Va Tech Wabag - Appositely Placed; Visit Note :: Edelweiss

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

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VA Tech Wabag: Buy- Ambit

Heading for glory
Continuing momentum in India and international orders (1QFY14: up
60% YoY, 40% of FY14 guidance) supports our 20% revenue growth
and higher for earnings (over FY13-15) as EBITDA margins expand
steadily. Investor worries about international business and cash
collection will fade in FY14, as higher inflows and cost realignments
improve international profits and recovery of `1.5bn from Chennai
project improves cash flow. Present valuations of 10X FY14 eps are
non-respectful of VA Tech’s growing business momentum centered on
well-built competitiveness, cash rich balance sheet (1/4th of mcap) and
quality management. Maintain BUY and TP of `703, 13.5X FY15 eps.
Competitive position: STRONG Change to this position: STABLE
Business momentum sustaining and set to surprise: VA Tech’s order
inflows have gained momentum in 1QFY14 (up 60% YoY, 40% of FY14
guidance) on an already high order inflow base of FY13 (up 25% YoY). The
average order size of the top-10 clients increased 52% YoY in FY13,
highlighting the improving quality of order inflows. The strong order inflow in
the last 15 months would lead to 20% revenue CAGR over FY13-15.
Moreover, VA Tech could positively surprise on our above-consensus revenue
growth estimates for FY14, owing to strong order inflow.
International business (subsidiaries and IBG) concerns overblown:
According to our analysis, the international business accounts for 47% of
overall revenues. Whilst subsidiaries’ EBITDA margins (~3%) have
disappointed in the last two years, the International Business Group (IBG) has
earned the highest margins within the company, leading to a respectable EBIT
margin of 7.7% for the international business in FY13. We expect strong order
inflow in IBG and emerging subsidiaries (Philippines and Turkey) to drive 17%
revenue CAGR over FY13-15 in the international business. Also, investor
concerns on restructuring costs will fade from FY14, as the benefits of
employee restructuring and treasury operations will bear fruit from FY14 whilst
revenues from new regions increase.
Cash generation to further improve in FY14: We believe FY13 marks a
turnaround in VA Tech’s CFO profile (positive `817mn), despite increase in
Chennai project’s receivables to `1.5bn. We expect cash flow generation to
further improve from FY14, as it will receive payments for the Chennai project.
Management highlights cash collections/earnings find more focus than orders.
Our top pick in Indian E&C space given well-entrenched strengths: VA
Tech is currently trading at 10.4x FY14 consolidated EPS of `42.2, which is not
relective of its: (a) excellent technical and project management skills, (b)
capital-light business model, and (c) cash-rich balance sheet. We retain our
BUY stance and target price of `703. Key risks: Deterioration in working
capital cycle and higher-than-expected restructuring costs.

VA Tech Wabag: BUY :: Business Line

VA Tech Wabag - BUY ::Business Line

VA Tech WABAG Ltd – BUY Order pipeline remains robust ::IIFL

We hosted VA Tech Wabag (VATW) at our investor conference
in Singapore and Hong Kong recently. The management
indicated strong traction in the overseas business and
improving visibility in the standalone business with some sign
of revival in policy action in India. The company expects FY13
PAT to grow 25-30% on the back of: 1) savings of €2m-3m on
overseas overheads; 2) higher proportion of the more lucrative
O&M revenue; and 3) no spillover of prior-period variable pay
(40bps impact). We increase our Eps estimates for FY13 and
FY14 by 2.5% each. Our new TP is Rs546. We retain BUY.

VA Tech WABAG Ltd – BUY:: IIFL

Va Tech Wabag Delayed orders= lower earnings; Maintain Buy 􀂄 BofA Merrill Lynch

VA Tech WABAG Ltd – BUY: International revenue to accelerate:: IIFL

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Our meeting with VA Tech’s management suggests optimism in
the India industrial segment and indicates strong progress in
some of the overseas markets such as Turkey, Saudi Arabia
and Sri Lanka. The management targets reduction in costs in
its overseas operations by 600bps eventually by increasing
India-based support. This would enable the company to report
modest international margin improvements despite expanding
into more markets, as it has been doing. Our target P/E
multiple of 15x is in line with the increase in peer valuation.
This increases our TP to Rs491. Maintain BUY.

