Buy Va Tech Wabag; target of Rs 590: Systematix Shares
Brokerage house Systematix Shares is bullish on Va Tech Wabag and has recommended buy rating on the stock with a target price of Rs 590 in its November 26, 2013 research report.
December 03, 2013 / 11:35 IST
Systematix Shares' research report on Va Tech Wabag
"Va Tech Wabag had an outstanding orderbook of Rs 5610 cr at the end of Q2FY14 which provides revenue visibility of more than 3 years. In addition the company has framework contracts worth Rs 1040 cr which will get added to the orderbook once the company receives advances for them. In H1FY14 the company has received orders worth Rs 2030 cr against Rs 870 cr received in H1FY13. The management had guided for order inflows of Rs Rs 2600-2700 cr of for FY14 which is likely to be met comfortably given the strong inflows in H1FY14.""The company expects to grow its topline by 20-25 percent per annum over the next few years. EBITDA margins which stood at 9.6 percent in FY13 are likely to enter double digits by FY15. The company has no long-term debts outstanding and it is utilizing its idle cash to reduce working capital requirement thereby reducing interest expenses. VA Tech is targeting to increase the share of annuity based O&M contracts which fetch higher margins. Also the company is looking for an acquisition in LatAm markets which would be funded entirely through internal accruals.""Apart from increasing market penetration across new countries in MENA region and SE Asia, VATW has setup a subsidiary in Spain to expand into LatAm markets, especially in the desalination segment. We believe this move complements its existing foray into other emerging markets. Having a diverse presence across countries works in the company’s favor as it can focus on other markets to generate growth, when one economy is a facing a downturn.""VA Tech Wabag, a niche player in the water treatment business, is well entrenched to benefit from the focused spending in the water, sewerage and waste management segments of urban infrastructure, driven by both government mandates as well as the need to conserve and recycle water. It consciously follows an asset-light model, focusing on design and engineering in the projects it undertakes while outsourcing the majority of its construction jobs, ensuring that the company remains cash rich. It has a strong track record and reference list in both domestic and international markets, key qualifications for the tender based municipal business, which is the main customer segment."Valuation & Outlook: "The huge potential in water desalination and water treatment projects will help the company to post robust growth going forward. Foray into new markets will help the company to diversify its risk from slowdown in any region. The stock is currently trading at 10.9x of its FY14E earnings. We believe at CMP of Rs 487 it is available at an attractive PE of 10.7x of its FY14E earnings and can be bought with a target of Rs 590 over the next 6-12 months, says Systematix Shares Research Report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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