Va Tech Wabag - On Track to Achieve Guidance; Result Update Q2FY15 :: Edelweiss, PDF link

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Va Tech Wabag Ltd. (VTW) has reported muted Q2FY15 results, with net sales growing by 8.9% YoY - below our estimate. The slower-than-expected growth in sales is a one-off, considering project specific execution schedule. EBITDA margins in Q2FY15 were at 6.5%, down 30bps YoY due to adverse project mix and INR 5 cr provision for delayed projects, which is likely to be recovered in the coming quarters. In H1FY15, the company added new orders worth INR 1618 cr, including framework contract of INR 828 cr, largely driven by inflows from international markets such as Turkey, Sri Lanka, Saudi Arabia, etc. Thus, the company has achieved over 50% of its annual order inflows guidance. It presently has a strong order book of INR 6906 cr (including framework contracts of INR 1666.60 cr), which is executable over the next 2-3 years. Further, there is strong order pipeline from the domestic markets of Mumbai, Chennai, etc. The company has maintained its revenue guidance of INR 2600-2700 cr (~20% YoY growth) and order intake guidance of INR 3200-3400 cr for FY15. In this quarter, the company continued to expand into different geographies by setting up new SBUs in Thailand. We believe that VTW is in a favourable position to gain from the impending revival in the domestic capex cycle and increased government focus on water and sewage sectors.

Q2FY15 sales taper off  

The company’s net sales for Q2FY15 grew at a slower pace of 8.9% YoY to INR 507 cr, due to project specific execution schedule. However, due to the strong growth recorded in Q1FY15, the revenue growth in H1FY15 was 20.5% YoY, which is in line with the company’s annual guidance. Besides, the company's revenue in H2FY15 is always much higher (approx 65% of FY) and hence H1 performance cannot be the right indicator for the full fiscal year. Sales for Q2FY15 were driven by 15% YoY growth in the international business while India business remained flattish. EPC business grew by 5.6% YoY this quarter while the O&M business expanded by 24.5% YoY and contributed 20% to quarterly revenues.

Guides for flattish margins in FY15

EBITDA margins in Q2FY15 contracted by 30bps YoY, led by an adverse project mix, INR 5 cr provision on project receivables (where payments are delayed as part of its conservative provisioning policy). However, the adjusted EBITDA grew by 5% YoY. The management has guided to achieve flattish EBITDA margins in FY15. The working capital increased to 72 days Vs normal 50 days on increased funding to sub-contractors in order to avoid delay in execution. The management aims to reduce it by FY15 end.  

Order book remains strong at INR 6906 cr; Achieves 50% order inflow guidance

VTW added new orders worth INR 1618 cr (including framework contracts of INR 1666.6 cr) in Q2FY15, largely from the international markets like Turkey, Sri Lanka, Saudi Arabia etc. Its MDU in Istanbul has secured orders worth Euro 38 mn in the O&M business - to be executed in the next two years. The company also added a framework contract for waste water treatment plant of INR 664.6 cr value. The company has total order book of INR 6906 cr (3x FY14 consolidated revenue), which includes INR 1666.6 cr of framework contracts. Approximately 67% of the orders are from the EPC business while the balance 33% orders are from the O&M business. Around 52% of the present order book is from the India operations.

FY15 guidance reaffirmed; Expects traction in H2FY15 

The VTW management has maintained FY15 guidance of INR 2600-2700 cr revenue (~20% YoY growth) and INR 3200-3400 cr new orders. The company has already achieved 50% of its order intake guidance for FY15. It is positive on the domestic market considering the new government’s focus on cleanliness and expects order intake to pick up in the latter part of FY15.

LINK

https://www.edelweiss.in/research/Va-Tech-Wabag--On-Track-to-Achieve-Guidance;-Result-Update-Q2FY15/10005164.html