SKP Securities is bullish on Va Tech Wabag and has recommended buy rating on the stock with a target of Rs 710 in its December 26, 2012 research report.
“VA Tech Wabag Ltd (WABAG) is an established EPC player in water management space. It offers complete water life cycle solutions from project design to installation to operation & maintenance. WABAG is multinational player with presence in India, MENA region, Central & Eastern Europe, China and South East Asia. Majority of its revenues comes from various municipalities.”
“WABAG has a strong order backlog of Rs 40.3 bn (as on Nov, 2012) from its various business segment. Order book of the company is growing at the CAGR of 19.5% for past three years. Further, WABAG has received about Rs 8.6 bn worth order during H1FY13 from its various clients. With the strong order backlog, focus on desalination and healthy reputation with its clients in place, WABAG is well positioned to cater the burgeoning demand of the industry – domestic as well as international. WABAG outsources the civil works, construction and erection works for the projects in hand to the third party contractors. This allows WABAG to expand in different geographies at a fast pace without expressive capital expenditure. Low investments in fixed assets brings down the D/E ratio of the company as the company do not have raise much longterm debt.”
“At CMP of Rs 556 the stock is trading at a P/E of 18.0x, and 15.1x for FY13E and FY14E respectively. We have valued WABAG using DCF model of valuation. We recommend BUY rating on the stock with a target price of Rs 710/- (28% upside) in 15 months,” says SKP Securities research report.
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