Hold Va Tech Wabag: Way2Wealth

Way2Wealth has recommended hold rating on Va Tech Wabag in its November 20, 2012 research report.

“Va Tech Wabag, consolidated order backlog for H1FY13 stood @Rs.40bn - a yoy growth of 21% with major growth from the international market forming 1/3rd of its total order backlog. Order inflows stood for the first half stood @Rs.8.6bn as compared to Rs.3.8bn in its previous qtr. Cons. sales have grown by 20% with operating margins @7.4% higher by 300bps & net profit margins @3.4% higher by 255bps considering higher contribution from the O&M segment.”

“The domestic to international mix of the order book is in the ratio of 2:1 with the domestic market registering a growth of 11% whereas the international market has registered a growth of 49%. Similarly the EPC segment contributes 66% to its total backlog whereas the remaining portion comes from the O&M segment. The order backlog from the Municipal division has been to the extent of 74% & the remaining from the Industrial division. Key orders which have contributed to revenue have been from the Dambulla Municipality project–Rs.521mn, Majis Industrial services– Rs.428mn, APGENCO Rayalaseema project-Rs.309mn, RIL Dahej ETPRs. 283mn whereas the Nemmeli Desalination plant has contributed Rs.274mn.”

“Net sales for the qtr have grown by 31% of which the Indian market has delivered a flat growth yoy whereas the International market has delivered a yoy growth of +82%. Revenue contribution from the International market has been 56% while the rest coming from the Indian market with higher margins @33% as compared to the Indian counterpart with margins @22%. Adopting decentralized approach & Multi-Domestic Unit concept to increase local presence which has been implemented to focus on improving margins has started reaping benefits. Employee cost has reduced drastically from 18% to 14%yoy which has increased its operating margins from 6% to 9%yoy. With low interest & depreciation cost PAT has grown by 157% with margins up by 244bps.”

“Increased revenues from the O&M segment & from the international market would deliver a high margin contribution going ahead. At its CMP of Rs.528, the stock trades at 13x FY14E EPS of Rs.41, hereby we retain our HOLD call on the stock,” says Way2Wealth research report. 

Public holding more than 90% in Indian cos   

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