Buy VA Tech Wabag; target of Rs 230: Cholamandalam securities

Cholamandalam securities' research report on VA Tech Wabag

In 1QFY21, consolidated revenue stood at ₹4.3bn; down by 5.6%YoY. EBITDA declined 23.0% YoY to ₹289mn, while EBITDA margins came in at 6.7%, driven by pick in execution of key projects awarded in recent time. With gradual lifting of the lockdown the utilization levels have picked up, though the quantum of recovery differs across projects ranging between 70%-90% • During the quarter the company secured orders worth ₹4.4bn. Among key deal wins, the company secured $48 million contract for sewage treatment plant at New Jeddah Airport. This is a repeat order for the company in the Kingdom of Saudi Arabia secured through Saudi Services for Electro Mechanical Works Company (SSEM). The order book composition at the end of the quarter stood as EPC 69% while O&M 31%. The company is focused on increasing revenue contribution from high margin O&M business.

Outlook

Despite the working capital issues largely related to dues from APGENCO/TSGENCO, VTW has progressed well in terms of new order wins during last 12 months. We maintain a BUY rating on the stock with a revised price target of ₹230 assigning a target multiple of 7X FY22E EV/EBITDA.