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Va Tech Wabag Ltd Research Report - 01st Jun 2016

Capital Goods | Published on Jun 01st 2016


For 4QFY2016, VA Tech Wabag (Wabag) reported a 2.6% yoy decline in sales to Rs553cr, reflecting weak execution across the EPC-Municipal business. The EBITDA grew 19.2% yoy to Rs93cr while the EBITDA margin expanded by 306bp yoy to 16.8%. In-line with the EBITDA margin, the PAT margin expanded to 10.2% during the quarter vs 9.1% in 4QFY2015. International revenues declined 10.4% yoy to Rs303cr, on account of Euro depreciation and with some of the projects being at early stages of execution and therefore not contributing to revenues. A poor operating performance coupled with a higher tax rate led to losses in the international business during the quarter. The order book as of 4QFY2016-end stood at Rs8,315cr, reflecting order book / last twelve month (LTM) sales ratio of 3.3x. Valuation: Wabag trades at FY2017E/2018E P/E multiple of 22.1x/16.0x. Recently the company reported large ticket order wins from the Middle East and Asian sub-continent (worth Rs2,862cr), which tend to enjoy higher margins than orders from Europe. These order wins have now taken the order book to highs of Rs8,315cr, reflecting OB/LTM ratio at 3.3x. With better revenue visibility, we now expect Wabag to report 23.0% top-line and 45.6% bottom-line CAGR during FY2016-18E, respectively. Accordingly, we expect RoEs to expand from 9.7% in FY2016 to 15.9% in FY2018E. Given such earnings growth and RoE expansion potential, we assign 19.0x P/E multiple to our FY2018E EPS of Rs35.9 to arrive at a price target of Rs681. Given the 18.5% upside potential, we upgrade our recommendation on the stock to BUY.

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CMP 575
Target Price 681
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others16.0
Grand Total100.0

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