Hold Va Tech Wabag: Way2Wealth

Way2Wealth has recommended hold rating on Va Tech Wabag, in its May 30, 2012 research report.

“Despite poor macro environment, VTW posted strong FY12 performance with an Order backlog of Rs.37bn - yoy growth of 10% & qoq growth of 5%. Order inflow registered a flat growth @Rs.17.7bn with prominent inflows from the International market. Delivering a strong sales growth of 17% & PAT growth of 40% for FY12, the Management has guided for a 20% order book growth, 15- 18% revenue growth and 30%+ PAT growth for FY13.”

“VTW’s 4QFY12 revenue grew by 32% & for FY12 grew by 16% led by strong performance in the standalone and overseas businesses. Cost of sales & services has reduced drastically as a % of sales from 75% to 71% for FY12. Employee cost as a % of sales has reduced from 13.9% to 13% on account of reduction in its overseas staff cost. Tight control over its operating cost with implementation of new ERP system has raised its over expenditure for FY12 by17% yoy. Net interest has reduced by 30% & depreciation has reduced by 14% registering a resultant incremental PAT growth of 40%. Its Effective rate of tax has reduced from 37% to 34% translating into a sharp jump in its PAT numbers. Domestic Order inflow was affected by the slow decision making by municipalities in India. Orders worth Rs.3bn-4bn in oil & gas and steel verticals did not materialise in 4QFY12 but are expected to be closed in 1QFY13. VTW expects orders to materialize from increased capex spend from the new improved JNNURM & sewage treatment plants across 7 sites in Mumbai (Rs.50bn). It is also in negotiation with municipalities in Delhi, Karnataka, Tamil Nadu and Orissa (each worth Rs.3bn-5bn).From the international markets it is focused on emerging economies of Romania, Turkey in Europe & the MENA region.”

“With strong technical talent & business restructuring from geography based focus to product led focus, we expect FY13 to be strong in terms of order procurement from the International as well the domestic market. At its CMP of Rs.456, the stock trades at 13x FY13E EPS of Rs.35, hereby we maintain our HOLD call on the stock,” says Way2Wealth research report.   

Non-Institutions holding more than 90% in Indian cos  

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