Buy Va Tech Wabag; target of Rs 450: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on Va Tech Wabag

Consol. sales grew 3% YoY to INR6.9b (in-line). Standalone sales declined 4% YoY to INR3.4b, while subsidiary sales grew 11% YoY to INR3.5b. Consol. EBITDA rose 59% YoY to INR646m, with the margin of 9.4% (+330bp YoY) above our estimate of 7% due to a sharp jump in profitability of subsidiaries (where margin was 9.7% in 1QFY19 v/s 1.2% in the year-ago period). Margin improvement was driven by (a) better project mix and (b) higher margins in projects nearing completion (Dangote, Nigeria and Al Saad, Saudi Arabia). Recurring profit of INR364m was above our estimate of INR158m. A forex loss of INR234m was booked during the quarter, primarily relating to translation losses on MTM on loan outstanding in Turkey and Czech Republic.

Outlook

We marginally cut our estimates to build in lower orders in FY19/20 and maintain our Buy rating with a TP of INR450 (12x FY20E EPS, below its 10-year average P/E multiple of 15x given its deteriorating working capital cycle). We believe that from the medium- to long-term perspective, VATW is in a sweet spot to take advantage of a pick-up in domestic order inflows, led by state-driven municipal orders, and central government schemes.

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