MOSL: VA TECH WABAG (Buy)-Operating performance below expectations
Va Tech Wabag: Operating performance below expectations; orders disappoint
(VATW IN, Mkt Cap USD0.5b, CMP INR562, TP INR700, 24% Upside, Buy)
- A miss on estimates: sales grew 20% YoY to INR8.7b, below our estimate of INR9.3b. Revenue growth was supported by a pick-up in execution of key orders like Petronas (Malaysia), Polghawela (Sri Lanka), Koyambedu (Chennai), AP Genco and AMAS (Bahrain). Standalone sales rose 21% YoY to INR4.6b, while subsidiary sales grew 20% YoY to INR4b. Consol. EBITDA fell 2% YoY to INR0.8b, with the margin of 9% (-210bp YoY) below our estimate of 10.1%. Consol. recurring profit of INR300m too was below our estimate of INR476m.
- Order backlog down for first time in six quarters; L1 in INR19b of orders: In 3QFY18, consol. order intake declined 74% YoY to INR3.2b, while order backlog fell 14% YoY at INR65.2b. VATW is L1 in INR19b of orders, of which it targets to convert 50% into orders in 4QFY18. Only one large order of INR1.3b - Toruk 4 desalination plant at Libya - was finalized during the quarter. Domestic tendering/orders are picking up for projects like Namami Ganga, Mumbai STP and the Chennai desalination plant.
- Maintains FY18 sales, order guidance: Management maintained its FY18 guidance of revenue of INR38b-40b (+25%) and order inflow of INR43b-45b (+25%). Order guidance for FY18 implies ~INR25b in 4QFY18 – of this, INR10b is from India, INR10b from GCC countries and INR3-4b from Europe.
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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