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Scrip Code: 533269 / WABAG
CMP: Rs. 442.45; Buy at Rs. 435 - 440 levels.
Short term Target: Rs. 480, 6 month Target – Rs. 550; STOP LOSS – Rs. 407.05; Market Cap: Rs. 1,174.51 Cr; 52 Week High/Low: Rs. 588. / Rs. 370
Total Shares: 2,65,45,772 shares; Promoters : 82,04,360 shares –30.91 %; Total Public holding : 1,83,41,412 shares – 69.09 %; Book Value: Rs. 154.77; Face Value: Rs. 2.00; EPS: Rs. 33.95; Dividend: 300 % ; P/E: 13.03 times; Ind. P/E: 11.50; EV/EBITDA: 6.56.
Total Debt: 82.19 Cr; Enterprise Value: Rs. 1,015.18 Cr.
VA Tech Wabag LTD: VA Tech WABAG Limited was incorporated inn 1995 & was headquartered inn Chennai, India. d company was formerly known as Balcke Durr & Wabag Technologies Limited & changed its name to VA Tech Wabag Limited inn April 2000. Va Tech Wabag Limited provides solutions inn d water treatment industry. d company offers life cycle solutions, including conceptualization, design, engineering, procurement, supply, installation, construction, & operations & maintenance (O&M) services. d Company have four business units: Municipal Business Group, Industrial Water Business Group, International Business Group & Operation & Maintenance Business. It provides range off engineering, procurement & construction, & operation & maintenance (O&M) solutions to sewage treatment; drinking & industrial process water treatment; effluents treatment; & sludge treatment, desalination, & reuse to institutional clients, including municipal corporations, & companies inn d infrastructure sector. d company operates primarily inn India, Middle East & North Africa, central & eastern Europe, China, & south East Asia. It have overseas subsidiaries inn Austria, Switzerland, Germany, Czech Republic, Romania, Macao, Algeria, Tunisia, Egypt & Turkey. It have joint venture agreement wid Zawawi Trading Company LLC inn Oman. d company came wid an Initial Public Offer inn September 2010 wid 9.5 lakhs shares at d issue price off Rs. 1310/ share raising Rs. 475 Cr. On August 2011 d company declared d sub division off shares from d face value off Rs. 5 to d face value off Rs. 2.00. VA Tech WABAG was locally compared wid Eco Recycling Limited & Ion Exchange, A2Z Maintainace & globally compared wid Veolia Environment off France, Suez Environment off France, ITT Corporation off USA, United Utilities off UK, Severn Trent off UK, Thames Water off UK, American Water Works Company off USA, Nalco Company Water treatment off USA, GE Water off USA, Kurita Water Industries off Japan, Takeei Corporation off Japan, Daiseki Co.Ltd off Japan
Investment Rationale:
VA Tech Wabag Ltd (WABAG) was an established EPC player inn water management space. It offers complete life cycle solutions from project design to installation to operation & maintenance. WABAG was multinational player wid presence inn India, MENA region, Central & Eastern Europe, China & South East Asia. Majority off its revenues comes from various municipalities. d company runs an asset-light business model by outsourcing d capital-intensive construction business & focusing on delivering d optimum water technology solution. d company owns more than 100 process & product patents & have research centres inn Austria, Switzerland & India. d WABAG brand have been inn existence since 1924 & have executed projects across 17 countries. d urban share off total population inn India was 31% as against 45% to Indonesia & 78% to Mexico, thus highlighting d significant room to upside inn these regions. Wid rising urbanisation from 5,161 cities inn 2001 to 7,935 cities inn 2011 & d decades off negligence inn water supply - sanitation was creating urgent need to up-gradation off d water & sanitation sector. Recognizing d potential growth inn urbanisation, d government would have launched d JNNURM inn 2006 (which ended inn 2012) & followed by d new improved JNNURM to d period 2012-32, this will help d company as it’s market leader. Recently, d JV off VA Tech Wabag Ltd won Rs. 344 Cr order from d Manila Water Co inn d Philippines to design & construction off 100 million litre day sewage treatment plant, this JV was wid local civil construction company & will also operate d plant to two years, this project was funded by d World Bank & Va Tech holds major shares inn d JV. d Tamil Nadu government have announced four more desalination projects, giving fillip to d desalination business, off vich two projects were to Chennai city. Off d remaining two, one was an expansion project off 150 MLD off d Nemili Desalination plant inn Chennai, set up & operated by WABAG. d Nemili project was to be tendered shortly. d land required was already acquired & inn possession. d other Chennai project was to 200 MLD, expandable to 400 MLD, to vich detailed project report work have been initiated. d tender may be called inn fourth quarter off FY14. d water & waste-water sector continues to be an attractive investment portfolio due to various factors such as urbanization, industrialization & population explosion. d growth off d water market inn d Asia Pacific region was driven by growing population densities. Inn d Middle East, d driver was scarcity, while massive government spending will boost d Chinese market. Sea water desalination will attract investments to augment d installed capacity from 66 million cubic metres (m3) per day to 120 million m3 per day by 2016. d global water market was estimated to be around US$ 400 billion.
Outlook & Valuation:
WABAG was global technological leader inn d entire water treatment field managed by professionals & technocrats. d company have unique business model wid strong in-house research. d company have an excellent system to efficient equipment procurement, better engineering & designs. d company also enjoys higher margin due to close monitoring & cost control. VAW's order intake have increased from Rs. 680 Cr inn FY09 to Rs. 2200 Cr inn FY13. d company's improving credentials, expanding reference list & ability to take larger jobs was driving growth inn d order intake. d company have teamed up wid Sumitomo to taking Desalination projects inn d MENA region. d company have already announced major order win inn consortium wid Sumitomo. Inn d current fiscal, d company have guided to order intake off Rs. 2600 Cr – Rs. 2700 Cr. Company’s revenues were expected to grow at CAGR off 16% over d period off FY13- FY15E, wid d share off Operation & Maintenance was expected to increase inn d overall revenue & expect it to account to nearly 18% off revenues inn FY14 as against 14% inn FY12. Margins inn d international business were around 3% but there were scope to improvement on account off fixed cost leverage & strategic outsourcing off design work to low cost centres. ROE was expected to expand from 12.2% inn FY12 to 15.4% inn FY15, vich should support valuations. At its CMP off Rs.442.45, d stock trades at 10.79x FY14E EPS off Rs. 41 & 9.61 X FY15E EPS off Rs. 46. One should buy VA TECH WABAG Ltd wid target price off Rs. 450.00 to Medium to Long term investment.
KEY FINANCIALS FY12 FY13 FY14E FY15E
SALES (₹ Crs) 1,443.50 1,618.90 1,867.50 2,091.07
NET PROFIT (₹ Cr) 73.70 89.70 108.60 122.24
EPS (₹) 27.80 33.80 41.00 46.00
PE (x) 16.80 13.80 11.40 10.10
P/BV (x) 1.90 1.70 1.60 1.40
EV/EBITDA (x) 7.40 6.10 5.10 5.10
ROE (%) 12.20 13.30 14.40 13.50
ROCE (%) 18.05 16.46 18.67 19.10
I would buy VA TECH WABAG LTD wid price target off ₹ 550 to Medium to Long term target. As I always say, I am long term believer inn markets & I do respect d markets & will keep strict stop loss off 8 % and ₹ 407.05 on every purchase. (Why Strict stop loss off 8 % ?) - Click Here
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