MOSL: VA TECH WABAG (Neutral)-Disappointing operational performance but revenue visibility robust
VA TECH WABAG: Disappointing operational performance but revenue visibility robust
(VATW IN, Mkt Cap USD0.1b, CMP INR178, TP INR195, 10% Upside, Neutral)
- performance below expectations: 2QFY20 consol. sales declined 15% YoY to INR6.4b (v/s est. INR8.3b). The sales disappointment was due to key overseas projects, such as AMAS and RAPID, getting completed, whereas Europe recorded subdued performance. Consol. EBITDA was up 23% YoY to INR615m, 13% below our est. EBITDA margin stood at 9.7% (+310bp YoY) and above our estimate of 8.5%. Margin expansion came in due to projects being in the engineering and procurement phase. PBT stood at INR363m, up 28% YoY but 14% below our est. Adj. PAT stood at INR271m, up 19% YoY and 8% below our est. 1HFY20: Revenue/EBITDA/PBT/PAT declined by 24%/14%/41%/50%. Decision on the new tax rate will be taken post 4QFY20.
- Order backlog provides robust revenue visibility: Order backlog as on date stands at INR108b (+26% YoY), with order inflow of INR2.5b (-90% YoY). VATW has also signed framework contracts worth INR6.9b, which will be converted into firm orders after receiving advance from customers. The current order backlog provides strong revenue visibility of 4.4x its TTM revenue. VATW currently has two large orders in its order book - the Namami Gange scheme worth INR11.9b and an O&M order from UPJN worth INR14.8b.
- FY20 revenue/order inflow guidance toned down further: Management has revised its FY20 revenue guidance to INR30-32b (from INR34-37b in 1QFY20) and order inflow guidance to INR45-50b (from INR50-54b in 1QFY20). This implies revenue growth of ~57% at the upper end of guidance in 2HFY20.
VA Tech Wabag Limited is a holding company engaged in water treatment field. The Company's principal activities include design, supply, installation, construction and operational management of drinking water, waste water treatment, industrial water treatment and desalination plants. The Company's segments include India and Rest of World. Its product portfolio includes water reclamation, municipal used water treatment, industrial effluent treatment, anaerobic sludge treatment, and industrial water reuse and recycling. The Company has four clusters: India, Europe, Middle East & Africa (MEA), and Latin America (LATAM). The India cluster provides end-to-end water solutions for drinking water and wastewater plants, both in the municipal and industrial sectors. The European cluster caters to small and mid-sized projects. The MEA cluster has two major regions: the Middle East and Africa. The LATAM cluster has countries, including Brazil, Chile, Colombia, Ecuador, Mexico and Peru.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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