Company Visit- VA Tech Wabag: A 'pure' water play: JPMorgan,

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VA Tech Wabag (VATW) offers solutions for treatment of sewage,
process/drinking water, effluents and sludge as well as desalination and recycling
of water for both municipal and industrial use. The company was listed in Oct’ 10
and has underperformed by ~10% since listing.
 Indian water sector a large opportunity, but there have been underspends:
10th Plan expenditure on water sanitation was ~$12B (6.5% of total infra),
followed by $29B target in the 11th Plan which has been revised down to $23B
(5% of total infra). According to L&T there will be ~35-40% underspending in
11th Plan. ~60% of spending is State driven; and an impending crisis would
give a push for activity to pick up. While desalination might take time to
penetrate given that water in India is practically free, effluent/sewage treatment
are more mature sectors. Key players estimate a market size of $27-30B in the
12th Plan. But the market is fragmented and there are several competitors
including domestic (L&T, IVRCL, ION exchange, Driplex, Ramky Group) as
well as international (Suez, Veolia).
 Expecting a pickup in orders in 2H: VATW’s Jun-11 OB of Rs33B has a
72:28 mix between municipal and industrial and a 73:27 mix between domestic
and overseas. While the company is very optimistic on the domestic business,
albeit with a slowdown in the power sector orders, the international order
inflows particularly in the MENA region are expected to be subdued. VATW
has guided to Rs22B of orders in FY12 (up 22% yoy) but only Rs2.2B orders
being booked YTD. Management is expecting orders from domestic
municipalities and the Southeast Asian region to pickup in 2H. YTD L&T too
has not won any orders in the water sector, expecting some tenders to be bid out
in 2H. While L&T is optimistic about the size of the opportunity, it thinks the
pace of order flows has been relatively slow.
 Visit to the Chennai desalination plant indicates its largest project is well
underway: VATW won the Rs5.3B EPC order in Dec ‘09 and the plant is
expected to be commissioned on time in Jun ‘12. Most of the equipment was on
site with 56% of the EPC work and 75-80% of the civil construction complete.
VATW also has an Rs5B O&M contract spanning 7 years.
 Valuation: VATW is currently trading at 13x/10x FY12/13 consensus earnings
as compared to IVRCL at 12x/8x and international peers Veolia at 8.5x and
Suez at 12.5x/10.7x.
NOTE: THIS DOCUMENT IS INTENDED AS INFORMATION ONLY AND NOT AS A
RECOMMENDATION FOR ANY STOCK. IT CONTAINS FACTUAL INFORMATION,
OBTAINED BY THE ANALYST DURING MEETINGS WITH MANAGEMENT. J.P. MORGAN
DOES NOT COVER THIS COMPANY AND HAS NO RATING ON THE STOCK.

VA Tech Wabag: Buy ::Business Line,

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The stock of water and waste treatment solutions provider, VA Tech Wabag (VA Tech), has been beaten down by 30 per cent since July, pushing it far below its IPO issue price. Apart from declining during the recent market correction, the stock also reacted negatively after the company's management mentioned a slowdown in its overseas operations. The reaction appears overdone.

For one, 70 per cent of VA Tech's order book is tilted towards the domestic market with the rest quite diversified across geographies. The group's multi-geography presence means that it is unlikely to be badly hit by slowdown in any one region. Two, the domestic market for water and waste treatment, both in the industry and municipal segments, continues to be robust.

VA Tech's superior technical skills and tie-up with overseas players, wherever required, makes it well-placed to tap domestic opportunities. Three, VA Tech's strong cash position and low debt status, makes it a safer mid-cap bet given the market's aversion to leveraged companies.

Investors with a two-three-year perspective can consider taking limited exposure to the stock of VA Tech. At the current market price of Rs 346, the stock trades at 10.5 times its expected consolidated per share earnings for FY-13. Factoring in a slowdown in overseas operations, we expect FY-12 performance to be muted with an expected price earnings multiple of 14 times.

OVERSEAS EXPOSURE

With subsidiaries as well as branch offices in as many as 24 locations overseas, VA Tech's global revenues account for close to 40 per cent of sales. The overseas segment though, has seen a slowdown in revenue and orders recently due to the following: One, the political unrest in the MENA region as well as the slowdown in some of the European countries has meant slower order flows from those regions. Two, outstanding orders of about Rs 300 crore (9 per cent of total order book of Rs 3300 crore) in Libya also faces uncertainties on the execution front.

