June 02, 2016 / 07:11 PM IST
SPA Research's research report on VA Tech Wabag
VA Tech Wabag reported below than expected profitability numbers owing to muted execution in key overseas projects. Consolidated revenues declined by 5.5% YoY led by 12.3% YoY softening in overseas revenue as it declined to INR 2966 mn. Margins however improved by 103 bps YoY to 13.6%. Long term story in Wabag continues to remain intact with rising focus on clean water for drinking as well as better effluent treatment. We incorporate FY18 numbers and retain our BUY rating on the stock with a target of 781.
WABAG with presence across the value chain of water spectrum is the best play on water scarcity theme. Superior return ratios (RoCE of +19%), cash rich balance sheet, asset light business model and technological & locational advantage places it above its peers. Long term opportunity remains immense in Wabag as upcoming opportunities of over INR 700bn, alone would more than double its order backlog, even if Wabag maintains a strike rate of mere 10%. We incorporate FY18 numbers and retain our BUY rating on the stock with a target of 781 based on 22x FY18E earnings.
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