Motilal Oswal initiates coverage on this 100-year water tech company: What’s powering the bullish call
Motilal Oswal has initiated coverage on this leading 100 years old water technology company with a Buy recommendation. The stock in question is VA Tech Wabag, a company that provides full solutions in the design, construction, and operation of wastewater projects. The leading domestic brokerage house has set a target of Rs 1,900 and sees as much as 28% upside over the next 12 months. Motilal Oswal believes that “large order inflows and a significant margin expansion could fuel valuation re-rating in the near to medium term.”
Motilal Oswal on VA Tech Wabag: Order book strong
One of the key reasons for Motilal Oswal’s bullish call is the Rs 13,700 crore order book. This is 4.2x FY25 revenue, as per the brokerage house and a “strong bid pipeline of up to Rs 20,000 crore provides 15-20% revenue growth visibility.”
They believe that the greater focus on executing large-scale projects in the high-margin segments (EP, O&M and Industrial) augurs well for the overall margins of the company. Additionally, the company’s outlook of strong FCF generation, net-cash status, and expansion in return ratios make VA Tech Wabag “an attractive scrip at 20x FY27 EPS,” added Motilal Oswal.
Motilal Oswal on VA Tech Wabag: Growth strategy ‘Wriddhi’ a key focus
The company had initiated a long-term comprehensive plan, ‘Wriddhi’, in FY23, in response to the ever-evolving and complex global water treatment market. This strategy focuses on advancing technological innovation and increasing global footprint. According to Motilal Oswal, the company’s outlook for the next 3-5 years under ‘Wriddhi’ is the game changer. The “order book is 3x of revenue, and the revenue growth is at 15-20% annually on a compounded basis coupled with the fact that the company is net-cash positive” are among the key factors driving Motilal Oswal’s positive call. They pointed out that the company has already achieved most of the guidance laid out in the strategy.
Motilal Oswal on VA Tech Wabag:15-20% revenue growth guidance
The other big positive, as per Motilal Oswal, is the robust revenue guidance. With a strong bid pipeline of Rs 15,000-20,000 crore, the company expects to capture orders worth Rs 6,000-7,000 crore annually. Thus, Motilal Oswal expects a revenue growth of 17% annually over FY25-FY28 on a compounded basis. This, as per the brokerage house, is in line with the company’s guidance of 15-20% CAGR.
Going forward, Motilal Oswal expects VA Tech Wabag‘s EBITDA margin to further “expand toward the higher range of its guidance of 13-15% in the coming years.” They believe that greater focus on executing large-scale projects in the high-margin segments augurs well for the company.