While a slowdown in overseas revenues may, therefore, be inevitable over the next one year or so, VA Tech appears to be taking the right steps to combat the same.

The company has been steadily shifting its order book to non-MENA regions, with Switzerland and Czech Republic contributing to a chunk of the order book.

Added to this, the company has made inroads in markets such as Sri Lanka, Philippines and Oman (joint venture), bagging key projects in each country; the Rs 360 crore water treatment and distribution system order in Sri Lanka being notable. VA Tech has also been judicious in not building too optimistic a picture of its order book. While it has not brought to book orders worth Rs 540 crore that it further bagged in Libya, it has another Rs 600 crore of domestic orders in hand. The company as a policy does not count orders unless the same are backed by advance money/letter of credit. VA Tech's Libyan projects are all insured for political and financial risks through export credit insurance in Austria (subsidiary location).

DOMESTIC DEVELOPMENTS

The slowing overseas operations have meant that VA Tech needed to look inward for opportunities. The company has been successful in mooting ideas and bagging orders for water and waste treatment projects, for which there is abundant scope especially with municipal corporations. Engineering Procurement and Construction (EPC) contracts and operation and maintenance contracts for municipalities accounted for 38 per cent and 30 per cent respectively of the domestic segment order book as of June 2011.

However, long-term development and maintenance contracts are capital-intensive. As VA Tech prefers an asset-light model, the company has an alliance agreement with Sumitomo Corporation of Japan (for equity contribution with VA Tech bringing technical qualification) to tap the capital intensive Concession business model, which would provide annuity revenues and superior margins in the long term. The companies have already signed up for two projects in Gujarat.

Lower proportion of revenue from overseas also holds the risk of hurting profit margins. Conscious of this, VA Tech has been keeping a tight rein on costs in key projects such as the Chennai desalination plant at Nemmeli. In its annual report, the company has stated that it has been able to expand margins in its Nemmeli project as a result of such monitoring. Better negotiations with vendor (ABB) for equipment costs, improved design and engineering and lower bank charges for guarantees being some of the measures that can be expected to bring margin expansion in the project.

We expect this to prospectively (56 per cent revenue already booked from the desalination project) contribute to overall EBITDA margins. The June quarter saw VA Tech's standalone EBITDA margins at around 5.5 per cent. However, EBITDA margins are expected to close at around 9 per cent for the fiscal. Revenue flows and earnings have traditionally been lumpy for the company with the second half of the fiscal accounting for a chunk of revenues and earnings expansion. Investors can, therefore, brace themselves for subdued quarterly performance in September.

For the three years ending FY-11, VA Tech's consolidated revenues expanded 26 per cent annually to Rs 1,232 crore while profits soared 76 per cent annually to Rs 52 crore. Much of the growth though, came inorganically and is unlikely to be repeatedly demonstrated.

Given its low leverage and cash-rich status, the company is once again scouting for acquisition candidates either to add new technology or markets to its basket.

VA Tech Wabag::Takeaways Motilal Oswal Annual Global Investor Conferences

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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.

