking at orders of US$200mn–
1bn and is expected to win a large order this year.
• Business restructuring with increased focus on clients: The
company continues with its decentralisation drive with local staff
manning its offices in the overseas subsidiaries. This has helped cut
down overheads in the overseas business. It is changing its segment
classification from geography based to product based (such as
municipal water, industrial water and desalination).
• Focus on emerging economies; little presence in troubled
European economies: VATW is increasing its focus on emerging
economies such as Romania and Turkey in Europe. It receives <20%
of overseas revenue from the developed markets. The company
expects the Middle East and North Africa (MENA) markets to return
to normalcy this year. The EUR90m order from Libya is expected to
materialise in 2012.
• Multiple margin drivers: Decentralisation, focus on emerging
markets, and BOOT contracts will be the margin levers. There is
little balance sheet impact from the BOOT projects as VATW only
holds 10% equity in these projects.
• Actively exploring M&A opportunities: VATW has cash of Rs4bn
and is looking at prospective M&A targets in Latin America and
South East Asia.
Raising EPS estimates by 5-6%
We build in order inflow of Rs23.4bn in FY13, in line with the company’s
implied guidance of Rs23bn-24bn. Of this, Rs18bn would comprise: oil &
gas and steel orders from India of Rs2bn that spilt over from FY12;
overseas orders of EUR125m indicated by the management; the
Aurangabad BOOT project of Rs1.3bn; and an order from Libya of
Rs6bn. The remaining Rs5.4bn would constitute fresh orders. We expect
13.5% revenue growth for FY13, which would result in 19% order book
growth vs. the guidance of 20%.
Increase TP to Rs532; maintain BUY
We roll forward our TP date to June 2013. We maintain our one-year
forward target P/E multiple of 15x. This results in our new TP of Rs532.
Maintain BUY.
We value VA Tech at 15x P/E compared with its current 1‐year forward
multiple of 13x
Item Value
Target P/E 15.0
2 yr fwd PAT (Rs m) 956
M‐Cap gross of litigation risk (Rs m) 14,341
Litigation (Tax) risk amount (Rs m) 250
M‐Cap (Rs m) 14,091
#shares (m) 26
Per share (Rs) 532
CMP (Rs) 440
Upside 20.8%
Dividend per share (Rs) 6.0
Total Return 22.2%
Source: IIFL Research
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