Buy VA Tech Wabag; target of Rs 765: ICICI Direct

ICICI Direct's research report on VA Tech Wabag

VA Tech Wabag (Wabag) reported mixed Q1FY18 numbers. The topline and bottomline came in below our estimates. However, EBITDA came in above our estimates Wabag reported revenues of Rs 668.6 crore, up 15.2% YoY (I-direct estimate: Rs 694 crore). Lower growth in topline was on account of muted execution in the domestic segment Absolute EBITDA increased 52.2% YoY to Rs 41.8 crore. EBIDTA margins came in at 6.3% vs. 4.7% in Q1FY16. Our estimates for EBITDA margins were 5.2% for the quarter. This miss in margins was on account of a decline in ‘other expenses’ during the quarter. Other expenses declined 2.5% YoY The company reported a profit of Rs 8.4 crore. We estimated PAT of Rs 13.7 crore for the quarter. Order intake for the quarter was over Rs 700 crore. The company now has an order backlog of Rs 8250 crore, including a framework orders of ~Rs 860 crore.

Outlook

We believe timely execution of overseas order and higher contribution from domestic orders will ease working capital concerns. With an improving outlook, we have pencilled in new order wins of Rs 4,500 crore and Rs 5000 crore for FY18E and FY19E, respectively. Accordingly, we value the company at 16x FY19E EPS of Rs 46.4 to arrive at a target price of Rs 765.