Va Tech Wabag ::Re-cycling profits --Emkay

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We were joined by Mr Varadarajan, Executive Director Finance, who shared
the outlook on the industry and company.
Key highlights
n VaTech has given robust business outlook for domestic business with potential orders
in states like Tamil Nadu, Karnataka and Delhi. Also, international business is eyeing
diversification in Maldives, Phillipines, Saudi Arabia, China, Oman and Zwabi. This is
alongside good business opportunities in existing geographies of Austria, Romania,
Turkey, Switzerland, Sri Lanka, etc.
n Open to lucrative and quality BOT projects as it provides EPC and O&M work and
opportunity for upsides on equity investment- already bagged two projects in India (1)
Aurangabad, it is in JV with SPML and (2) Ulhasnagar, it is in JV with Konark Infra.
n Done alliances, partnerships and JVs to pursue growth - (1) alliance with Gammon
India and Tecpro for BOP work - Va Tech would undertake waste water treatment and
demineralization projects in BOP jobs and (2) alliance with Sumitomo Corp to bid for
BOT projects.
n Company has executable order backlog of Rs34 bn as on April 2011. This is split into
EPC jobs of Rs25 bn and O&M work of Rs9 bn. The order backlog consists of 47
projects. Further, international orders totalled at Rs10 bn in the order backlog.
n Guided for order inflows of Rs22 bn in FY12E - implies a growth of 20% yoy. Expect order
flows from all target markets i.e. industrials, municipalities and government jobs.
n FY11 performance was impacted by (1) execution delays in Sri Lanka and Libya orders
and (2) FX loss on consolidation of international operations. However, FY12E starts on
positive note with strong order backlog and visibility in execution.
n Guided for healthy revenue growth in FY12E, considering robust order backlog and
muted growth in FY10 and FY11 owing to execution delays. Key projects are witnessing
satisfactory execution i.e. Rayalseema project and Chennai Desalination. Also,
execution in Sri Lanka project has picked up in FY12E.
n Scope for Ebidta margin expansion driven by (1) cost cutting in international operations
(already brought down from Euro 22 Mn to Euro 16 Mn) (2) healthy execution,
consequently robust revenue growth expected to generate operating leverage and (3)
rising share of high margin O&M business in total revenues.
Valuations
Va Tech is currently trading at 20.0X FY11 and 17.0X consensus FY12E consolidated
earnings of Rs63.3 and Rs75.2 per share respectively. Prima facie, at current valuations
the stock appears fully priced, but considering Rs3.2 bn for cash on books and RoIC of
+45%, the stock leaves room for upside.

Allotment details for VA Tech Wabag are out

Click here for Allotment details for VA Tech Wabag

9 shares alloted for every Rs  1 Lac application by retail

you will need application number

Likely to list tomorrow (13th) or 14th

Listing date of recent IPOs

CantabilRetail: October 12th  (Tuesday) - Confirmed

Tecpro Systems: October 12th (Tuesday) - Confirmed

Sea TV Network: October 13th  (Thursday)  - tentative

AshokBuildcon: October 13th  (Thursday) or October 14th  (Wednesday)  - tentative

VA TechWabag: October 14th  (Thursday)  - tentative

tentative listing date of recent IPOs

Gallantt Ispat: October 11th (Monday) - Confirmed

CantabilRetail: October 12th  (Tuesday) - Confirmed

Tecpro Systems: October 12th (Tuesday) or 13th  (Wednesday) - tentative

AshokBuildcon: October 13th  (Wednesday)  - tentative

VA TechWabag: October 14th  (Thursday)  - tentative

Sea TV Network: October 14th  (Thursday)  - tentative

Va Tech Wabag- IPO recall news - investors have option to withdraw

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VA Tech Wabag - IPO subscription

VA TECH WABAG LIMITED

           

Total Issue Size	3128507
Total Bids Received	113301785
Total Bids Received at Cut-off Price	9998550
No. of times issue is subscribed	36.22

Sr.No.	Category	No.of shares offered/reserved	No. of shares bid for	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	1293684	46736450	36.13
1(a)	Foreign Institutional Investors (FIIs)		23794985
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)		16508790
1(c)	Mutual Funds		6421770
1(d)	Others		10905
2	Non Institutional Investors	550447	55586055	100.98
2(a)	Corporates		37359900
2(b)	Individuals (Other than RIIs)		17630660
2(c)	Others		595495
3	Retail Individual Investors (RIIs)	1284376	10979280	8.55
3(a)	Cut Off		9998550
3(b)	Price Bids		980730

Updated as on 27 September 2010 at 2030 hrs

MS Advisory and PMS: IPO Recommendations: Subscribe - VA TechWabag, Tecpro Systems

MS Advisory and PMS: IPO Recommendations

Subscribe: VA TechWabag, Tecpro Systems

May Subscribe: CantabilRetail, AshokBuildcon

Business Line: VA Tech Wabag — IPO: Invest at cut-off

VA Tech Wabag — IPO: Invest at cut-off

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Strong foothold in developing nations, sound financials and debt-free status are positives.

Business Line

Vidya Bala
Investors with a long-term perspective can consider subscribing to the initial public offer of VA Tech Wabag (VA Tech), an Indian water solutions provider with a multinational presence. Well-entrenched in the high-potential water-treatment business, strong foothold in developing nations, sound financials and debt-free status buttress our recommendation.